The Paycheck Protection Program offers relief to small Businesses
One of the significant features of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act enacted on Friday, March 27, 2020 is the $349 billion in relief set aside for small businesses through the Paycheck Protection Program (“PPP”)
The PPP is specifically designed to provide forgivable loans to small businesses to help them deal with the economic impact of COVID-19 and to encourage these businesses to keep their employees on the payroll. The loans are administered by the Small Business Administration (“SBA”).
Frequently Asked Questions
- Who is eligible for the PPP?
- In general, the program is open to employers with 500 employees or fewer.
- Eligible small businesses include sole-proprietors, independent contractors, and other self-employed individuals.
- What are the terms of the potential loans?
- The loan may be as large as 2.5 times (250%) an employer’s average monthly payroll for March to June 2019, with a limit of $10 million. Eligible payroll expenses include salaries and employee benefits, such as health insurance premiums, retirement contributions, and paid leave.
- Personal guarantees and/or a pledge of collateral are not required.
- Interest on the loans is limited to 4% per year.
- Borrowers may defer payments (principal, interest and fees) for a period of not less than six months and not more than one year.
- There are no prepayment penalties.
- Some of the loan may be forgiven, as discussed below.
- Is some or all of the loan forgivable?
- The first eight weeks of the loan may be forgiven if the proceeds are used to cover payroll costs, interest payments on mortgages, rent, and/or utilities. Appropriate documentation must be provided regarding the use of the loan proceeds.
- Eligible payroll costs do not include compensation to any individual that would be over $100,000 if paid for a full year.
- The amount of loan forgiveness is reduced if employers have fewer employees from March to June 2020 than they did from March to June 2019.
- The amount of loan forgiveness is reduced if employers pay their employees (who do not make $100,000 per year) less than 75% of what they made in the prior year.
- The forgiven debt will not be taxable as income for federal income tax purposes.
- How does a business apply?
- Eligible small businesses should apply for a loan through their lending institution.
- Businesses will be required to make a good faith certification that:
- the uncertainty of current economic conditions make the loan necessary for ongoing operations;
- the funds will be used to retain workers and maintain payroll, or to make mortgage interest, lease and utility payments;
- there is not a second loan application pending for the same purpose and duplicative of amounts applied for or received; and
- for the period of February 15, 2020 through December 31, 2020, the business has not already received funds under the program.
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