The Paycheck Protection Program from A to Z

To aid businesses and their employees during the coronavirus crisis, the Small Business Administration is offering loans, called Paycheck Protection Program loans, up to a specific limit to cover payroll and other costs. The PPP contains a simplified application process (some may disagree) and fewer documentation requirements as opposed to typical loans. The PPP is available through June 30, 2020. If you are considering this program, it is important to determine the details before proceeding with the process, such as qualification standards, terms and loan forgiveness.

Eligibility

Businesses with 500 or fewer employees may be eligible. This includes small businesses, sole proprietors, independent contractors, individuals self-employed,and nonprofits. There are exceptions.  These can be found on the SBA's website. There are also ineligibility rules. For example, a company will be ineligible if an owner of 20% or more of the equity is presently on probation or parole; subject to formal criminal charges; or, within the last five years, for any felony, has been convicted, pleaded guilty, pleaded nolo contendere, been placed on pretrial diversion or been placed on any form of parole or probation.

Process and Terms

A PPP loan, which the SBA classifies as a 7(a) loan, is part of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. Applicants can apply through any existing SBA lender or through any participating banking institution. Form wise, an applicant will be asked to submit SBA Form 2483 (PPP Application Form) and payroll documentation. Sample forms can be found on the SBA's website. Businesses can receive two and a half times their average monthly payroll costs (excluding compensation in excess of $100,000 per employee) incurred 12 months before the date the loan is made. Other notable terms include a maximum loan limit of $10 million, no prepayment penalty, loan payment deferral for six months and no collateral or personal guarantees are required.

Forgiveness

Loans will be forgiven if all employees are kept on the payroll for eight weeks, and the loan proceeds are used for payroll, rent, mortgage interest or utilities. However, at least 75% of the forgiven amount must have been used for payroll. In addition, to get the entire amount forgiven, employees' salaries or wages cannot be cut nor can the full-time employee headcount decline. The Treasury Department has indicated that loan forgiveness starts with the submission of a request to the lender servicing the loan. The request must include documentation verifying the retention of employees, wages and payments on eligible obligations. Additional guidance on forgiveness is expected from the SBA.  

If a borrower does not let employees go or cut pay, the PPP loan is essentially a grant from the federal government. Applicants and borrowers should frequently check the SBA's website for new guidance. The guidance released at the beginning continues to be amended, and the SBA has indicated that interested parties should continue to check back. Thus, it is important to stay up to date. If any of the requirements are not 100% clear, I suggest consulting with an attorney before seeking a PPP loan.

Matthew M. Fischer is an income partner in the Miami office of Zumpano Patricios. He can be reached at mfischer@zplaw.com.