UPDATE [4/3/20]: As of noon on Friday, April 3 banks are opening their application portals on their own timelines likely throughout today. Best option is to pay attention to bank website/link provided and check to see if it is open. These portals will likely be overwhelmed and may not have the capacity for the multitude of visitors at one time.

Under the CARES Act and administered through the Small Business Administration, the federal government will be providing $349 billion to support loans through the new Paycheck Protection Program (PPP). Any business that was operational on February 15, 2020, that paid salaries and payroll taxes with 500 or fewer employees is eligible to apply for PPP. Most private nonprofit organizations are eligible to apply for PPP as well. The businesses that apply for PPP must make a good faith certification that loan is imperative as a result of the financial conditions caused by the COVID-19 pandemic. The purpose of the loan is to retain employees and maintain payroll, lease, and utility payments.

Loan Terms

The loan terms are far from traditional. There will be no application or closing fees, nor collateral or personal guarantees needed from the lenders. The interest rate will never exceed 4 percent, and the first six monthly payments (principal and interest), will be automatically deferred. Additionally, the loans are guaranteed by the SBA so the lenders are not expected to perform a credit analysis.

The maximum amount of a loan for any given business will be 2.5 times the business’ average monthly payroll. This monthly average is determined based on your prior 12 months of payroll costs up to a maximum of $10 million.

Loan Use

The loans are to be used for “payroll costs.” This includes salary, commission, or similar compensation (up to an annual rate of pay of $100,000 per employee); health care benefits; retirement contributions; and paid leave from February 15, 2020, to June 30, 2020. The non-payroll uses of the loan may include interest payments on mortgages, rent, and utilities, and any other debt obligation interest incurred prior to February 15, 2020.

Loan Forgiveness

Borrowers will be eligible for loan forgiveness equal to the amount of expenses incurred during an eight-week period after the loan is made. These expenses include payroll costs; interest payments on any secured debt incurred prior to February 15, 2020; rent payment on any lease in force prior to February 15, 2020; and any utility payment for which service began before February 15, 2020.

With the overall purpose of this program being employee retention, the loan forgiveness amount will be reduced proportionally by any reduction in employees retained as compared to the prior year, as well as by the reduction in pay of any employee in excess of 25% of the employee’s prior-year compensation. Employers who rehire employees by June 30, 2020, who were laid off as a result of COVID-19 pandemic, will still qualify and not be penalized for having a reduced payroll during the loan period. Any cancelled indebtedness under this program will not be included in the borrower’s taxable income.

Other CARES Act Relief

If an employer receives a loan under the PPP, that business is not eligible to also claim an employee retention credit under the CARES Act. The employee retention credit gives eligible employers whose business operations are fully or partially suspended due to the COVID-19 pandemic a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.

Apply for a PPP Loan

The SBA will begin taking applications for PPP loans (application), on Friday, April 3. The PPP will be available through June 30, 2020, if funds remain available. For basic information on the PPP visit the SBA website.

** With the ever evolving changes of the COVID-19 stimulus opportunities, please refer to our Response to COVID-19 page for the most up to date information. Please contact us if you have specific questions. **

Contact Us

If you have questions about the PPP or need assistance in completing your application, Selden Fox can help. For additional information please call us at 630.954.1400 or click here to contact us. We look forward to speaking with you

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