The U.S. Small Business Administration (“SBA”) has just issued a new Interim Final Rule related to the Paycheck Protection Program (“PPP”) under the recently-adopted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”): https://home.treasury.gov/system/files/136/PPP–IFRN%20FINAL.pdf
The PPP provides for SBA-backed loans to small businesses, which have under 500 employees or are otherwise defined as small business concerns. The PPP loans are made by private lenders and are eligible for up to 100% loan forgiveness. There is a maximum nationwide limit of $349 billion in funds available for the program. As a result, businesses should not delay making decisions regarding seeking loans under the program.
The new Interim Final Rule clarifies several important aspects of the PPP, including the following:
- Is the total amount of PPP lending limited?
- Yes. There is an aggregate nationwide limit to PPP lending of $349 billion.
- Are PPP loans first-come, first-served?
- Yes. The PPP program is explicitly “first-come, first-served.” This highlights the need for businesses to make decisions concerning the PPP without delay.
- Will all PPP loaned funds be forgiven if the business-borrower spends all loaned funds on the expenses permitted under the CARES Act?
- Not necessarily. Under the new Interim Final Rule, to be eligible to receive full loan forgiveness, at-least 75% of the loan amount must be spent on payroll costs within the 8-weeks after the loan is made. Up to 25% can be spent on mortgage interest, rent, and utilities.
- Eligibility for loan forgiveness will be further be reduced if: (a) the borrower-business reduces its number of full-time equivalent employees; or (b) cuts wages/salaries for certain employees by over a certain percentage.
- It remains unclear whether meeting all requirements for loan forgiveness eligibility will result in a business receiving full loan forgiveness. However, the loan terms are favorable, even if there is no forgiveness (see below).
- What are the PPP loan terms if the loan is not forgiven?
- The loan would bear interest of 1% and have a 2-year maturity. Loan payments are deferred for six (6) months, but interest does accrue during the deferral period.
- Can payments made by a business to independent contractors (e.g., payments for which a 1099 is issued) be included in that business’ “payroll costs” for the PPP?
- No. Payments that a business makes to independent contractors will not be included in calculating payroll costs for the business. This is important because payroll costs are used to determine the size of the PPP loan that a business can receive and the amount of loan forgiveness that may be available.
- Instead, the independent contractor can pursue his/her/its own PPP loan. A business or practice that issues payments to independent contractors can encourage them to speak with an SBA lender about the program.
For more information regarding the Paycheck Protection Program or other questions, please contact your regular HLP attorney, or Partners@thehlp.com, or call (248) 996-8510.