Updated May 26, 2020

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, which provides for various economic stimulus measures, including a new loan program regulated by the U.S. Small Business Administration (SBA) called the Paycheck Protection Program (PPP). You can read more about the PPP and the other stimulus programs here.

Guidance and Interim Final Rules

On March 31, 2020, the U.S. Treasury Department issued initial guidance on the PPP, including an overview of the program, quick facts for borrowers, and quick facts for lenders.

The SBA and the U.S. Treasury Department have since issued 15 additional interim final rules on the implementation of the PPP, which you can access at the following links: (1) First Rule (general interpretation), (2) Second Rule (affiliation rules), (3) Third Rule (self-employment eligibility), (4) Fourth Rule (documentation, affiliation, and eligibility), (5) Fifth Rule (seasonal employers), (6) Sixth Rule (disbursements), (7) Seventh Rule (corporate groups and lender eligibility), (8) Eighth Rule (nonprofits and student workers), and (9) Ninth Rule (extension of safe harbor repayment deadline),(10) Tenth Rule (increased amounts and additional disbursements), (11) Eleventh Rule (eligibility of certain electric cooperatives), (12) Twelfth Rule (counting of employees of foreign affiliates), (13) Thirteenth Rule (extension of repayment safe harbor and lender deadlines), (14) Fourteenth Rule (loan forgiveness), and (15) Fifteenth Rule (SBA review process and party obligations).

Application

In its guidance, the Treasury Department announced the beginning application dates for the PPP:

  • April 3, 2020: All applicants other than independent contractors and self-employed individuals.
  • April 10, 2020: Independent contractors and self-employed individuals.

You can find the application here.

Along with your application, you will need to submit documentation supporting both: (1) your average monthly payroll cost, and (2) the fact that you were in operation with employees on February 15, 2020. The interim final rules suggest borrowers may use the following types of supporting documentation: payroll processor records, payroll tax filings, Form 1099-MISC (for independent contractors), and income and expenses (for sole proprietorships).

For assistance in calculating your maximum PPP loan amount, see guidance issued by the SBA and Treasury Department here.

In order to maximize availability of funds, the SBA and Treasury Department are limiting the amount of PPP funds available to businesses that constitute a “single corporate group” to a maximum of $20 million in the aggregate. For purposes of this limitation, businesses will constitute a “single corporate group” if they are majority owned, directly or indirectly, by a common parent. Each applicant will have the responsibility of notifying its lender if it has applied for, or received, PPP funds in excess of this limit. Any funds received in excess of the limit will constitute unauthorized use of PPP funds, meaning limited forgiveness and potential penalties.

Pay particular attention to the good faith certification that you must make on page 2 of the application. You must certify your need, purpose, and use of the loan and that you will only apply for and receive one PPP loan. Note that the SBA retains the right to require all borrowers to demonstrate the basis upon which they made the good faith certifications, subject to certain safe harbors enacted by the SBA. Guidance from the SBA and the Treasury Department suggests that: (1) public companies with substantial market value and access to capital markets, and (2) private companies with adequate sources of liquidity, may be unable to make the good faith certifications. The SBA has announced that it will review the good faith certifications of all borrowers who receive a PPP loan of $2 million or more and loans of lesser amounts, as appropriate.

The SBA will deem borrowers who repay a PPP loan in full by Monday, May 18, 2020, to have made the necessary certifications in good faith. Although official guidance has not yet been issued, the SBA and the Treasury Department have indicated that any borrower who, together with any affiliates, received less than $2 million in PPP loans, will be deemed to have made the certifications in good faith. If a borrower who did not otherwise meet these safe harbors is found to have failed to make the certifications in good faith, then the SBA will requirement repayment, and, if the borrower repays the loan after notification by the SBA, the SBA will not pursue administrative enforcement.

Once you complete the application, you will need to submit it, along with all required supporting documentation, to an SBA-approved lending institution. You can find an approved lending institution at: https://www.sba.gov/paycheckprotection/find. The SBA anticipates approving additional lenders, so also check with your lending institution to see if it is participating in the PPP. Borrowers have 20 calendar days from loan approval to submit all required loan documentation, or the lender is required to cancel the loan.

Although the CARES Act allows for application to be made until June 30, 2020, you should complete and submit your application and documentation as soon as possible because of limited funds and expected high demand. Availability is on a first-come, first-served basis. It is expected that additional funding approved as of April 24, 2020, will likely be exhausted in the same manner as the initial funding.

Important Clarifications

The Treasury Department guidance makes the following important clarifications to the PPP:

  • Payment of any principal, interest, and fees will be deferred for 6 months from loan origination (although interest will accrue during that time).
  • The interest rate will be fixed at 1.00%.
  • Any principal amount of the loan not forgiven will be subject to a term of 2 years following the determination date of forgiveness.
  • At least 75% of the amount subject to loan forgiveness must be used for payroll costs. Although you may use the loan proceeds for other purposes, be mindful of this limitation for forgiveness. 
  • Certain alternative guidance has been provided for seasonal employers in the Fifth Rule issued by the SBA and Treasury Department.

On May 15, 2020, the SBA released the PPP Loan Forgiveness Application, which you can access here. You can also read more about the application and its instructions here.

We will continue to monitor any additional guidance from the Treasury Department and the SBA, and we will update our discussions as warranted.  If you have any questions, please contact John Anjier, Nina Skinner, C.J. Miller, or Madeline Thomas.

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