Paycheck Protection Program

As the world adjusts to the impacts of the COVID-19 outbreak it is important to take advantage of any aid that is available. As many of you are aware, the Government has implemented the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help provide aid for those impacted by the outbreak. One of the available programs is the Paycheck Protection Program (PPP) which is a forgivable, low interest loan that can be used to help cover the costs of payroll. This loan is forgivable if used for payroll and other limited qualified expenses. The application process has been streamlined, so the time required to apply is minimal. We would like to encourage our clients who qualify to pursue this opportunity as it seems to be a great lifeline. This loan is being administered through the Small Business Administration (SBA), and applications can be applied for and processed through your preferred bank.

Recommended Resources

The terms of this program have been fluid and conflicting information abounds. A participating lender we spoke to has recommended the following link – https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses – to the US Treasury as the most up-to-date source of information and a great resource. Currently the applications are for small businesses with a separate application window opening on April 10, 2020 for independent contractors and self-employed individuals. The US Treasury has provided a great information guide for potential participants of the PPP program at https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf. This document can answer questions on the application process, approved uses for the funds, what is forgivable, and the loan terms as of today. This document and the US Treasury website should be your primary sources of information, in addition to your lender.

Concerns of Fraud

Please be aware that you should only file with an approved lender that you have a relationship with or have contacted yourself. The SBA or US Treasury will not be contacting you to seek participation. There is concern that bad actors may use this opportunity to impersonate lenders or government officials to gain access to your information for the purpose of fraudulently filing for a loan or for other illegal means. The below information is current as of Friday, April 3, 2020, please rely on your lender to confirm any updates that may have occurred.

Participation Procedure

Participation has three stages: Application, Use of funds and loan forgiveness or repayment.

Application

The application process is a streamlined application which can be found at https://home.treasury.gov/system/files/136/PPP-Lender-Application-Form-Fillable.pdf. Applying involves the following steps:

1. Verify if your small business qualifies using the SBA and NAICS codes, found by linking to https://www.ecfr.gov/cgi-bin/text-idx?SID=0ff5f0839abff4eec707b4478ed733c6&mc=true&node=pt13.1.121&rgn=div5.
2. Calculate your loan amount for the application. Total your last 12 months of payroll for US based employees (cap any employee’s compensation at $100,000) and divide by 12. Then multiply this amount by 2.5 to figure out the maximum loan amount. Verify with your lender that this calculation is the approved method.
3. Provide your lender the completed application and any financial documents used in the calculation of your payroll. Payroll verification documentation may vary depending on each lender.
4. Receive approval and loan funding.

Acceptable Use of the Funds

The main purpose of the program is to encourage businesses to retain or rehire their employees. Therefore, the loan amount calculation is based on a historical payroll calculation. The funds are intended to be used for payroll expenses and related business expenses for the 8-week period following receipt of the loan. Any unapproved uses of the loan proceeds may impact what portion of the loan proceeds are forgiven. The only costs incurred during this period is the 1% interest rate stated on the application.

Forgiveness/Repayment

For repayment of the loan proceeds to be forgiven, the borrower must reapply to the lender after the 8-week period. To qualify for forgiveness, the borrower will need to prove that at least 75% of the proceeds were applied to payroll expenses. If this threshold is reached, other approved expenses may be forgiven as well. The borrower must provide documentation to the lender for review prior to the forgiveness of the funds. The forgiveness calculation also considers other factors such as the borrower’s 2019 and 2020 employee counts and payroll amounts. Please confirm with your lender for the necessary documentation requirements. Any funds not qualifying for forgiveness can be either repaid or restructured with the lender into a loan with an amortization up to 10 years and an interest rate of 4%. There is no prepayment penalty associated with this new loan. We would like to encourage you to investigate this opportunity and other opportunities the government has available under the CARES Act. If this program is appealing to you, we encourage you to apply as soon as possible. While the window for application extends through June 30, 2020, there is a cap on the available funds which may be exhausted in short order. If you would like to discuss this or any IP related concerns you have, please contact us. We are always available to provide advice and counsel for your needs.