March 27, 2020
Paycheck Protection Program Loans
We have put together a list of Frequently Asked Questions that we hope will be helpful for you, based on information that is available at this time. We will continue to update you as details unfold.
While we touch on a number of the major items below, please note that this is not a definitive list of the provisions or relevant considerations. Our goal is to provide the highlights of what we believe will be most relevant. There are, of course, a myriad of special circumstances that may apply to you. Please contact us for assistance or answers to any questions you may have.
Who is eligible?
- Small businesses with 500 employees or less; however, the Act waives certain affiliation rules for businesses in the hospitality and restaurant industries which would enable a number of employees in excess of 500 in certain circumstances
- Sole-proprietors, independent contractors, and other self-employed individuals as eligible for loans
What is needed to determine eligibility? And what is the certification required?
Business must have been operational as of February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor
You will be required to make a good faith certification that (i) the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19, (ii) the loan proceeds will be used to for allowable purposes (see more on this below) including but not limited to payroll, group health benefits, rent, and utility payments, and (iii) you are not receiving duplicative funds for the same uses from another SBA program
How do you calculate the total loan amount?
- The lesser of
- the average eligible monthly “payroll” multiplied by 2.5 plus the balance of any SBA Loan that you closed between 1/31/2020 and when this loan will be made, if applicable, or
- $10 million
- Please note that “payroll” includes:
- amounts paid to employees (full-time, part-time, or other basis) for salary, wages, commissions, or similar compensation, PTO, medical leave, severance, group health benefits (including insurance premiums), retirement benefits,
- amounts paid for state or local taxes on employee compensation, and
- compensation or income to sole proprietors and independent contractors, including wages, commissions, income, and net earnings
- Also note the following conditions that apply to calculating payroll:
- For employees, contractors, and sole proprietor with individual compensation over $100,000 per year, only the first $100,000 per individual counts toward the calculation of payroll for the purposes outlined here; and
- Payments made to employees or contractors whose principal residence is outside the US will not count toward payroll either
What are the allowable uses of the loan proceeds?
Allowable uses of the loan proceeds include eligible payroll support (eligible employee salaries which excludes compensation above $100,000 in wages, paid sick or medical leave, insurance premiums per individual employee, contractor, or proprietor), interest paid on a mortgage (excludes any prepayment of or payment of principal), rent payment, interest paid on pre-existing debt obligations, and utility payments.
What more specifically are covered utilities?
According to the Act, covered utilities as they pertain to allowable uses of proceeds include what you would typically think of such as electricity, gas, water, and telephone but also internet access and transportation. It is not clear at this time whether transportation would include land, air, and/or ocean freight. We are looking into this.
What more specifically constitutes rent?
We are researching what would qualify as rent payments under the Act. Leased space for offices, distilleries, warehouses, etc. would seem typical. We are exploring whether payments on rented/leased equipment would qualify and well as payments for product storage.
What is the interest rate?
Not more than 4%
What is the term of the loan? And will there be loan forgiveness?
Yes, there will be loan forgiveness. The amount you spend according to the allowable use of proceeds during the first eight (8) weeks immediately following the loan origination will be forgiven from the loan amount. For instance, if you have a $500,000 loan and you spend $300,000 on payroll and $50,000 on rent in the first eight weeks following the loan origination, your loan balance will be reduced to $150,000.
Any amounts which are not forgiven (i.e., the remaining balance) will be a ten (10) year loan term. There will be no prepayment penalty
You’ll need to verify any payments for the allowable use of proceeds through documentation required by lenders, such as (but not limited to) IRS Payroll Expense Forms 940 and 941, mortgage statements, lease statements and utility statement
Any forgiven loan amounts will not be considered taxable income
Also, please note that the Act allows for a complete deferment of SBA 7(a) Loan payments for at least six (6) months and not more than a year
What collateral is required? Is a personal guarantee be required?
No collateral will be required. The loan is unsecured. No personal guarantee is required
Are there fees for the loan?
No, all typical SBA fees have been waived
What if employees and/or contractors have already been terminated – does the company still qualify?
Yes, the Act seeks to encourage hiring and re-hiring
What if my payroll goes through a PEO?
Consider the PEO as a pass through service provider and calculate your payroll based on what the PEO is paying on your behalf to the employees and/or contractors who are providing services for your benefit
What if I have an existing SBA loan?
You cannot apply for any other programs through the SBA for the same purpose provided for under the Act. If you have an Economic Injury Disaster Loan (EIDL) through the SBA that is unrelated to COVID-19, you are still eligible to apply under the CARES Act
If you have already received an emergency EIDL grant award up to $10,000 in connection with COVID-19, the amount of the grant award would be subtracted from the amount forgiven under the loan forgiveness provision referenced above (which is part of the Paycheck Protection Program)
How long will it take to process the application and fund my loan?
Lenders could start funding as early as the first half of next week (week of Mar 30), so we encourage you to move quickly
What should I do now? And whom should I contact regarding the loan?
The loan processing and funding will be handled via commercial banks (and some non-bank lenders). The easiest way for you to get a loan will most likely be to work through the bank with whom you have an existing banking relationship
The first thing you should do is to contact your bank or apply to our recommended provider: ttps://www.sba2020loans.com. Banks will likely be receiving the processing protocols from the SBA in the next 24 – 48 hours
You should assemble those items which the bank is likely to require – for instance:
NOTE: Reach out to us before assembling the following documents.
- Articles of Incorporation/Organization of each borrowing entity
- By Laws/Operating Agreement of each borrowing entity
- All owners Driver’s Licenses
- Payroll Expense verification documents to include:
- IRS Form 940 and 941,
- Payroll Summary Report with corresponding bank statement,
- If a Payroll Summary Report is not available, Employee Pay Stubs as of February 15, 2020 (or corresponding period) with corresponding bank statement
- Breakdown of payroll benefits (vacation, allowance for dismissal, group healthcare benefits, retirement benefits, etc.
- Certification that all employees live within the United States.