Paycheck Protection Program (“PPP”) Under CARES

The PPP authorizes up to $349 billion in forgivable loans to small businesses with 500 employees or less. All loan terms will be the same for everyone. Loans carry a fixed rate of 1%, and are payable in 2-years unless forgiven.

Who can apply? All businesses – including nonprofits, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses may begin applying for loans on April 3, 2020.[1] Businesses in certain industries may have more than 500 employees if they meet applicable SBA employee-based size standards for those industries.

Payroll Costs. Payroll Costs generally include:

1. Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee).
2. Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit.
3. State and local taxes assessed on compensation.
4. For sole proprietors or independent contractors: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
5. Payroll Costs exclude certain items from calculation(s).

Cap on “Payroll Costs.” In determining both the loan amount and the forgiven amount, “Payroll Costs” are capped at $100,000 on an annualized basis for each employee.

Loan Amount. Loan amounts are determined by multiplying 2.5 x Average Monthly Payroll Costs from the last year, with a cap of $10-million.

Use of Loan Proceeds. Borrower may use the proceeds for (i) Payroll Costs, including benefits; (ii) Interest on certain mortgage obligations, incurred before February 15, 2020; (iii) Rent under a lease agreement in force before February 15, 2020; and (iv) Utilities, for which service began before February 15, 2020.

Loan Forgiveness. To be forgiven, loan proceeds must be used in the 8-weeks after receiving the loan for (a) Payroll Costs (capped at $100,000 on an annualized basis for each employee), (b) Mortgage Interest, (c) Rent, and (d) Utilities Payments.

• The Department of Treasury (“Treasury”) is requiring that Payroll Costs account for, at least, 75% of the Amount Forgiven.
• Borrowers may submit a request to the lender servicing the loan. Requests will include documents that verify (i) the number of full-time equivalent employees and pay rates, (ii) payments on eligible mortgage interest, lease or rent payments, and utility obligations during the 8-week period after receiving the loan. Borrower must certify to the truth and accuracy of documents submitted and use of the loan. Lender will make a decision within 60-days of Borrower’s request.
• If 100% of the Loan is forgiven, the accrued interest is also forgiven.

Reduction in Amount Forgiven (retention of employees). According to Treasury, a Borrower will owe money if staff and payroll are not maintained.

• Number of Staff: Amount Forgiven will be reduced if Borrower decreases full-time employee headcount.
• Level of Payroll. Amount Forgiven will also be reduced by any decrease in salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
• Borrowers have until June 30, 2020, to restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Are there Fees or Prepayment Penalties?  No.

All Payments Deferred for Six (6) Months. All payments are deferred for 6 months. However, interest will continue to accrue over that period.

Will the Borrower be required to pledge collateral or personally guarantee the loan? No.

Call a Templeton partner today for more details or assistance applying for a PPP loan, or with related questions about PPP Loans.

[1] Except for Self-Employed Individuals and Independent Contractors who may apply beginning April 10, 2020.