The Payroll Protection Program and Your Small Business: Nuts-and-Bolts

Capital Building in DC

Payroll Protection Program Overview

As small businesses navigate the fluid situation created by Covid-19, we continue to focus our efforts on providing our clients and the community with up-to-date information regarding relief afforded to small businesses under the CARES Act signed into law by the President on Friday, March 27, 2020.

A program referred to as the Payroll Protection Program (PPP) constitutes a significant portion of the CARES Act. The PPP allocates $349 billion to small businesses and aims to provide those businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.

However, exactly how a small business could apply for relief under the PPP was unclear until yesterday when the U.S. Department of Treasury detailed the nuts-and-bolts process for obtaining a PPP Loan.

PPP Loan Eligibility

Beginning Friday, April 3, 2020, small businesses can apply for, and more importantly, receive same day approval of a PPP Loan through a participating SBA 7(a) lender, bank, or credit union. Eligible businesses include any business with 500 or fewer employees, or no greater than the number of employees set by the SBA as the size standard for certain industries, and includes non-profits, veterans organizations, tribal concerns, sole proprietorships, self-employed individuals, and independent contractors.

Qualifying small businesses should review the SBA’s sample PPP Application Form to better understand the information that will be requested during the application process:–paycheck-protection-program-ppp-sample application-form

For additional guidance, your best option is to work with a lawyer. This is especially true, as we recently learned that law firms can provide these services at no cost to the borrower while still receiving compensation for their assistance. While this may appear unrealistic, firms that assist borrowers in applying for these loans are directly compensated by the lender fees. This compensation structure effectively eliminates a firm’s the need to charge a borrower personally.

Loan Amounts, Repayment, and Forgiveness

Qualifying small businesses can receive a maximum loan in the amount of $10 million. Loan amounts will be determined by 8 weeks of prior average payroll plus an additional 25% of that amount.

All loans approved by the SBA will share the following common terms:

  • First payment deferred for six months
  • Interest rate of 0.5%
  • Maturity of 2 years
  • 100% guarantee by SBA
  • No collateral
  • No personal guarantees
  • No borrower or lender fees payable to SBA

Perhaps most significantly, the SBA will forgive a portion of the loan if the proceeds are used for payroll costs and other designated business operating expenses in the 8 weeks following the date of loan origination. It is currently anticipated that not more than 25% of the forgiven amount may be apportioned to non-payroll costs.

The Fine Print

While the PPP provides small businesses and their employees with unprecedented financial relief, it does require the business and each owner with an interest of 20% or greater to certify in good faith all of the below by initialingnext to each one:

_____ Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.

_____ The funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; I understand that if the funds are used for unauthorized purposes, the federal government may pursue criminal fraud charges.

_____ Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight week period following this loan will be provided to the lender.

_____ Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than twenty-five percent (25%) of the forgiven amount may be for non-payroll costs.

_____ During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under this program.

_____ I further certify that the information provided in this application and the information that I have provided in all supporting documents and forms is true and accurate. I realize that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a Federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.

_____ I acknowledge that the lender will calculate the eligible loan amount using tax documents I have submitted. I affirm that these tax documents are identical to those I submitted to the IRS. I also understand, acknowledge and agree that the Lender can share the tax information with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Additional Resources

In addition to this publication, we encourage potential lenders and borrowers alike to review the materials prepared by the U.S. Department of Treasury for further guidance:

As we have previously reminded our readers, new information is constantly becoming available. The best way to get current information is to contact us directly; our doors are closed, but we are working full time, answering calls, and checking email. Should you have further questions or concerns, please reach out. Williams Teusink will continue to monitor developments and provide updates as things change and, as we all know, they will.