Covid-19 Stimulus Legislation & The Paycheck Protection Program

On March 27, 2020 the US Government passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in response to the COVID-19 Pandemic. This act includes an emergency small business loans provision called the Paycheck Protection Program (“PPP”). The Small Business Administration (“SBA”) will allocate $349 Billion of 100% federally guaranteed loans to fund the PPP through existing SBA lenders.
Eligible lenders are listed on the SBA’s website.

ELIGIBLE BUSINESSES

Qualifying businesses include:
  • Any business qualifying as a “Small Business Concern” under the Small Business Act.
  • Any businesses employing not greater than 500 employees (full-time, part-time, or other).
  • Any business included within NAICS code 72 “Accommodation and Food Services” with not greater than 500 employees at each location (as opposed in total).
Additional notes:
  • Sole proprietors, independent contractors, gig economy workers, and self-employed individuals are eligible.
  • Independently owned franchises who are approved by the SBA are eligible as affiliation rules have been loosened (assuming they meet the above criteria).

FUNDING AVAILABLE & PRINCIPAL FORGIVENESS

Amount of funding available:
  • Maximum per business is equal to 2.5x average monthly payroll expense (subject to certain limitations).
  • OR $10 million, whichever is lowest.
Principal forgiveness:
Borrower is eligible for principal forgiveness for spending on the following items during the 8-week period following the loan origination:
  • Payroll/benefits costs, including additional wages given to tipped employees
  • Mortgage interest payments (excludes prepayments)
  • Rent
  • Utilities
  • Not more than 25% of forgiven principal shall be for non-payroll costs
Principal forgiveness on the following items is reduced by:
  • Reducing the number of employees.
  • Reducing employee wages by greater than 25%.
  • Principal forgiveness shall not be reduced if the business eliminates the reduction in employees or employee wages by June 30, 2020.

LOAN STRUCTURE & TIMELINES

Loan structure:
  • Interest is 1.0% fixed rate.
  • Maximum term is 2 years.
  • Principal and interest payments are deferred for 6 months post-origination, with interest accruing over this period.
  • No collateral is required.
  • No personal guarantee is required.
Other notes:
  • Starting April 3, 2020, small businesses and sole proprietorships can apply.
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply.
  • Application deadline is June 30, 2020.
  • Other EIDL loans already received related to COVID-19 can be refinanced into the PPP for purposes of forgiveness.

Download the current CARES guidelines here.

These guidelines are published by the U.S. Chamber of Commerce. The guidelines are subject to change.