Paycheck Protection Program: What You Need To Know

April 04, 2020

To help businesses keep their workforce employed during the COVID-19 crisis, the recently enacted CARES Act established a new loan program, known as the Paycheck Protection Program, to be administered through the Small Business Administration (“SBA”) 7(a) loan program.

The Paycheck Protection Program offers significant incentives in the form of non-recourse collateral-free, guarantee-free loans to small businesses, nonprofits, and self-employed individuals to help keep employees on the payroll and cover certain other expenses (e.g. rent, mortgage interest, and utilities).

Any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), and private non-profit organizations may be eligible for the program. In certain industries, the SBA will provide these loans to businesses with more than 500 employees. The SBA has published size standards.

A few key aspects of the Paycheck Protection Program to keep in mind:

▪ The interest rate on the loan is 1.0% per annum.

▪ Payments on the loan are deferred for 6 months.

▪ The loan must be repaid in two (2) years, unless otherwise forgiven.

▪ No more than 25% of the loan may be used for non-payroll costs.

Businesses that qualify for the Paycheck Protection Program and that use the loan proceeds for permitted purposes (payroll, rent, utilities, etc.) in the eight week period after the loan is funded, will be eligible for loan forgiveness.

You can get more facts on Treasury Department’s posted fact sheet or by visiting the Treasury Department’s “Assistance for Small Businesses” page.

As guidance continues to evolve, the Treasury Department has set up a Frequently Asked Questions (“FAQ”) page on their website. This addition allows the SBA and Treasury to provide timely additional guidance to address borrower and lender questions about the PPP:

Paycheck Protection Program –  Frequently Asked Questions

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Applications are being handled through existing SBA 7(a) lenders or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once approved and enrolled in the program.

While the loan program is technically available until June 30, 2020, businesses should be consulting with their current lenders as soon as possible, as the loan application process figures to be oversubscribed based on anticipated demand levels. Your current bank and relationship banker should be able to assist in this process, while our team is helping companies evaluate if the program makes sense for them.

The PPP borrower application form is provided on the SBA website.

Farrell Fritz Can Help

Navigating the Paycheck Protection Program loan process can be challenging. Businesses need to determine their eligibility for the loan, determine the maximum amount of loan that they are eligible to receive, and determine whether their intended use of loan proceeds will qualify them for forgiveness.

Employment strategies, tax implications, and business impact all need to be considered with your professional advisors. The Farrell Fritz COVID-19 Crisis Response Team, and specifically, our PPP Group can help you put together the strategy that works for your business. For immediate assistance with evaluating the Paycheck Protection Program, please contact the COVID19response@farrellfritz.com or your Farrell Fritz relationship partner.

COVID-19 Crisis Response and Help

For additional resources, please visit the Farrell Fritz COVID-19 Crisis Response and Help page: https://www.farrellfritz.com/covid-19-update/

For other Business Resource & Recovery opportunities, please visit: https://www.farrellfritz.com/business-resources-and-recovery/

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