We previously issued on alert on Friday, March 27 describing the substantial expansion of the Small Business Administration’s Section 7(a) loan program made pursuant to the Coronavirus Assistance, Relief, and Economic Stability Act (The “CARES Act”). The CARES Act has now been signed into law.
Our updated summary of the CARES Act’s new forgivable loan program is now available for your reference. The Alert can be found here. In addition, we have issued alerts relating to (1) the SBA’s “disaster loan” program and (2) the CARES Act’s broad tax relief provisions. All of these, along with other relevant summaries produced by our team of legal experts are available elsewhere on our website.
Below is a high-level summary of the Paycheck Protection Program under The CARES Act which you may find relevant to your business. As always, we are ready to help you in navigating the complex issues presented by the new law and to assist you with your needs.
SBA’s Paycheck Protection Program Loans:
- Businesses with fewer than 500 employees, and certain sole proprietors and contractors, may borrow up to the lesser of (i) 2.5 times the business’s average monthly payroll costs or (ii) $10 million.
- Restaurants, food servicers, caterers, hotels and similar businesses are eligible so long as they have fewer than 500 employees per location.
- Businesses in certain industries that employ greater than 500 employees may still be eligible, depending on SBA guidelines.
- Funds received from a PPP Loan may be spent on certain operational costs including:
- payroll costs;
- employee salaries;
- rent and utilities; and
- interest on mortgage obligations and interest on other debts incurred prior to receiving the PPP Loan.
- Borrowers will be eligible for loan forgiveness without being subject to taxation for the borrowed amount that is used, during the 8 week period following origination of the loan, to pay for the sum of the following expenses paid over the eight (8) week period immediately after the origination of the PPP Loan:
- payroll costs;
- interest on mortgage obligations;
- rent obligations; and
- utility payments.
- The amount of any forgiveness will be reduced to the extent that the business reduces its number of employees or reduces employees’ compensation.
- Businesses that have already conducted lay-offs or reduced the compensation to their employees may be able to reverse such cuts and still qualify for loan forgiveness.
- The balance of a loan that remains following any loan forgiveness will have (i) a term of up to 10 years, (ii) an interest rate no greater than 4%, and (iii) an automatic payment deferral of all principal and interest for a minimum of six months and up to one year.
- Loans will have no up-front fees and no prepayment penalties.
- No personal guarantees or collateral requirements.