SBA Issues Guidance on Paycheck Protection Program
SPRINGFIELD — With record-breaking speed, the U.S. Small Business Administration (SBA) has begun providing guidance on how the recently created Paycheck Protection Program (PPP) will work in practice, attorneys at Bulkley Richardson note.
The PPP is one of the new programs created by the CARES Act, the more than $2 trillion emergency relief package fast-tracked through Congress in less than a week. The PPP is designed to encourage employers to keep employees on the payroll throughout the coronavirus crisis.
The SBA is starting to publish its guidance and sample forms. Click here for more information.
Perhaps the most important guidance is that “lenders may begin processing loan applications as soon as April 3, 2020,” which is this Friday — a week after the CARES Act was signed into law by President Trump.
Some of the guidance is at odds with the CARES Act. The guidance states that PPP loans have a maturity of two years and an interest rate of 0.5% while the CARES Act states that the PPP loans would bear interest at 4% and have a maximum maturity of 10 years. The guidance confirms that “any federally insured depository institution, federally insured credit union, and Farm Credit System institution” can make a PPP loan, in addition to the existing SBA 7(a) approved lenders. This greatly expands the universe of potential lenders, which is important since all PPP loans need to be originated and closed by June 30, 2020.
The first sample form (available by clicking here) is the proposed application for the PPP loans, which reveals several details that are either not addressed in the CARES Act or are directly contrary to the language in the CARES Act. For example, the CARES Act provides that the maximum PPP loan amount is based on “payroll costs incurred during the one-year period before the date on which the loan is made.” The proposed application’s instructions instead direct applicants to “use the average monthly payroll for 2019.” In each case, the maximum loan amount is 2.5 times this average monthly payroll.
Another discrepancy affects the amount of the loan that can be forgiven. The CARES Act simply provides that the forgiveness amount cannot exceed the sum of the following costs incurred by the business in the eight-week period immediately following the closing of the loan: payroll costs; any payment of interest on any covered mortgage obligation (which shall not include any prepayment or payment of principal on a covered mortgage obligation); any payment on any covered rent obligation; or any covered utility payment.
While the application does state that “loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities,” the application also requires the business to certify that, “due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.”
The sample form also confirms that applicants and any individual owning 20% or more of an applicant must be able to certify that each of them are U.S. citizens or lawful permanent residents (so any businesses where 20% of more is owned by an undocumented immigrant or a foreign citizen may not apply for or receive a PPP loan); and that none of them are “presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, or probation, or parole.” The breadth of that last provision is striking, in that anyone merely accused of a crime may not apply for or receive a PPP loan.
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