Paycheck Protection Program (PPP): Frequently Asked Questions
Prepared by Shauncey Ridgeway
April 13, 2020
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted March 27, 2020, in response to COVID-19, earmarks a historic $377 billion in relief for eligible small businesses, and a portion of that relief comes in the form of expanded paycheck protections. The CARES Act carves out $349 billion for qualifying small businesses in a new loan program called the Paycheck Protection Program (“PPP”), which expands the authority of the Small Business Administration (“SBA”) to provide 100 percent federally guaranteed loans to eligible small businesses. Crafted to encourage business owners to forego layoffs and keep workers on the payroll during the COVID-19 crisis, the PPP offers automatic payment deferral, a low-interest rate, and loan forgiveness for qualifying borrowers.
Here are some of the most common questions posed since the PPP rollout as lenders began processing loan applications over this past week.
Who can make PPP loans?
The CARES Act eliminates the process of applying for PPP loans through the SBA. Instead, the CARES Act delegates the authority to make and approve PPP loans to qualified lenders. Qualified PPP lenders include all existing SBA 7(a) lenders and other types of lenders approved by the SBA, including federally insured depository institutions, federally insured credit unions, and farm credit system institutions.
How can businesses find PPP lenders?
The SBA website provides a search function to assist businesses in finding eligible PPP lenders. As of mid-morning April 6, 2020, roughly 1,900 lenders nationwide, including 40 – 50 Mississippi banks, reported having access to the SBA’s electronic loan processing system, E-Tran.
Where can lenders find the PPP New Lender Application Form?
The PPP New Lender Application Form (Federally Insured Depository Institutions, Federally Insured Credit Unions, Farm Credit System Institutions) can be found on the U.S. Department of Treasury’s website here. New lender applications should be submitted to DelegatedAuthority@sba.gov. Roughly 150 lenders are being approved to make PPP loans each hour.
Who is eligible to apply for PPP loans?
Small businesses will be eligible to apply for PPP loans if they were impacted by COVID-19 between February 15, 2020, and June 30, 2020. Small businesses with 500 or fewer employees, including nonprofits, farmers, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors, are eligible to apply for a PPP loan. Businesses in certain industries with more than 500 employees can apply if they meet applicable SBA employee-based size standards, which may be found here. The PPP lender application and borrower application are available on the U.S. Department of Treasury’s website.
What is the interest rate on PPP loans?
The U.S. Department of Treasury set the interest rate to a 1.00% fixed rate for a two-year loan term on April 2, 2020.
Where can lenders and businesses find guidelines and sample forms for PPP loans?
Additional guidance, along with sample application and borrower information forms, can be found on the U.S. Department of the Treasury’s website here.
When can borrowers start applying for PPP loans?
The application window for small businesses and sole proprietors began Friday, April 3, 2020. Applications for independent contractors and people who are self-employed opened April 10, 2020.
What is the deadline to apply for a PPP loan?
June 30, 2020.
Can lenders issue more than one PPP loan to a single applicant?
No, a single applicant may only be approved for one PPP loan.
Is there a cap on how many PPP loans can be made?
Yes, there is a funding cap on how many PPP loans can be made. The PPP authorizes up to $349 billion in forgivable loans to qualifying small businesses that maintain their payrolls during the COVID-19 pandemic. As of mid-morning April 6, 2020, the SBA reported 77,544 loans had been processed totaling $22 billion in PPP funds.
How much of the PPP loans are guaranteed by the SBA?
PPP loans are 100% guaranteed by the SBA.
Can lenders require personal guarantees or pledges for additional collateral for PPP loans?
No, lenders may not require personal guarantees or pledges of additional collateral for PPP loans.
Can lenders require borrowers to make good faith certifications to take out PPP loans?
Borrowers will be required to make a good faith certification that the loan is necessary due to economic instability caused by COVID-19. Borrowers must also certify that the PPP funds will be used for an allowable purpose and that they are not receiving additional SBA funds under another program for the same use as any one allowable use under the PPP.
What considerations can lenders undertake in determining whether to make and approve a PPP loan?
In considering applicants’ eligibility for a PPP loan, the CARES Act limits lenders’ consideration to whether the applicant was in operation as of February 15, 2020, and had employees to whom it paid salaries and payroll taxes, or paid independent contractors. Lenders will also need to verify the dollar amount of applicants’ monthly payroll costs. Lenders do not have to apply the “credit elsewhere test” in evaluating applicants’ PPP eligibility.
What fees will lenders be charged, and what fees will lenders be paid?
SBA guaranty fees will be waived for PPP loans. Annual lender’s service fees, subsidy recoupment fees, and fees for guarantees sold to secondary markets will all also be waived.
Lenders’ processing fees will be based on the balance of financing outstanding at the time of final disbursement as follows:
- Loans $350,000 and under—5.00%;
- Loans greater than $350,000 and less than $2 million—3.00%; and
- Loans of at least $2 million—1.00%.
Agent fees, which may include attorneys’ fees, will be paid out of lender fees. Lenders should note that neither processing nor agent fees can be collected from applicants or from PPP loan proceeds.
