Businesses and workers all over the country feel the effects of the coronavirus pandemic. In response to this crisis, congress created the Paycheck Protection Program (PPP), which authorized $349 billion in forgivable loans to small businesses. The PPP went into effect on April 3, and, if you haven’t already, you should apply for a PPP loan on behalf of your business. 

It’s important to note that this situation is still evolving and the information that follows is not intended to constitute legal advice. This information is current as of May 17, 2020. 

What is a PPP loan? 

A PPP loan is a Small Business Administration (SBA) loan to help businesses keep their workforce employed during the coronavirus pandemic. The amount of the loan depends upon your business’ average monthly payroll cost for two months, but it cannot exceed $10 million. Since the loan is designed to keep people employed, the cost of the loan will be forgiven if the money goes toward payroll expenses or other essential components of the business (detailed below).

Why is it important to apply quickly?

The application period is limited and has already begun. The application form is here. Apply as soon as possible, even if you aren’t sure you will need the funds. Funds are limited and will be distributed on a rolling basis. In order to receive funds, your application must be PROCESSED by June 30th, 2020. Since processing by the potential lender could take some time, we encourage you to apply as quickly as possible. 

Your application must be processed prior to June 30, 2020 and the SBA and lenders have already experienced delays in processing. Furthermore, funds are limited and money has already run out before. If the pandemic continues, your business might have needs that it doesn’t right now. Getting in line early is critical to ensure money is available when your application is eventually processed, and money is available again.

Is my business eligible for a PPP loan? 

Small businesses with 500 or fewer employees — including nonprofits, veterans' organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors — are eligible to apply for one loan per business. Businesses in certain industries that have more than 500 employees are also eligible, which can be found on the U.S. Small Business Administration website.

Your business is not eligible for a PPP loan if your business has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted in the last 7 years and caused a loss to the government. The business must also not be involved in bankruptcy or barred from transaction by a Federal agency or department. 

How much is the loan?

The PPP loan can be as much as two months worth of your business’ average payroll cost, plus 25% of that figure, and no more than $10 million. The interest rate for a PPP loan is fixed at 1%.  

How do I apply? 

Apply online here. The application itself is not complicated, as long as you are eligible and have selected a qualified lender. Your business must apply through a 3rd party lender which has been approved to participate in the program. This lender will process your application and distribute these funds on behalf of the federal government.

Only certain lenders are eligible to process applications and distribute funds. While the list of eligible lenders is growing, PayPal and Intuit QuickBooks were recently added, this additional processing layer has increased complexity and slowed the flow of funds.

Make sure to double check that you are eligible to apply with a certain lender, as some lenders have imposed additional requirements. For example, Bank of America requires that applicants have a pre-existing small business account with the bank in order to use them as a lender. 

How quickly do I have to repay it? 

PPP loans will be due within 2 years after the loan is made. However, payments are deferred for 6 months, although the loan will accrue interest during the deferment period. There are no prepayment penalties or feed for paying the loan off within 2 years. 

Your loan will be forgiven if you spend it on qualifying costs. To be fully forgiven, loan proceeds can be used for: 1) Payroll costs, including benefits, 2) Interests on mortgage obligations incurred before Feb. 15, 3) Rent for lease agreements in force before Feb. 15, 4) Utilities for which services began before Feb. 15. 

Payroll costs include: 

• Salary, wages, commissions, or tips (capped at $100,000 annually for each employee)

• Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group healthcare benefits including insurance premiums; and payment of retirement benefits

• State and local taxes assess on compensation

• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,00 annually for each employee

It is likely your business has lost income due to the pandemic. You may be facing drastic choices like bankruptcy or federal loan delinquency or default. When planning your business's future in the current environment the PPP funds can free up other capital to ensure these other obligations are met. 

The coronavirus crisis is unprecedented and daunting. GLO has helped small businesses find creative solutions. If you have any questions about the Paycheck Protection Program and its effect on your business, fill out an interest form today to see if GLO can help you.

GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific fee arrangements and signed engagement letters. GLO does not guarantee any results.