Small Business Relief – the Paycheck Protection Loan Program
GranthamPoole advisors are ready to work with you and your SBA lenders (or to help you find a lender) to answer your questions, advise you in applying for a Paycheck Protection Loan, and/or provide assistance in managing expenditures of loan proceeds and estimating loan forgiveness. Contact your GranthamPoole advisor or fill out the consultation card below to get started.
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act also known as the CARES Act. This legislation contains a Paycheck Protection Loan Program to be administered as part of an existing Small Business Administration Loan program. Since that time, significant additional guidance has been provided by the Treasury Department, SBA, and IRS, and we continue monitoring and analyzing this guidance. In June, President Trump signed the Payroll Protection Program Flexibility Act relaxing some of the narrower provisions of the program.
Who can get this loan?
Small businesses and non-profits in existence on March 1, 2020. Borrowers must have been affected by COVID-19. The funds must be used for purposes allowed under the CARES Act. The borrower must not have received funds from another SBA program for the same purpose.
What is the purpose of this loan?
It allows businesses affected by the coronavirus outbreak to pay a variety of qualified costs including employee compensation and payroll costs, mortgage interest obligations, rent, utilities and interest on existing debt.
How much can my business borrow?
You may borrow the lesser of $10,000,000 or 2.5 times the borrower’s average monthly payroll for the 12 months prior to the loan date. Payroll and net income rules apply for independent contractors.
How do I apply?
Loans will be made through commercial banks under the SBA’s existing 7(a) loan program. Your banker can tell you what is required for an application.
Why is this loan different?
Loans will be 100% guaranteed by the federal government. Borrower and lender fees as well as prepayment penalties are waived. There are no personal guaranties or collateral requirements.
Will the SBA forgive this loan?
The loan program includes forgiveness provisions for amounts spent during the 24 weeks following the loan date for allowable payroll costs, interest on mortgages, rent and utilities (and net income replacement for independent contractors). Payroll costs will not qualify if the business has already received a credit for these.
Employers must spend at least 60% of their loan on payroll. Employers must also maintain the same employee level they had when they applied for their loan, or return to that level by December 31, 2020. There are some exceptions to this requirement.
Any portion not forgiven will be subject to repayment with terms of up to 5 years and an interest rate of 1.0%.
The new forgiveness application and instructions, along with other Treasury and SBA guidance, provide a framework for forgiveness computation, though some questions remain, and we recommend consulting your GranthamPoole adviser. A copy of this application and instructions is available here, and all available guidance is available at www.treasury.gov.