What business expenses can PPP loans be used to cover?
Businesses can use PPP loans to cover qualified costs including:
- Payroll costs (including benefits);
- Interest on mortgage obligations incurred prior to February 15, 2020;
- Rent under lease agreements in effect before February 15, 2020; and
- Utilities in service before February 15, 2020.
What expenses count as payroll costs?
- Compensation (salary, wages, commissions, or tips capped at $100,000 annually per employee);
- Benefits (including vacation, parental, family, medical or sick leave, group health care payments, retirement benefit payments, and allowances for separation or dismissal);
- State and local compensation taxes; and
- For sole proprietors and independent contractors: wages, commissions, income, or net earnings from self-employment (capped at $100,000 annually per employee).
What expenses do not count as payroll costs?
- Compensation exceeding $100,000 annually per employee;
- Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code;
- Compensation for employees with a non-U.S. principal place of residence; and
- Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
How are PPP loan sizes determined?
The maximum loan size will be the lesser of (A) $10 million or (B) the product obtained by multiplying average total monthly payments for payroll costs of the business during the one-year period before the PPP loan is made by 2.5.
When do borrowers have to start paying on PPP loans?
PPP loan payments are automatically deferred for at least six months from the loan origination date and may be deferred up to one year.
How much of the PPP loan is forgivable?
The CARES Act will allow the SBA to forgive PPP loan amounts equivalent to up to eight weeks of qualified business costs, including qualified costs incurred before February 15, 2020. Forgiveness is contingent on borrowers maintaining employee payrolls. If an employee makes more than $100,000 annually, only the first $100,000 will be accounted for in the loan forgiveness total. The amount of the loan eligible for forgiveness will be reduced proportional to any reduction in the number of employees compared to the previous year and by the reduction in pay of any employee beyond 25% of their compensation the previous year. Businesses that have already laid off employees or reduced salaries due to COVID-19 may still be eligible for PPP loan forgiveness if they rehire employees and/or get rid of salary reductions by June 30, 2020.
Lenders will be reimbursed by the SBA for any PPP loan amount that is forgiven within 90 days of the date the amount of forgiveness is determined.
When are borrowers eligible for forgiveness on a PPP loan?
Borrowers are eligible for forgiveness eight weeks after the loan origination date.
What should lenders look for on borrower applications for PPP loan forgiveness?
- Verification of the number of employees on payroll and pay rates;
- 2019 IRS Form 940;
- State income, payroll and unemployment insurance flings;
- Verification of payments on covered mortgage or lease obligations and utilities;
- A list of all entities owned by any 20% or more owner of the business;
- Business organizational documents (i.e., certificates of formation);
- Most recent available tax returns (independent contractors, self-employed and sole proprietors only);
- Evidence of health care and retirement benefits paid on behalf of employees for 2019; and
- Certification from an authorized representative of the borrower confirming that the documentation is true and that the amount being forgiven was used in accordance with PPP use guidelines.
Can borrowers apply for more than one type of SBA loan?
Yes. The CARES Act also designates more than $10.5 billion to the Emergency Economic Injury Disaster Loan (“EIDL”) and Grants Program. EIDLs and grants are a separate program from PPP loans. The CARES Act expands EIDL eligibility for the period of January 31, 2020, through December 31, 2020, to include sole proprietors, independent contractors, cooperatives, employee stock option plans and tribal businesses with less than 500 employees. The CARES Act also waives personal guarantees for businesses seeking EIDLs of less than $200,000 and waives the requirement that borrowers be in business for at least one year.
While the SBA will primarily handle approval of EIDLs and grants, lenders should note that eligible businesses who have received EIDLs or grants can also apply for PPP loans so long as the funds from each loan or grant are used for different purposes and the funds are not comingled. Similarly, business owners who took out an EIDL between February 15, 2020, and June 30, 2020, may have the option to refinance that loan into a PPP loan.
Where can lenders find more information about the relief programs provided under the CARES Act?
Additional resources for PPP lenders and applicants are listed below.
- Paycheck Protection Program (PPP) Information Sheet: Lenders
- The Small Business Owner’s Guide to the CARES Act
- Paycheck Protection Program (PPP) Information Sheet: Borrowers
- Top-line Overview of Small Business Paycheck Protection Program
- Paycheck Protection Program—Interim Final Rule
- This DIP Loan Brought To You By Someone Who CARES! (Or “I’m From The Government And I’m Here To Help You”)
- Paycheck Protection Program Loans Frequently Asked Questions (FAQs)
- ABA Banking Journal Bonus Podcast: Questions and Answers on the SBA PPP
- ABA Banking Journal: Mnuchin, Top SBA Officials Answer Banker Questions on PPP
- ABA Coronavirus Disease 2019 (COVID-19) Pandemic Response and Business Continuity Resources for Banks
- U.S. Department of Treasury: Assistance for Small Businesses
If you need help navigating the Paycheck Protection Program, please contact:
Jack Kubiszyn, Partner
jjkubiszyn@csatttorneys.com
205.250.6624
Shauncey H. Ridgeway
shridgeway@csatttorneys.com
601.427.4032
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