SBA Provides Details on Paycheck Protection Program

Paycheck Protection Program Details:

  • Low-interest, potentially forgivable PPP Loans will be available through SBA lenders beginning April 3.

  • PPP model loan application is now available.

  • When 75% of PPP loan proceeds are used for payroll, and other conditions met, you may receive full forgiveness of the principal amount.

  • Funds are loaned at .5% interest with a two-year maturity; repayment deferral period is six months.

Yesterday the Small Business Administration (SBA) provided critical details regarding the Paycheck Protection Program loan program, one of the most important features of the $2 Trillion CARES Act passed by Congress and signed by President Trump last week. As we recently outlined, the CARES Act authorizes low interest loans (“PPP Loans”) for small businesses in principal amounts up to the lesser of 250% of your average monthly payroll or $10 Million, for the primary purpose of keeping employees on payroll.  Although payment of payroll costs is the overriding purpose, a PPP Loan can also be forgiven if used for interest on mortgages, rent, and utilities, and may be used for a broader range of expenses without forgiveness. One caveat is that 75% of the amount forgiven must have been used for payroll. This limitation was not expressly stated in the CARES Act, and the exact formula for meeting the 75% threshold was not provided.

In yesterday’s announcement, the SBA stated that PPP loans may be obtained through an SBA 7(a) lender or any federally insured depository institution, federally insured credit union, or Farm Credit System institution that is participating, beginning April 3.  The SBA provided a model loan application to help applicants prepare.

The SBA also set the interest rate for the PPP Loans at the extraordinarily low rate of .5% (the Act permitted interest up to 4%). Maturity on the PPP Loans has also been set at two years. The repayment deferment period of six months announced by the SBA is at the low end permitted by the Act.   The SBA reiterated the Act’s statement that no collateral or personal guarantees will be required.

In all, the SBA appears intent on moving money through SBA lenders to businesses very quickly and on terms that are unprecedented in their borrower-friendliness.  The PPP Loans could be a major benefit to companies looking to avoid worker layoffs or to start rehiring in earnest once Covid-19 subsides.

Fortis is well-positioned to provide you with guidance as you navigate this process and you are encouraged to do so by contacting Andrew Comer at acomer@fortislawpartners.com.

Other Tips:

  • If you have a Section 7(a) small business lender, we recommend that you contact them immediately about your desire to obtain a PPP loan.  Our discussions with lenders suggest they will prioritize existing customers.

  •  If you do not have a banking relationship with an SBA lender, we may be able to put you in contact with one.

  • Consultants, Law and Accounting firms may be able to act as an Agent assisting you with your application. The Agents cannot charge you a fee and are compensated by the lender. Our consulting affiliate Full Velocity may be able to assist you without charge to you. For more information, contact Andrew Comer at acomer@fortislawpartners.com

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