SBA and Treasury Issue Guidance for Paycheck Protection Program
April 16 update: Earlier today, the Small Business Administration (SBA) announced that the $349 billion earmarked for the Paycheck Protection Program (PPP) under the CARES Act, as well as the funding allocated for the Economic Injury Disaster Loan (EIDL) program (including EIDL advances), has been exhausted and the SBA will no longer accept applications for these programs. Although Congress is in discussions to provide further funding for these programs, it remains to be seen whether (and when) this will come to fruition.
Businesses that are interested in the PPP that didn’t make it in before the funding limit was reached are encouraged to contact their lenders and inquire as to whether they are accepting applications to be maintained in their own internal queue. In the event additional funding for the program is procured, early submission could help to maximize the likelihood of SBA approval. Similarly, borrowers interested in the EIDL program should stand ready to submit an application to the SBA should the program receive additional funding.
April 14 update: To help you distinguish one loan from another, please note that to date, federal loan options specifically providing funding for those impacted by the COVID-19 pandemic consist of:
- Economic Injury Disaster Loan (EIDL) – created by the Families First Act, administered by the SBA.
- Paycheck Protection Program (PPP) – created by the CARES Act, administered through local banks working with the SBA, has the potential to be wholly/partially forgiven.
- Main Street Lending Program (MSLP) – created by the CARES Act, administered through local banks working with the Federal Reserve (consisting of two alternatives: MSNLF and MSELF).
- Other CARES Act loans that are specific to the airline and national security industries.
The information below supplements our SBA loan article published on Monday. It shares more characteristics and mechanics related to the loan application. Also note our separate article addressing nuances of the PPP loans that are specific to self-employed individuals.
Yesterday, the United States Department of the Treasury (“Treasury”) and the Small Business Administration (“SBA”) issued guidance for lenders and borrowers for the Paycheck Protection Program (“PPP”) which was created under the CARES Act. As a reminder, the program is intended to deploy $350 billion in federal funding through qualified lenders to small businesses and other qualified borrowers who have been impacted by the COVID-19 pandemic. The guidance issued yesterday also includes the application that prospective borrowers will need to complete.
A link to the Treasury website containing the new guidance and application can be found here. Although this information is still being digested, here are a few of our quick takeaways:
- Importantly, the SBA urges prospective borrowers to apply as soon as possible due to the funding cap and because lenders need time to process the loan applications.
- The guidance notes that, due to likely high subscription, at least 75% of the forgiven amount of the loan must have been used for payroll.
- Small businesses and sole proprietorships can begin applying for a PPP loan on April 3. Independent contractors and self-employed individuals can begin applying on April 10.
- All loans under the program must offer the same terms, regardless of lender or borrower. They make this point abundantly clear. Those terms include the following:
- Loan payments will be deferred for six months.
- For any amounts not forgiven, the loan will carry a two-year term and a fixed rate of interest of 0.50%, and may be prepaid without penalty.
- The guidance notes that lenders will calculate the eligible loan amount using tax documents provided by the applicant. There seems to be some question as to which tax filings lenders will be looking for (i.e. 2019 filings even with filing deadlines being pushed back?).
There’s a lot more to digest here, but this should provide you with enough information to start the conversation with your lender (which we encourage you to do NOW!).
For more information, please contact your BNN tax advisor at 800.244.7444.
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Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.