Everything you need to know about the Coronavirus* small business loan.

Most small business owners and nonprofit executive directors are currently scrambling to stabilize their companies’ finances in the wake of the economic downturn inspired by the Covid-19 pandemic. Thankfully, the newly enacted ”Coronavirus Aid, Relief, and. Economic Security Act” (CARES Act) is providing financial relief to small businesses and nonprofit organizations. Notably, the Payroll Protection Program allows small companies that maintain their payroll to benefit from federally guaranteed, forgivable loan assistance.

 

The Payroll Protection Program 

The Payroll Protection Program (PPP) allocates $350 billion in forgivable loans to small businesses that maintain their payroll for at least 8 weeks following the origination of their unique loans. These funds, which may be applied for as of April 3, 2020, must be used for specific purposes in order to remain forgivable.  

Here’s what your company needs to know about the PPP:

 

Are PPP loans first-come, first-serve?

PPP funds are available to companies in the order that their applications are approved. This first-come, first-serve approach means that companies interested in this loan opportunity must act now. If demand for PPP funds exceeds the amount available, Congress will be tasked with allocating more money for this fund. Additional fund allocations are not guaranteed. Even if Congress does approve more PPP funding, that additional allocation could take months. Interested businesses should work quickly to turn in their PPP applications.

 

Are loans available now?

As of April 3, 2020, small businesses can apply for and receive loans to cover their payroll and other qualifying expenses on a first-come, first-serve basis. It is important to apply as soon as you can, as reports indicate that the available funds may not stretch to cover the demand of those businesses that wish to take advantage of the program.

 

Does my company qualify for relief?

Under the law, businesses that meet the SBA’s “small business concern” definition, as well as businesses that employ up to 500 workers, are eligible (subject to affiliation rules). For the purposes of this program, your company will calculate your total number of “employees” by adding together your full-time and part-time employees, as well as those individuals who work with you seasonally or on a temporary basis if you pay them salaries and are responsible for their payroll taxes. You must have had paid employees or contractors on your payroll prior to February 15, 2020 for your company to be eligible for a PPP loan.

 

Are independent contractors considered employees under the PPP?

When calculating your company’s total number of employees, you can count independent contractors that you do business with since February 15, 2020 for the purposes of qualifying for the loan. However, you may not use any contractor payments towards your loan calculation amount. These workers are responsible for their own employment taxes and may be approved for an independent loan under the terms of this program.

What does the application process entail?

Although a standard application form is available for all applicants, each lender will also have its own procedures in place when evaluating whether to extend a PPP loan to a particular company. To prepare for the application process, begin by gathering the last 12 months’ worth of payroll data, your 2019 tax documents, and verification of your payroll as of February 15, 2020.

 

Which banks are accepting applications?

Not all eligible lending institutions are going to be ready to participate in this program immediately. Although approximately 1,800 U.S. banks are affiliated with the SBA’s primary lending program and thousands more could potentially serve as PPP lenders, not all are able (or willing) to participate in this program right away. As of April 3, 2020, banks were waiting on finalized guidance regarding the application process and verification procedures, even as the Payroll Protection Program officially launched. Additionally, both large and small institutions have indicated that their individual PPP lending processes are still getting off the ground. Finally, others have declined to participate in the PPP due to terms that have been deemed risky or unfavorable for their bottom line. It is therefore important to turn in your company’s loan application as soon as your participating lender of choice has their process online. An attorney can help you to match with a suitable lender if you’re not set on working with a specific provider.

 

How long does it take to get funds once my company’s loan is approved?

Although PPP program administrators are hopeful that businesses will be able to apply for and receive funds during the same day, it may take a few days for businesses to receive their approved amounts. 

 

How much funding can my company request?

Your company can request up to 2.5 times your average monthly payroll costs, with a few exceptions. This amount cannot exceed $10 million.  However, lenders will likely seek a good faith certification that your company needs these funds to support your operations at this time and that you’ll use the funds for approved purposes.

 

How do I calculate the maximum loan amount my company is eligible to receive?

If none of your employees makes more than $100K annually, you’ll divide your annual aggregate payroll costs (minus any payments made to independent contractors and sole proprietors) by 12 to arrive at a monthly payroll cost average. You’ll then multiply this monthly average by 2.5 to arrive at your maximum loan amount. This relief is capped at $10 million. If any of your employees makes more than $100K annually, you’ll need to subtract their annual compensation rates that exceed $100K annually apiece from your aggregate annual payroll costs before calculating your average.

 

Are any other payroll costs ineligible for PPP loan purposes?

Payroll for non-U.S. resident workers may not count towards your loan calculation amount. Additionally, federal taxes withheld between February 15, 2020 and June 30, 2020 may also not be accounted for with PPP funds. 

 

Are Payroll Protection Program loans forgivable?

The loan is fully forgivable if used within 8 weeks of origination on payroll, family and medical leave, group healthcare benefit obligations, rent, utilities, mortgage payments, or limited additional purposes. Since the loan amount is based on your previous year’s payroll expenses, if you’ve reduced salary or headcount, part of the loan might not be forgivable unless you rehire workers (by June 30, 2020) who have been laid off or hire additional employees.

 

Can the loan be forgiven in-part?

If you reduce your payroll during the 8 weeks following your loan origination date or cut salaries below a specific threshold, part of the loan may not be forgivable. Similarly, if some of your loan funds are used for expenses not expressly allowed by the PPP, that portion of your loan will similarly not be forgivable.

 

When must I pay any portions of the loan that are not forgiven?

The maturity date on your company’s loan will be 2 years from its origination date. Companies are not required to make any payments on their loan amounts for six months after their loan has been disbursed, although interest will accrue on the loan during this time. However, the accrued interest on the loan may also be forgiven if your loan is forgiven in-full. The interest on the unforgiveable portions of your loan is capped at 1%.

 

Can Lawtrades help my company apply for relief?

Yes. If you think you could benefit from the program, an experienced lawyer on the Lawtrades team can confirm your company’s eligibility and submit your application in a timely manner. If you’re interested in learning more about the Paycheck Protection Program, schedule a free consultation here today. Additionally, if your business could benefit from an immediate $10,000 advance on an emergency injury disaster loan, debt relief for existing loans, and/or a $25,000 express bridge loan, the Lawtrades team can assist you with these options as well.