The CARES Act created the Paycheck Protection Program (“PPP”), authorizing up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis; on April 23rd, Congress approved an additional $320 billion in PPP financing. 

In June 2020, the Congress approved the Paycheck Protection Program Flexibility Act (“PPPFA”), which made several key changes to the program - as noted below.  On July 4, the deadline to apply for a PPP loan was extended until August 8, 2020.

Terms & Eligibility

  1. How much can I borrow

A: You can borrow up to 2.5x average monthly payroll (see “Payroll Calculation”), below)

  1. Who can apply

A: Any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by coronavirus/COVID-19. 

Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.  Small businesses in the hospitality and food industry with more than one location could also be eligible at the store and location level if the store employs less than 500 workers. This means each store location could be eligible.

  1. Can I apply to the PPP if I have an existing SBA loan

A: Yes.  Unlike other SBA loans, the PPP is based on payroll spending, rather than on collateral or credit quality.

If you have an existing SBA loan, be sure to check with your lender for inclusion under the Debt Relief program, under which the SBA will cover interest, principal payments and fees on new and existing 7(A) loans for six months

  1. Can I apply to the PPP and other programs

A: Yes, you can apply to multiple SBA programs - as well as city or state programs, grants, etc. for which you are eligible.  Applicants are advised to be aware of the terms and conditions of all programs to which they apply

If applying to both the SBA’s EIDL and PPP program, please note that applicants will be asked to demonstrate different use of funds for each loan (for example, both should not be requested to meet the same payroll)

  1. What are the terms

A: Loan amounts not forgiven (see “Forgiveness”, below) will be charged 1% interest.  Payments are deferred for at least eight months - until the forgiveness amount is finalized.  The maturity for loans on PPPs issued after passage of the PPPFA is five years; those issued earlier were originally set at two years, but the legislation allows for - and borrowers may want to negotiate - a longer maturity. 

  1. How long is payment deferred

A: Payments due on PPP amounts not forgiven are deferred until the lender receives payment of the forgiven amount, which can take up to 5 months from the date the forgiveness application is submitted to the lender.   (See “How does my business apply for forgiveness”, below)

Application Process

  1. When can I apply

A: Applicants must apply by August 8, 2020

  1. How do I apply

A: You can apply through any existing SBA 7(a) lender, which includes banks, credit unions and Community Development Financial Institutions (CDFIs).  Check with your bank or lender for application details, or use the SBA’s find a lender site.

  1. My bank isn’t accepting applications

A: Not all lenders are accepting applications and those that are may impose restrictions.  We advise clients to check with your bank or banks first.  Additionally,  local or community banks may be accepting applications. 

The SBA’s “Find a Lender” provides a list of other organizations accepting applications in your area (restrictions may apply).

Online lenders and platforms are also accepting or facilitating PPP applications.  Refer to the Score website for additional information and listing of online alternatives

  1. What counts as payroll

A: Payroll costs consist of salary, commissions, cash tips or the equivalent, taxes and benefits.

Benefits include payment for vacation, parental, family, medical, or sick leave (other than leave covered by the FFCRA); allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement.

  1. What if I don’t have employees

A: Owner-operators, independent contractors and sole proprietors can reflect Schedule C business income or partnership self-employment income

  1. Does partnership income count as salary

A: Only Schedule C Business income or partner’s self-employment income may be included; passive partnership earnings from a K-1 do not qualify

Forgiveness and Tracking

  1. Is forgiveness automatic

Applicants will need to apply to the lender servicing their PPP loan as described below, and will be required to provide spending, payroll and headcount documentation.  Businesses that meet certain criteria are able to file a shorter, Form-EZ application (see Q.15, below)

We recommend that borrowers a) segregate PPP funds and disbursements b) begin tracking PPP spending and forgiveness and c) maintain careful records

  1. How does my business apply for forgiveness

A: The borrower submits a forgiveness application or Form-EZ application to its lender.  (Note: lenders may have their own version of the application, but all will rely on the schedules and data included in the standard SBA application.)

The lender has 60 days from receipt of a complete application to issue a decision to the SBA. The SBA will review the application and remit the appropriate forgiveness amount to the lender, plus any interest accrued within 90 days.  If applicable, SBA will deduct EIDL Advance from the remitted forgiveness amount

  1. What is the short-form application

A: A simplified 3-page Form-EZ application has been created for businesses that meet one of the following criteria:

  • No employees (sole proprietorship, independent contractors, self-employed individuals)
  • Have not reduced headcount (measured as full-time equivalency or “FTE”) and have not cut salaries or hourly wages by more than 25%
  • Were unable to maintain FTE based on HHS, CDC or OSHA directives and have not cut salaries or hourly wages by more than 25%
  1. How is forgiveness calculated

A: Forgiveness is based upon the extent to which borrowers:

  • Spend the PPP funds on payroll, rent, mortgage interest, or utilities within 24 weeks of receipt.  At least 60% must be spent on payroll
  • Do not cut salary or hourly wage levels by more than 25%
  • Retain or are able to restore headcount to pre-crisis levels - or can show that they were unable to do so due to compliance with governmental directives
  1. How has this changed

A: The PPPFA made several key changes to the original PPP, including:

  • Allowing the funds to be spent over 24 weeks, up from 8 (although recipients of PPP loans prior to June 5 can choose an 8-week period, if they prefer)
  • Requiring that 60% of funds be spent on payroll, down from 75%
  • Delaying the date by which salaries and headcount can be restored without penalty to forgiveness from June 30 to December 31
  • Extending the maturity of loans based on PPPs issued after the PPPFA to five years, and removing restrictions on allowing those made earlier to have maturities longer than two years
  • Extending the deferral period until forgiveness funds are remitted by the SBA.  This ensures that borrowers will not be charged interest for amounts ultimately forgiven
  • Businesses that meet certain criteria are eligible to apply using the shorter, Form-EZ application described above
  1. What if I don’t meet all the forgiveness criteria

A: Even recipients who may not be able to spend the full amounts as planned in the given period and thus may not be able to have the full amount forgiven may wish to consider the PPP a low-cost form of financing

  1. What if I can’t afford to keep my staff on payroll for full period

A: You have until December 31, 2020 to restore your full-time employment and salary levels for any changes made after February 15.  In addition, forgiveness will not be reduced for businesses that could not operate at pre-crisis levels due to compliance with governmental directives

  1. I was unable to maintain staffing because my business was closed or impaired due to COVID-19

A: The Borrower is exempt from the reduction in loan forgiveness based on FTE if the borrower is able to document that it was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with HHS, CDC or OSHA requirements or guidance issued between March 1, 2020 and December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19

  1. Are there any other exceptions to the headcount requirement

A: The Borrower is exempt from the reduction in loan forgiveness based on FTE:

  • If they made a written offer to rehire an individual or restore lost hours and have a written refusal
  • An employee was fired for cause, voluntarily resigned or voluntarily requested a reduction in hours
  1. How does an EIDL advance affect PPP forgiveness

A: Proceeds from any advance up to US$10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.