Key Provisions of the New SBA Payroll Protection Program (PPP) Loan Application

04.01.2020

On Tuesday, March 31, the Small Business Administration (SBA) released the Payroll Protection Program (PPP) loan application and additional information for borrowers. The documents provide more details regarding the PPP loans.

The PPP provides loans designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

The Paycheck Protection Program will be available through June 30, 2020.

Among the key takeaways:

• With respect to loan forgiveness, no more than 25% of the forgiven amount can relate to non-payroll expenses (e.g., rent, mortgage interest and utilities). More than 25% of the loan can used be for non-payroll expenses, but only an amount equal to 25% of the 8-week non-payroll expenses will be forgiven. Applications for forgiveness are made to the SBA lender making the loan, and the lender has 60 days to make a decision.
• An applicant has until June 30, 2020 to restore its full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020 to qualify for full forgiveness of the loan principal.
• The interest rate on these loans is 0.5% (previously indicated as up to 4%). The interest rate applies while the loan is outstanding and to any unforgiven portion of the loan. 
• No payments on the loans are due for the first 6 months, but interest does accrue during the deferral period.
• The term of the loan (maturity date) is 2 years from the date of the loan (previously indicated as up to 10 years). 

When and how to apply:

• The application process opens Friday, April 3, 2020, for small businesses and sole proprietorships.
• Independent contractor and self-employed individuals can apply beginning on Friday, April 10, 2020.
• Applicants should contact their existing banker if they have one. Otherwise, a list of SBA lenders is available at www.sba.gov.
• For purposes of applying for a PPP loan, an applicant must have completed the application form [linked here] and documentation required by the local SBA lending bank. Each owner of more than 20% of the business must answer questions in the application.
• Applicants should contact their bank regarding information that will be required. Generally, the information required includes 2019 quarterly payroll reports, 12-month internal payroll reports going back from the applicant’s last payroll date, documentation of health insurance premiums and applicant-funded retirement plan contributions.
• The loans are available through June 30, 2020 and are offered on a “first come, first served” basis. 

For more information about the PPP loans see our prior alert.