Update on SBA’s Paycheck Protection Program
The Small Business Administration (“SBA”) has released a Sample Application for the Paycheck Protection Program (“PPP”) made available in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). I have attached the sample application for your review. Additionally, the SBA has provided updated guidance on the PPP and the application process.
Under the PPP, small businesses, nonprofits, sole proprietorships, independent contractors and self-employed individuals are eligible for loans of up to $10 million. This program is for any small business with less than 500 employees affected by coronavirus/COVID-19.Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries. Small businesses in the hospitality and food industry with more than one location could also be eligible at the store and location level if the store employs less than 500 workers. This means each store location could be eligible.
It is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The PPP will be available through June 30, 2020. However, SBA’s Information Sheet states that “we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.” Start the application process as soon as possible.
Small businesses and sole proprietors can apply beginning on April 3, 2020. Independent contractors and self-employed individuals can apply beginning on April 10, 2020. You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your lender as to whether it is participating in the program, and if they are not, then request a recommendation. Lenders may begin processing loan applications as soon as April 3, 2020.
TERMS OF THE PPP LOAN AND FORGIVENESS
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
This loan has a maturity of 2 years (a change from the original terms of “up to 10 years”) and an interest rate of 0.5% (a change from the original terms of “up to 4%).
PREPARATION FOR APPLYING
First, If you are working with a new lender, confirm that your existing loan documents do not prohibit a new loan or require the consent of your existing lender. Next, make sure you have lined up all the signatories. The loan application must be signed by the applicant and each person or entity owning more than a 20 percent interest in the applicant’s business. This means the application must be signed (i) for a partnership, by all general and limited partners owning 20 percent or more; (ii) for limited liability companies, by all members owning 20 percent or more; and (iii) for corporations, by all shareholders owning 20 percent or more.
Initially, subject to change with further guidance, gather the following documents:
- Organizational documents such as operating agreements, shareholder agreements, partnership agreements and articles of incorporation
- Payroll records for 2019 and January 1 – April 1, 2020 (including IRS Form 941 for all four quarters of your 2019 payroll, health insurance premium information for 2019, state and local taxes for 2019, and retirement plan contributions for 2019)
- A computation of employees as follows:
- Average monthly number of total employees (including full- and part-time) for the one-year period ending on March 31, 2020
- Current number of total employees (full- and part-time)
- Average number of full-time employee equivalents per month from February 15, 2019 to June 30, 2019
- Average number of full-time employee equivalents per month from January 1, 2020 to February 29, 2020
- Mortgage or rent statement
- Recent utility bills
GOVERNOR PRITZKER EXTENDS THE ILLINOIS DISASTER DECLARATION
Yesterday, Illinois Governor, J.B. Pritzker, extended the Illinois Disaster Declaration issued on March 9, 2020 until April 30, 2020. In addition, Governor Pritzker extended all 17 Executive Orders (including Order No. 8, “Stay-Home Order”) until April 30, 2020. However, Governor Pritzker cautioned that the date is subject to change with continued evaluation. We provided an analysis of the Stay-Home Order and the broad definitions of Essential Businesses in our March 21st update.
Power & Cronin greatly appreciates the opportunity to provide you with the very best legal representation. Please let us know if you need any further guidance with COVID-19 or any other matter to assist with your business. Should you have any further questions about the applicability of the PPP or any new legislation to your business, please do not hesitate to contact our office at (630) 571-2001.
Very truly yours,
Daniel J. Cronin
POWER & CRONIN, LTD.