Relief For Small Businesses: The Paycheck Protection Program

Note that all Sheehey guidance regarding COVID-19 is subject to change, as the legal landscape is evolving rapidly. Please note the date of publication for this bulletin, and be aware that things may have changed since then. Please check our COVID-19 landing page for the most up-to-date posts and contact us with any questions.

The CARES Act, passed by Congress and signed into law last week, provides extraordinary support for small businesses to help them weather the consequences of the coronavirus and COVID-19. The law expands the category of entities eligible for Small Business Administration (“SBA”) loans. In addition to a business qualifying as a “small business concern” under the Small Business Act, any business, certain nonprofit organizations, veterans organizations, or tribal businesses with 500 or fewer full and part-time employees are eligible to receive an SBA loan with generous forgiveness provisions. Even entities over 500 employees could qualify for a loan if they meet certain standards. Sole proprietors, independent contractors and those who are self-employed are also eligible.

The loans may be used to cover payroll, utility, heath care, and rent or mortgage costs from February 15, 2020 through June 30, 2020. If the borrowing business complies with the loan terms, then the business may apply for loan forgiveness up to the full amount, but no more than 8 weeks-worth of expenditures. This forgiven amount is not taxed.

The loan amount permitted is calculated based on a payroll formula that essentially equals 2.5x the average total monthly payroll cost incurred in the one-year period before the loan is made.

Borrower fees have been waived. The interest rates under the program may not exceed four percent (4%). Repayment is deferred for a minimum of six months, and up to a 12-month maximum. Any Paycheck Protection Loan that has a remaining principal balance after any applicable loan forgiveness must have a maturity date no later than 10 years from the date on which the borrower applied for loan forgiveness. The amount forgiven can be reduced if employees are laid off or payroll is reduced below a prescribed threshold during the 8-week period.

Note that business applying for loans under this program may be ineligible for other forms of relief under the CARES Act and related legislation.

Expect more guidance and implementing regulations (particularly about loan forgiveness) in the coming days and weeks. Borrowers interested in this program should contact their financial institution to see if they are approved SBA lender. To find an SBA lender or learn more about the program, visit the Small Business Administration website.

Our team of business attorneys is ready to help you navigate the options under the CARES Act and other COVID-19 relief legislation.  To contact an attorney, email [email protected]