Small Business Survival: Paycheck Protection Program

On March 27, 2020, Congress passed, and the President signed into law​, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act includes relief to small businesses (businesses with fewer than 500 employees) by making $349 billion available for loans to be administered by the Small Business Administration (SBA) and its network of lending financial institutions (the "Paycheck Protection Program"). The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs (including benefits), mortgage interest, rent, utilities, and interest on other debt obligations incurred prior to February 15, 2020. If an eligible borrower uses the loan for qualifying expenses while maintaining its workforce, then some or all of the loan amount can be forgiven without negative credit or tax consequences.

The maximum PPP loan amount will be equal to 2.5 times the average monthly payroll costs plus the outstanding amount of any Economic Injury Disaster Loan (EIDL) up to $10 million. Collateral and personal guarantees will not be required for PPP loans. All PPP loan payments will be deferred for at least 6 months (and possibly up to 1 year), and loan terms can extend up to 10 years. Interest rates may not exceed 4% during the covered period.

Certain borrowers will receive priority. The SBA is to issue guidelines to lenders and agents to ensure that the processing of the Paycheck Protection Program prioritizes borrowers in underserved and rural markets, including veterans, businesses owned by socially and economically disadvantaged individuals, businesses owned by women, and businesses less than two years old.

Application for the loans can be made through any existing SBA 7(a) lender or through any participating federal insured depository institution, federally insured credit union, and Farm Credit System institution. Check with your local preferred lender to see if it is participating in the program. Lenders may begin processing loan applications as soon as April 3, 2020.

The Department of Treasury has provided the following guidance: Program Overview, Information for Borrowers, and Borrower Application. For more information from the SBA about the Paycheck Protection Program, click here. The CARES Act is a complex piece of legislation that will require significant interpretation. Additional guidance is expected over the coming weeks, but small business owners should start the process now by completing the application; gathering documentation, including organizational documents (such as Articles of Incorporation, Bylaws, Operating Agreements), Federal Tax ID Number assignment, 2019 Payroll Tax Reports-Form 941, and at least 3 years of tax returns, including the 2019 tax return (or balance sheet and income statement dated 12/31/2019 if 2019 tax return has not been filed); and contacting the bank.

If you have specific questions or would like some assistance, contact Bell & Boyd at (870) 234-6111 to speak with an attorney. We are here to help!