SBA Issues Interim Final Rule on PPP Loans for Nonprofits and Small Businesses
The U.S. Small Business Administration issued its Interim Final Rule on the Paycheck Protection Program (PPP), pursuant to which lenders can begin processing loan applications for small businesses and nonprofits on April 3 and for independent contractors and self-employed individuals on April 10. Some key provisions:
Loans of up to $10M will be 100% guaranteed by the SBA, and the full principal amount of the loans may qualify for loan forgiveness.
Loans are on a first-come, first-served basis with one loan per borrower. Borrowers are advised to apply for the maximum amount possible.
Eligibility: You are eligible for a PPP loan if:
You have 500 or fewer employees whose principal place of residence is in the United States, or are a business that operates in a certain industry and meets the applicable SBA employee-based size standards for that industry, and are a small business or tax-exempt nonprofit; and
You were in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.
You are also eligible for a PPP loan if you are an individual who operates under a sole proprietorship or as an independent contractor or eligible self-employed individual, and you were in operation on February 15, 2020.
Loan Amount: the amount any small business is eligible to borrow is 250% of its average monthly payroll expenses, up to a total of $10 million. This amount is intended to cover 8 weeks of payroll expenses and any additional amounts for making payments towards debt obligations. This 8 week period may be applied to any time frame between February 15, 2020 and June 30, 2020.
Terms: the interest rate will be 1%, maturity is 2 years, with a 6-month deferment on payment of principal and interest (interest will accrue during that time).
Loan Forgiveness: the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgiveable purposes and maintains employee and compensation levels. No more than 25% of loan forgiveness may be attributable to nonpayroll costs. The loan is forgiven at the end of the 8-week period after the borrower takes out the loan. Borrowers will work with lenders to verify covered expenses and the proper amount of forgiveness.
The purpose of the PPP is to help borrowers retain employees, at their current base pay. If a borrower keeps all of its employees, the SBA will forgive the entirety of the loan. If a borrower lays off employees, the forgiveness will be reduced by the percent decrease in the number of employees. If you have already laid off some employees, you can still be forgiven for the full amount of your payroll cost if you rehire your employees by June 30, 2020.
Loan purposes: at least 75% of the loan must be for payroll; the loan can also be used for group health care costs, mortgage interest (not principal), rent, utility, interest payments on debt incurred before February 15, 2020, and SBA loan refinancing. Payroll costs include employee salaries (up to an annual rate of pay of $100,000), hourly wages and cash tips, paid sick or medical leave, and group health insurance premiums. You may not use the loan for compensation of an individual whose principal place of residence is outside the US.
Lenders do not have to comply with the SBA's normal criteria but can rely on borrower certifications and specified documents to determine eligibility, qualifying loan amount, use of loan proceeds, and eligibility for loan forgiveness.
To apply, you must submit SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation to any lending institution that is approved to participate in the program through the existing SBA 7(a) lending program and additional lenders approved by the Department of Treasury. Your local Small Business Development Center can help guide you to lenders: https://www.sba.gov/tools/local-assistance/sbdc/
The U.S. Treasury Department has helpful information on the program on its site.