Coronavirus Aid, Relief, and Economic Security (CARES) Act: Paycheck Protection Program
April 2nd, 2020
The CARES Act was signed into law on by President Trump on Friday, March 27, 2020. While there are many key provisions aimed at providing relief for individuals and businesses impacted by the coronavirus pandemic, BGC believes that the Paycheck Protection Program (PPP) is the most important provision to your business and has to potential to provide immediate cash infusion to help small businesses weather this health crisis with major economic affects while maintaining their workforce.
The PPP is a new program with significant differences from the previously approved Economic Injury Disaster Relief (EIDL) program. Below is a summary of each type of loan available. If you have questions or need further assistance with your SBA application, please contact us.
SBA – Paycheck Protection Program
The Paycheck Protection Program (PPP) is part of “The Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) that was recently passed. The PPP provides short-term cash flow assistance to small businesses to support their employees during this time of economic distress. The PPP loans are provided by the SBA through their certified lenders guaranteed by the federal government.
- Eligibility Period
- PPP loans must be made for the period prior to June 30, 2020
- PPP Eligible Businesses
- Businesses with less than 500 employees,
- Operations as of February 15, 2020,
- Able to sign a good faith certification –
- 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 eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan;
- and during the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.
- Businesses not eligible are churches, cannabis companies, casinos, land developers, and any business involved in an illegal or prurient activity are not eligible per federal law
- Affiliation rules of limiting to one entity are waived for this loan in certain industries
- Use of PPP Loans
- The funds received under the PPP loan requirements must be for the following expenses:
- Payroll (salaries, wages, vacation, parental, family, medical, or sick leave, severance, retirement benefits, and state or local taxes)
- PPP funds cannot be used to pay salaries over $100,000
- Costs for related group health care benefits
- Employee commissions and tips
- Interest on mortgage payments (not applicable for principle portion of payments) and on additional debt incurred prior to obtaining the loan
- Rent and utilities
- Payment Forgiveness
- For the first 8 weeks from the origination date of the loan, specified funds may be forgiven when used for payrolls costs, mortgage interest, rent, and utility as described above.
- The amount of loan forgiveness cannot exceed the principle amount of the loan
- To get the full benefit of loan forgiveness, the business must keep their employees and pay at least 75% of their prior year compensation
- The amount of forgiveness will be reduced by the comparison of current year and prior year FTEs.
- Businesses must submit applicable supporting documentation to request the available loan forgiveness
- Payment Deferral
- Payments can be deferred for 6 months up to one year
- PPP Loan Terms
- Loan amounts can be as large as 250% of the business’s average monthly payroll cost over the last 12 months not to exceed $10M
- As well as salaries over $100,000 not counted in this payroll calculation
- Interest rates cap at 4%
- Terms can be up to 10 years from the origination date
- No collateral or personal guarantee
SBA – Economic Injury Disaster Loan
The Small Business Administration (SBA) has added the State of Wisconsin as an Eligible Disaster Area. This provides our small businesses the ability to apply for an SBA Disaster Loan during this time of economic injury. Below is some key information regarding this loan.
- The loans are available for small businesses, small agricultural cooperatives, small aquaculture businesses and most private non-profit organizations
- Some businesses that are not eligible are: agricultural enterprises, religious organizations, charitable organizations, casinos, racetracks, and real estate developers
- The businesses can qualify for loans up to $2 million with interest rates at 3.75% (2.75% for nonprofit organizations) with terms up to 30 years.
- The funds are to be used for working capital and not to refinance existing debt
- The SBA loan officer will determine the approved amount and loan terms upon approval of the application
- Any loans over $25,000 will require collateral
- SBA takes real estate as collateral when available
- They will not decline a loan for a lack of collateral but will require borrowers to pledge what is available
- There is no cost to apply, no obligation to take the loan if approved, and no prepayment penalty
- There is personal guarantee regardless of the amount of the loan for any owners owning more than 20%
- The borrower has the opportunity to defer payments for up to 12 months
- Interest will accrue at the beginning of the loan
- Processing time typically takes 3-4 weeks from accepted application to money in the bank
- The typical decision time is 21 days
- When the decision is made on the amount and terms, paperwork is sent to you for signature
- When the signed paperwork is received by the SBA the funds are directly deposited into your checking account typically within 2-3 business days
- If you are interested in applying, we recommend completing the applications as soon as possible. The 3-4 week turn around will likely extend in response to the size of the pipeline. You can determine at the time of approval if you’d like to accept the loan.
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