4/16/20: Update: As of this morning, there are no more PPP funds available.~1.5 million businesses have been approved for nearly $350 billion in forgivable loans. We expect this program will get at least another $250 billion within the next few weeks. Stay tuned for more info from Fivestars.

We previously wrote about how to apply for the Economic Injury Loans & Grants through the U.S. Small Business Administration (SBA). In addition to the $10 billion in funding for those emergency loans and grants, the CARES Act provides the SBA with an additional $350 billion to expand funding for its “SBA 7(a) loans” through a program called the Paycheck Protection Program (PPP). 

This program provides low interest “forgivable loans” to small and medium-sized businesses. The U.S. Chamber of Commerce has put together a helpful guide that outlines your eligibility requirements, loan sizes and deferments, forgivable amounts, and how you can use the funds. While we’re not in the business of giving legal or financial advice, here are some of the important questions we think small business owners should pay attention to.

What is the Paycheck Protection Program?

• The CARES Act authorizes $350 billion of federally guaranteed loans to small and medium-sized businesses through the Paycheck Protection Program
• Provides small businesses and other entities with zero-fee loans of up to $10 million through the SBA’s 7(a) loan program
• Up to 8 weeks of payroll, rent, and other costs will be forgiven if the business retains its employees and their salary levels
• Loan payments are deferred for 6 months 

Which businesses are eligible for a PPP loan under the CARES Act?

• Businesses with fewer than 500 employees (includes full-time and part-time) 
• Businesses with more than 500 employees may still qualify if the business is in the foodservice or hospitality industries and it has fewer than 500 employees at each individual locations
• Business must have been in operation on 2/15/2020
• Business must pay employees and/or independent contractors salaries and payroll taxes

How is the max loan size determined?

• Generally speaking, the max loan size is 2.5X the borrower’s average monthly payroll costs during the 1 year period prior to the loan
• Loan size can’t exceed $10 million
• Compensation of any employee in excess of an annual salary of $100,000 is excluded (this works like taxes where the first $100k pro-rated can count towards the payroll calculation)

How does the PPP loan forgiveness work?

Borrowers are eligible for loan forgiveness if they meet certain requirements around maintaining the number of employees that are employed and the salary levels of those employees (reference the U.S. Chamber of Commerce guidelines for more details on the calculation). Here’s a summarized version:

• The forgivable amount is calculated by looking at the following expenses for the 8-week period (beginning on the loan origination date):
  • Payroll
  • Rent
  • Mortgage interest
  • Utilities
  • Additional wages paid to tipped employees
• The loan forgiveness amount cannot exceed the principal
• The forgivable amount is reduced if, between 2/15/20 and 6/30/20, the company reduces the number, or salaries, of employees
• If the company reduced its workforce and/or salary/wages after 2/15/20, but rehires employees by 6/30/20, the restrictions on loan forgiveness may not apply and the PPP loan may be eligible for forgiveness

What are the terms of the PPP Loan?

• Rate is 1% fixed
• 2 year term
• Borrower and lender fees are waived
• No personal guarantee needed
• No collateral required
• Principal and interest payments are deferred for 6 months
• No recourse for non-payment unless the individual uses the loan proceeds for unauthorized purposes

How do I apply for a PPP loan?

Loans will be available to small business owners starting this Friday – 4/3/20 through an approved SBA lending partner. 

Update 4/3/20 @1130 AM ET: The SBA just published a “Find a Lender” feature on their website where you can find a local SBA approved lender.

• National banks like Bank of America, JP Morgan Chase, and Wells Fargo are approved SBA lenders, but currently (as of 4/3/20 @1130 AM ET) Bank of America is the only one taking applications. BoA is only accepting applications from customers that have had an pr-established banking and lending relationship with BoA prior as of 2/15/20
• In addition to the national banks the SBA has published a list of the 100 Most Active SBA 7(a) lenders
• Fin-tech aggregators like Fundera and Lendio have pre-established partnerships in place with multiple SBA 7 (a) lenders
• Fin-tech direct lenders like BlueVine and Kabbage may soon be approved to offer SBA loans directly

Next Steps:

• If the PPP loans are right for your business, find out if your existing bank offers “SBA 7(a) loans”
• Begin reviewing the documentation that the SBA will be requiring from their lending partners
• Begin preparing the following payroll statements which will be required documentation to get a PPP Loan:
  • Most applicants: Monthly payroll statements for all of 2019
  • Seasonal businesses: Monthly payroll statements for February – June 2019
  • New businesses: Monthly payroll statements for January – February 2020

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The information provided is for informational purposes only. Fivestars is not providing legal or financial advice, or advice on how to apply, or as to eligibility, for available programs. Should you need legal advice, you should consult your own counsel.