SBA PAYROLL PROTECTION PROGRAM

The U.S. federal government has initiated many programs to help ease the economic injury on small businesses caused by the outbreak of the coronavirus. One of these programs is the Paycheck Protection Program (PPP) and is aimed at helping businesses maintain their payrolls during this crisis. A notable benefit of this program is that portions of the loan may be forgiven if businesses are able to avoid layoffs or reductions in payroll. Small businesses can apply for this program with any existing SBA 7(a) lender starting tomorrow, April 3, 2020. The loan can be used to cover payroll, rent, mortgage interest, and utilities.

Who can apply?

Any small business with less than 500 employees can apply for a loan under the PPP. To qualify as a small business, certain size standards must be met. These are available at: https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf. Generally, general contractors will qualify if they do less than $39.5 million in work per year, and subcontractors will qualify if they do less than $16.5 million per year. There are very specific accounting methods used to calculate these size standards, so it is advised to seek accounting or legal advice on whether your business qualifies.

How big of a loan can I get?

             If your business qualifies, you can receive a maximum of 2.5 times your average monthly payroll costs up to $10 million. Your average payroll costs are calculated by averaging the monthly payroll costs incurred during the prior year. Payroll costs include any compensation with respect to employees that is paid throughout the course of a month. This includes: salaries, wages, commission, paid leave, retirement benefits, health care benefits and insurance premiums, and taxes assessed on the employee’s compensation. However, certain payroll costs are excluded for purposes of this program. These include compensation in excess of an annual salary of $100,000 per employee, payroll and income taxes, and any sick or family leave paid under the Families First Coronavirus Response Act.

What are the terms of the loan?

             The interest rate is fixed at .50% and is for a length of 2 years beginning 6 months after receiving the loan. No collateral is required and the loan can be repaid early without any penalties. Though, there is potential to have a portion of the loan forgiven.

What portion of the loan will be forgiven?

             The amount used on the following payments made in the 8 weeks following the start of the loan can be forgiven:

·      Payroll costs

·      Mortgage interest

·      Rent

·      Utility payments (including internet)

It should be noted that the amount forgiven will be reduced if you lay off employees or reduce their wages by over 25%.

How do I apply?

You can apply online here: https://www.sba.help/paycheck-protection. To see what information is required, you can view a sample application here: https://www.sba.gov/sites/default/files/2020-03/Borrower%20Paycheck%20Protection%20Program%20Application_0.pdf. You can find SBA 7(a) approved lenders here: https://www.sba7a.loans/finding-an-sba-7a-lender.

As part of the application, you will need to certify that:

1.     The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations

2.     The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments

3.     Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here

4.     From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)

If your business qualifies, it is recommended to apply as soon as possible since loans will likely be issued on a first-come, first-serve basis. Additionally, you should note that any incorrect information provided in the application can lead to criminal penalties, so it is best to seek professional legal or accounting advice if you are unsure of the information you provide.