Paycheck Protection Program

The Paycheck Protection Program is an SBA program that is part of the CARES Act just signed into law, Friday March 27th, by President Trump. Now that the law is in effect surely the SBA is hard at work with the development of the policies and regulations that will guide the program. All the specifics and details of the program will be determined by the final regulations and guidance issued by SBA.

Here is what we understand about the Paycheck Protection Program (aka SBA PPP):

  • Eligible entities include for-profit businesses and non-profit organizations with 500 employees or less.
    • SBA will provide further guidance on any specifically ineligible industries.
  • The maximum loan amount will be determined by calculating an average monthly payroll cost over the trailing twelve months and multiplying that amount by 250% up to a $10,000,000 maximum.
    • For purposes of this calculation, eligible payroll costs will not include compensation of any individual employee over $100,000.
  • Proceeds of the loan can be used for payroll related costs, payments of interest on debts/mortgages, rent, or utilities.
  • Loans will be offered non-recourse unless the proceeds are used for purposes not authorized.
  • No personal guarantees required.
  • No collateral required.
  • Borrowers will be required to certify:
    • The uncertain economic conditions make necessary the loan to support ongoing operations.
    • The proceeds will be used for the purposes discussed above.
    • The recipient does not have an application and has not received another loan for the same purpose or duplicative amounts.
  • No SBA guarantee fees will be charged.
  • Interest rate on the loan will be 4%.
  • No prepayment penalty.
  • Payments on the SBA PPP loan will be deferred for a minimum of 6 months.
  • Borrower may obtain both an SBA PPP Loan and an SBA Disaster Loan if they are for different purposes.
  • Loan Forgiveness – Borrowers will be eligible for forgiveness of all or a portion of the SBA PPP under the following guidelines.
    • Forgiveness will be calculated by the sum of eligible expenses incurred over an 8-week period following the origination of the loan. Eligible expenses include – payroll related costs, interest on debt/mortgage payments, rent, utilities.
    • The amount of forgiveness can be reduced in the event average number of employees or salaries are reduced over the measurement period (multiple final definition pending).
    • Any balance remaining after the forgiveness will become a 10 year fully amortizing loan

Impact to existing SBA Loans:

  • The SBA will be making the next 6 months of regularly scheduled payments on all existing SBA Loans (7a and 504). For loans that are currently on deferral, SBA will make the 6 regularly scheduled payments after the deferral period.

An overwhelming response is expected when the program is available so anything that can be done to be ahead of the curve should be. Since the corresponding SBA regulation under the Paycheck Protection Program hasn’t been finalized, we don’t know the exact information required or final requirements. However, to be better prepared, being able to quickly obtain and furnish the information normally required for an SBA Loan, less anything that appears to be removed by the statute (primarily information related to the personal guarantee), will be of great advantage. Following is a checklist of information required to get started:

  • 2019, 2018, and 2017 Business Federal Income Tax Returns (complete copies)
    • If 2019 Business Tax Returns are not available, provide a 12/31/2019 Balance Sheet and Profit & Loss and a 2016 Business Tax Return
  • Trailing 12-month Profit & Loss Statement
    • Include a report for all General Ledger associated entries that relate to payroll. For the purpose of this SBA Loan, the following items are considered part of payroll – Salaries, Wages, Commissions, Vacation Pay, Parental Leave, Family Leave, Sick Leave, Allowance for Dismissal/Separation (Severance Agreement), Group Health Care Payments/Premiums, Retirement Benefits, State & Local Tax assessed on Compensation
    • Include a payroll report detailing the trailing twelve months compensation for each employee

Now that the legislation is approved, we anticipate the SBA will work expeditiously to finalize regulations and requirements to access the funding. We have calls schedule for the early and middle parts of the week with several SBA preferred lenders so that we can continue to keep on the cutting edge.

Of extreme importance, these loans will be processed through “regular” banks, not the SBA directly and it is standard procedure for the banks to process the loans in the order in which completed applications are received. Underwriting and closing requirements will be issued in the final SBA regulations and guidance at which time the banks can better set expectations for the approval and funding of SBA PPP loans.

The point of providing this information is to enable you, our clients, to be prepared and “first in line”.