What is the Paycheck Protection Program?
- The Paycheck Protection Program authorizes up to $349 billion in forgivable loans for small businesses to pay their employees and meet certain covered expenses during the COVID-19 crisis.
Who can apply?
- All businesses with 500 or fewer employees can apply, including sole proprietorships, self-employed individuals, and independent contractors. Hotel and food service businesses and certain franchises with more than 500 employees may still be eligible if they have no more than 500 employees per physical location. Businesses with more than 500 employees may also be eligible if they meet applicable SBA-employee-based size standards for their industry. More information on those standards can be found at https://www.sba.gov/document/support–table-size-standards.
Do affiliates count towards the employee threshold?
- Yes, except for hotels, food service businesses, certain franchises and businesses that receive financial assistance from companies licensed under Section 301 of the Small Business Investment Act of 1958. More detailed information can be found at https://www.sba.gov/document/support–affiliation-guide-size-standards.
Do I need collateral or a personal guarantee?
Do I have to pay any fees?
When can I apply?
- Small businesses and sole proprietorships can apply starting April 3.
- Independent contractors and self-employed individuals can apply starting April 10.
Where can I apply?
- Apply through an existing SBA lender or through any participating federally insured depository institution, federally insured credit union, or Farm Credit System institution. Call your bank or find SBA-approved lenders in your area through SBA’s online Lender Match tool found at http://www.sba.gov/lendermatch.
What do I need to do to apply?
- Submit a Paycheck Protection Program loan application with the required payroll documentation to an approved lender by June 30, 2020. A sample application can be found at https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form.
What is the maximum loan amount?
- The maximum loan is 250% of your average monthly payroll over the last 12 months, up to $10 million. Payroll includes salary, wages, commissions, tips (capped at $100,000 on an annualized basis for each employee), benefits, and state and local payroll taxes.
What can I do with the loan proceeds?
- You can spend the proceeds on payroll (including benefits), interest on mortgage obligations incurred before February 15, 2020, rent on lease agreements in force before February 15, 2020, utilities for which service began before February 15, 2020, and interest on other debt obligations incurred before February 15, 2020.
How much of the loan is forgivable?
- Everything you spend on payroll, mortgage interest, rent and utilities during the 8 week period after you get the loan is forgivable. However, SBA has indicated that due to likely high subscription, it anticipates that no more than 25% of the forgiven amount may be for non-payroll costs.
- Forgivable amounts may be decreased for reductions in headcount and wages (if more than 25% for employees that made less than $100,000 annualized in 2019). However, you can avoid this decrease for headcount and wage reductions made between February 15 and April 26, 2020, as long as you rehire and restore wages by June 30, 2020.
What happens to loan principal that is not forgiven?
- It is repayable. The CARES Act capped interest at 4%, although current SBA guidance states that loans will incur interest at 0.50% fixed, payable in 2 years. All payments are deferred for 6 months.
How do I apply for forgiveness?
- Apply with the lender servicing the loan. Your application must include documentation that verifies the number of full-time equivalent employees and pay rates, as well as payments for eligible mortgage, lease and utility obligations. The lender must make a decision on the forgiveness within 60 days.
Can I apply for a Paycheck Protection Program loan if I took out a bridge loan through my state?
- Yes, but you cannot use a Paycheck Protection Program loan for the same purpose as another SBA loan.
How long does the program last?
- The program is open until June 30, 2020, but the SBA is encouraging businesses to apply as soon as possible due to the current funding cap.
If you wish to receive periodic updates on this or other topics related to the pandemic, you can be added to our COVID-19 “Special Interest” mailing list by subscribing here. For any other legal questions related to this pandemic, please contact the Firm’s COVID-19 Core Response Team at FW-SIG-COVID-19-Core-Response-Team@mayerbrown.com.