Paycheck Protection Loan Program (PPP) Summary

John Kirsch

Mar 28, 2020

On March 27, 2020, the Coronavirus Aid Relief and Economic Security (CARES) Act was enacted to provide financial relief and to provide stimulus to the economy as a result of the Coronavirus pandemic. The provisions are breathtaking in terms of both their scale and approaches to economic stimulus. The following is a brief summary of one of the provisions that will have the most far-reaching impact, the Paycheck Protection Loan Program.

This program is an expansion of the existing Small Business Administration 7(a) loan program. It will provide cash flow assistance for employers who maintain their payroll through the emergency. The loans will be made by banks and other lenders and will be 100% guaranteed by the SBA. If payroll is maintained, a portion of the loans will be forgiven – essentially turning a portion of the loan into a grant.

Key elements of the PPP loan program:

Eligibility

Small and medium-sized businesses and nonprofits (including churches) with less than 500 employees. Employee count based on each physical location and can include some larger businesses based on industry.
Must have been in operation on February 15, 2020.
Loans available through June 30, 2020.

Loan size

250% of the average monthly payroll. If average monthly payroll is $100,000, loan amount is $250,000.
Payroll includes compensation (subject to some limits), health care premiums, retirement benefits, and certain payroll taxes.
Options exist for different periods for determining average payroll.
Ability to refinance an Economic Injury Disaster Loan (EIDL) loan and add to the loan amount.
Maximum loan of $10 million.

Allowable use of loan proceeds

Payroll costs
Other overhead costs: rent, utilities, interest on some loans

Forgiveness

If certain conditions are met, a portion of the loan principal will be forgiven and will not need to be repaid.
Forgiveness is based on the amount spent during an 8-week period beginning on loan date on the amounts listed above under “Allowable use of loan proceeds.”
Forgiveness based on spending at least as much as was spent in the prior year and maintaining employment levels.
Amount forgiven is NOT taxable income.

Terms

10 years, 4% interest rate
No fees, no prepayment penalty, no personal guarantee, no collateral.
No payments for at least six months and could extend for up to one year.

Details of the application process, documentation requirements and other administrative details are in development. We will provide additional information in the coming days as those details emerge. We understand that some institutions may begin the application process as early as next week.

Continue to stay informed – Visit the Kirsch COVD-19 Support for Business page for key legislation and resources to help your business through the COVID-19