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SBA’s Paycheck Protection Program

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The Coronavirus Aid, Relief and Economic Security (CARES) Act outlines the federal government’s support in the wake of the coronavirus (COVID-19) and associated economic fallout, providing more robust support to both individuals and businesses. Included in the CARES Act are temporary revisions to the 7(a) Loan Program offered by the Small Business Administration (SBA), which expand the availability of such loans to certain eligible businesses. Title the Paycheck Protection Program (PPP), we have highlighted specific sections and requirements pertaining to 7(a) loans below:

SBA Releases Application Forms to obtain Loans through the Paycheck Protection Program

Under the CARES Act, as of March 31, 2020, the Federal Government is offering financial assistance to meet their obligation during this economic crisis. The SBA, who will be administering the disbursement of loans through SBA approved lenders, released the following forms for borrowers and lenders:

 

Paycheck Protection Program Description
 

CARES Act Provisions Relating to the Paycheck Protection Program

We have compiled the provisions of the CARES Act relating to the Paycheck Protection Program, here are the highlights:

  1. Is my business eligible?
  2. What is the maximum loan amount my business could qualify for?
  3. What is included in ‘payroll costs’?
  4. What can I use allocated loan dollars for?
  5. What are the borrower qualifications and are there fees?
  6. Would I be eligible for loan deferment on payments?
  7. What are the limitations on loan forgiveness?

 

Is my business eligible?

  • “Eligible businesses” are small businesses, 501(c)(3) nonprofit organizations, Tribal business concerns, 501(c)(19) veteran’s organizations, and that were in business on February 15, 2020 and either:
    • Have less than the greater of (i) 500 employees or (ii) the applicable size standard for the industry as provided by SBA.
    • Includes sole proprietors, self-employed individuals or independent contractors.


    ADDITIONALLY: Restaurants, hotels or businesses that fall within the North American Industry Classification System (NAICS) code 72, “Accommodation and Food Services,” and that have 500 or fewer employees at each of its locations, are eligible.

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What is the maximum loan amount my business could qualify for?

  • The lesser of one of the following:
    • 250% of the average monthly “payroll costs” during the one-year period ending on the date the loan is made (the measurement period).
    • $10,000,000. For new businesses, the measurement period is between January 1, 2020 to February 29, 2020.


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What is included in ‘payroll costs’?

  • Payroll costs will include any compensation with respect to employees, as follows:
    • Salary, wage, commission or similar compensation.
    • Payment of cash tip or equivalent.
    • Payment for vacation, parental, family medical or sick leave.
    • Allowance for dismissal or separation.
    • Payment required for group health care benefits, including insurance premiums.
    • Payment for any retirement benefits.
    • Payment for state or local tax assessed on the compensation.
  • Payroll costs does not include the following:
    • Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period.
    • Taxes imposed or withheld under chapters 21 (FICA), 22 (Railroad Retirement Act) or 24 (income taxes withheld at source) of the Internal Revenue Code of 1986 for the covered period.
    • Compensation of an individual whose principal place of residence is outside the USA.
    • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (PL 116-127) (FFCRA).
    • Qualified family leave wages for which a credit is allowed under section 7003 of the FFCRA.

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What can I use allocated loan dollars for?

  • Payroll costs (as defined).
  • Continuation of healthcare benefits during paid sick, medical, or family leave.
  • Mortgage interest payments.
  • Rent.
  • Utility payments.
  • Insurance premiums.
  • Interest on debt obligations incurred prior to February 15, 2020.
    .

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What are the borrower qualifications?

  • The loan is necessary due to the current economic conditions caused by COVID-19.
  • The funds will be used to retain workers and maintain payroll, lease and utility payments.

For a full list of requirements, please refer to the most current application.

No collateral or personal guarantee is required.

NOTE: A borrower that receives a covered loan under the PPP cannot also take the employee retention payroll tax credit under section 2301 of the CARES Act.

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Would I be eligible for loan deferment on payments?

  • Deferment may be available for up to six months (includes payment of principal, interest and fees).

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What are the limitations on loan forgiveness?

Borrowers can obtain tax-free loan forgiveness in an amount equal to the sum of the following expenses that are incurred during the 8 weeks after the loan is made:

  • Payroll costs (excluding compensation over $100,000/year).
  • Payment of interest on mortgage obligation.
  • Rent payments.
  • Utility payments.

The amount of the loan forgiveness cannot exceed the amount borrowed.

Loan forgiveness will be reduced proportionately in the following situations:

  • If the average number of employees per month is reduced during the 8-week covered period, as compared to, at the election of the taxpayer, either the period February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020.
  • If there is a reduction in total employee compensation during the 8-week covered period, which is in excess of 25% of the total employee compensation during the most recent full quarter (excluding employees making more than $100,000/year).

No reduction in loan forgiveness will apply if any reduction in employee headcount or salary is restored by June 30, 2020.

Payroll and expense documentation is required to receive loan forgiveness and to ensure the amount forgiven was used appropriately.

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Our team of SBA experts has a depth of knowledge working in the 7(a) program space providing business valuations for many years. Please contact us if you have any questions or concerns.

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