On March 27, 2020, President Trump signed into law The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). A significant aspect of the CARES Act for small businesses with 500 or less employees is the Paycheck Protection Program (“PPP”). The PPP had been enacted with the desired effect to authorize $349 billion in loans to be used for job retention and to pay certain other qualified business expenses. The PPP provides small businesses with funds to pay up to eight weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.

When we first reported on eligibility and benefits provided under the PPP in the third article in this series, CARES Act-Business Loans Available–COVID-19, guidance had not yet been issued from the Small Business Administration or the U.S. Department of Treasury.  However, further guidance has now been provided and is included at the U.S. Department of Treasury’s website located at Paycheck Protection Program Guidance.

PAYCHECK PROTECTION PROGRAM ELIGIBILITY AND TIMING

Small businesses with 500 or fewer employees are eligible. Nonprofit companies, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors are also eligible. Businesses with more than 500 employees are eligible in certain industries.

Starting Friday, April 3, 2020, small businesses and sole proprietorships can apply. Starting Friday, April 10, 2020, independent contractors and self-employed individuals can apply. The U.S. Department of Treasury and the Small Business Administration have each issued guidance encouraging businesses to apply as quickly as possible because there is currently a funding cap. The program is open for applications through June 30, 2020.

Businesses can apply through any existing SBA lender or through any participating federally-insured depository institution, federally-insured credit union or Farm Credit System institution. Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

PAYCHECK PROTECTION PROGRAM LOAN FORGIVENESS

Any PPP loan amounts will be forgiven as long as:

• The loan proceeds are used to cover payroll costs, as well as most mortgage interest, rent, and utility costs over the eight-week period after the loan is made; and
• Employee and compensation levels are maintained.
• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
• Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
• State and local taxes assessed on compensation; and
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

What constitutes payroll costs will require further clarification, including whether business partners can include a portion of their income as payroll, although the guidance to date seems to suggest this will be permissible up to $100,000 on an annualized basis. The guidance to date provides payroll costs include the following:

Not more than 25% of the forgiven amount may be for non-payroll costs.

Loan forgiveness will be reduced if businesses:

• Decrease their full-time employee headcount; or
• Decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.

Businesses will have until June 30, 2020 to restore all full-time employment and salary levels for any changes made between February 15, 2020 — April 26, 2020.

PAYCHECK PROTECTION PROGRAM TERMS

Loan payments for any unforgiven amounts will be deferred for six months. Any unforgiven PPP loan amounts must be repaid over a two-year period with interest accruing at the fixed rate of 0.50% per annum. (These terms have been modified from the original provisions of the CARES Act which called for an interest rate of 4% per annum and loan amortization of ten years.) From additional discussions with lenders, there seems to be some sentiment that these loan terms for any unforgiven amounts may be further modified prior to funding of any loans.  No collateral is required. No personal guarantees are required.

STARTING THE PROCESS

Businesses interested in this program should contact their banks, certified public accountants, and attorneys for further guidance and in order to start this process.  Authorized lenders will guide businesses through the loan application process and provide further guidance for making application. The current Paycheck Protection Program Application is attached HERE. We have also included the Paycheck Protection Program (PPP) Information Sheet: Borrowers implemented by the Small Business Administration with support from the Department of Treasury HERE.

During these trying and vexing times the Paycheck Protection Program offers promise and hope for America’s future. We will fight this pandemic. It is refreshing to see all sides come together to act quickly towards a solution to preserve and save jobs. We at Riley Bennett Egloff LLP are always ready, willing, and available to help our business clients persevere, survive, and succeed. For further guidance and assistance, do not hesitate to contact your trusted advisors at Riley Bennett Egloff LLP.

© Riley Bennett Egloff LLP

Disclaimer: Article is made available for educational purposes only and is not intended as legal advice. If you have questions about any matters in this article, please contact the author directly.

Permissions: You are permitted to reproduce this material itn any format, provided that you do not alter the content in any way and do not charge a fee beyond the cost of reproduction. Please include the following statement on any distributed copy:  “By Anthony R. Jost© Riley Bennett Egloff LLP – Indianapolis, Indiana. www.rbelaw.com”

Posted on Apr, 02 2020 by Anthony R. Jost