Paycheck Protection Program: Relief for Small Businesses Within the CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program, the initiative provides 100% federally guaranteed loans to small businesses.

New: See Paycheck Protection Program FAQs →

Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.

The administration soon will release more details including the list of lenders offering loans under the program. In the meantime, the U.S. Chamber of Commerce has issued this guide to help small businesses and self-employed individuals prepare to file for a loan.

 

Top Questions Small Businesses Are Asking

Here are the questions you may be asking—and what you need to know.

1) Am I eligible?
2) What will lenders be looking for? (and what lenders will *not* look for)
3) How much can I borrow?
4) Will this loan be forgiven?

Official Paycheck Protection Program Overview

Just announced on March 31, the U.S. Treasury and SBA released the final application and following overview of the Program:

Paycheck Protection Program Details

Starting Friday, April 3, small businesses in the U.S. can apply for loans through the Small Business Administration (SBA) to help stay afloat during the COVID-19 pandemic. The Paycheck Protection Program (PPP) provides loans of up to $10 million to qualified small businesses. Better still, some or all of the PPP loans will be forgiven if a business meets certain criteria.

Who Qualifies

If your business was open on or before February 15, 2020 and has 500 or fewer employees or independent contractors for whom the business paid salaries, compensation and payroll taxes, you qualify. Businesses with more than 500 employees are eligible in certain industries. One such example is the hospitality and food sectors that have multiple locations. These companies can have up to 500 employees per physical location.

Good faith certification required

In addition to the aforementioned qualification criteria, in order to participate in the PPP program a business is required to certify the following:

• That the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
• Acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments;
• That the business does not have an SBA 7(a) loan pending for the same purpose and duplicative of amounts applied for or received under a covered loan;
• During the period beginning on February 15, 2020 and ending on December 31, 2020, the business has not received amounts under the Paycheck Protection Program for the same purpose or duplicative amounts applied for or received under a covered loan.

Attractive loan provisions

This loan has very few strings attached compared to other SBA loans.

• No collateral is required.
• No personal guarantees are required.
• No up-front or back-end loan fees are applied.
• If you keep your employees on payroll, some or all of the loan is forgiven.
• The forgiven portion of the loan is NOT considered taxable.
• For the portion of the loan that is not forgiven, repayment terms are up to 10 years at not more than 4% interest.
• Initial loan payments are deferred for a period of six months to one year.
• There is no prepayment penalty.
• You can borrow up to 2.5 times your average payroll costs, excluding pay over $100,000 to any one person.

How funds are used is important

These loans are meant to help your business stay afloat during the pandemic. In addition to using the funds for payroll you can use them for:

• Health care benefits; paid sick, medical or family leave; and insurance premiums;
• payments of interest on any mortgage obligation;
• rent;
• utilities and
• interest on any other debt obligations that were incurred before the covered period.

Loan forgiveness is the key

What makes this loan unique is that if you keep your employees hired, some or all of the loan will be forgiven. There are many parts to the calculation of the forgiveness, but the primary two are employee retention and at least 75% of the forgiven loan amount must be used for payroll.

But even if you lay off employees, there are clauses that allow you to rehire those employees.

Check with the source

The rules and application of the rules is rapidly changing. So check with your bank and visit Small Business Administration paycheck program for more up-to-date information.

 

A Visual Guide to the Paycheck Protect Program

Download PDF→

Updated 4/1/20

Download PDF→

Updated 4/1/20

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