On March 31, 2020, we provided you with an initial summary of the Coronavirus Aid Relief and Economic Security (CARES) Act.
One of the centerpieces of the CARES Act was the Paycheck Protection Program (“PPP”). In the CARES Act, Congress earmarked $349 billion for loans to small businesses. By April 16, 2020, all of the $349 billion set aside in the CARES Act was depleted.
This week, Congress is taking further action, and on April 22, 2020, the Senate passed a bill that would add an additional $320 billion in potential PPP funding. The House is expected to act quickly, and the President is anticipated to sign the bill as early as the end of this week.
In light of the rapid depletion of the first round of PPP funding, it is critical that you analyze and determine whether a PPP loan is appropriate for your business. Our summary of the provisions of the Paycheck Protection Program is below – but more importantly, if you are considering a PPP loan, don’t wait – contact Patrick Kelly or Jon Coffin—or any member of the Group shown below.
Paycheck Protection Program – Summary
• Provides loans through SBA lenders to businesses with 500 employees or fewer, including nonprofit organizations and various self-employed individuals. (Certain industries with more than 500 employees may be eligible to participate).
• Loan amounts are determined by the employer’s average payroll during the past year. Some or all of the loan may be forgiven if used for approved expenses (see below), and subject to workforce retention requirements.
• Loan amounts may be up to 2.5 times the employer’s average monthly payroll costs over the prior 12 months, but no more than $10 million. (Additional amounts may be available to employers with outstanding SBA disaster loans)
• Loans have an interest rate of 1% and a 2-year maturity period.
• Deferment periods of 6 months are available on all principal, interest, and fees, with no prepayment penalties.
• Loan forgiveness is available for approved expenses incurred by the employer during the 8 weeks following receipt of the loan. These expenses include payroll (including wages, benefits, commissions and other forms of compensation up to $100,000 per employee), mortgage interest, rent, and utility payments.
• Loan forgiveness is not available for costs associated with providing newly mandated sick leave and expanded FMLA under FFCRA.
• The extent of loan forgiveness will be reduced if the employer reduces workforce expenses through salary reductions, furloughs, layoffs, or terminations. However, forgiveness reductions may be mitigated if the employer restores employees and compensation to February 15, 2020, levels by June 30, 2020.
• Employers may receive only one Paycheck Protection Program loan.
• Loans will be available through June 30, 2020, subject to available funding.
• Importantly, employers receiving loan forgiveness under this program may not participate in other economic stabilization programs available under CARES (payroll tax deferral or employee retention tax credits).