The application period opens today for small businesses interested in applying for a loan through the SBA’s paycheck protection program (PPP), which is available pursuant to the Coronavirus Aid Relief and Economic Security Act (CARES Act). The PPP provides a forgivable loan to small businesses through the SBA in an amount up to two and a half times the average monthly payroll of such business, so that small businesses can keep workers on their payroll in light of the pandemic. Additional information can be found here. The U.S. Small Business Administration (SBA) released an Interim Final Rule on the PPP last evening, which updates key provisions of the program and changes certain provisions of the loans. We have summarized the key points below to help your business adjust plans and applications as necessary:
- The final PPP application form has been released. You can access the final form here, and should submit this application to your current bank (if participating in the program) or a participating bank. Do not use the former draft application. The final application form only requires the signature of an “Authorized Representative” of the applicant business, instead of each owner with an equity stake of at least 20%. The Interim Final Rule also clarifies that “e-signatures” are valid on the application.
- The interest rate on the PPP loans is now 1%. Originally, the interest rate was set at 0.5%.
- The loan principal and accrued interest may be entirely forgiven, provided that the loan is expended in the first eight weeks on qualified purposes. Previously, the guidance and the text of the CARES Act suggested that only principal amount of the loan would be forgiven. The Interim Final Rule released yesterday suggests accrued interest may be forgiven as well.
- Independent contractors may not be counted in an employer’s payroll calculation. Previously, it was unclear which independent contractors could be included in the PPP principal loan amount calculation, but the Interim Final Rule excludes all independent contractors from the calculation. Independent contractors are eligible to apply for their own PPP loan, so businesses may not and should not include them in its employee count or payroll calculation on the application.
- A recent Economic Injury Disaster Loan (EIDL) does not automatically disqualify a business from receiving a PPP loan. If your business received an EIDL Loan between January 31, 2020 and April 3, 2020, you may still apply for a PPP Loan; provided that if the EIDL Loan was used to cover payroll costs, you must use your PPP Loan to refinance your EIDL Loan. However, if the EIDL Loan was used for a purpose other than to support payroll, you do not have to refinance using the PPP Loan and may obtain both loans.
- At least 75% of the PPP loan must be used for payroll expenses. Previously, the guidance indicated that in order to fully forgive a PPP Loan, no more than 25% of non-payroll expenses would be forgiven. The Interim Final Rule clarifies that the PPP Loan must be used in the following manner: at least 75% of the loan must be used to maintain payroll, and no more than 25% of the loan amount may be used to make mortgage interest payments, rent payments or utility payments and for no other purpose.
- Additional updates pending: The Interim Final Rule states that the SBA will be releasing additional guidance shortly regarding the details of loan forgiveness and the applicability of the affiliation rules in relation to the PPP.
Hirschler is here to assist during this difficult time. Please contact us with any questions or to assist with any loan or other questions for responding and maintaining your business through this period.
Kristen M. Chatterton