Authors: Sharon C. Lincoln and Eric W. Dyer
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes the Paycheck Protection Program, a new initiative that makes it easier for eligible organizations to obtain loans through the Small Business Administration (“SBA”) in order to keep operations running and retain employees.
An eligible organization may receive a loan covering up to 2.5 months of its average monthly payroll costs (with some limitations). A significant portion of the loan may be eligible for tax-free forgiveness.
A summary of the Paycheck Protection Program is as follows:
Duration and Terms
The Program is available until June 30, 2020 or until SBA guarantees authorized under the CARES Act reach the $349 billion limit. It is expected that the SBA will confirm guarantees on a first-come, first-served basis.
Interest on loans made under the Program may not exceed 4%. In addition, payments of principal, interest, and fees must be deferred for a minimum of six months and may be deferred up to one year from the date of loan origination.
Typical SBA borrower and lender fees are waived under the Program.
Eligibility
The Program is accessible to any business entity, section 501(c)(3) nonprofit organization, section 501(c)(19) veterans organization, and Tribal business concern that has no more than 500 employees or meets the size standard established by the SBA (based upon the relevant industry in which the entity operates). Note that this program is not available to non-charitable tax-exempt organizations (apart from veterans organizations) such as social welfare organizations, agricultural cooperatives or business leagues.
Organizations with multiple physical locations, not more than 500 employees per physical location, and a NAICS code beginning with 72 (i.e., the accommodation and food services sector) are eligible to participate in the Program.
Affiliation rules apply to aggregate related entities (and their employees) for purposes of determining eligibility for the Program. However, such rules do not apply to organizations with a NAICS code beginning with 72, organizations operating as a franchise, and organizations receiving funding from a small business investment company licensed under section 301 of the Small Business Investment Act of 1958.
The Program is also available to sole proprietors, independent contractors, and self-employed individuals.
Required Certification
Eligible organizations must certify that:
- The uncertainty of current economic conditions makes the loan request necessary to support the organization’s ongoing operations;
- The funds will be used to retain workers, maintain payroll, or make mortgage interest payments, lease payments, and utility payments;
- The organization does not have another application pending for a Paycheck Protection Program loan for the same purpose and amounts;
- During the period beginning February 15, 2020 and ending on December 31, 2020, the organization has not received any amounts under the Program for the same purpose and duplicative of amounts applied for or received under the Program.
