CARES Act Update: Paycheck Protection Program

The Paycheck Protection Program (PPP) is part of The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was passed last week by the U.S. Congress. The PPP provides short-term cash flow assistance to small businesses in support of their employees during the COVID-19 pandemic and the resulting economic distress. PPP loans are provided by the U.S. Small Business Administration (SBA) through certified lenders guaranteed by the federal government.

The SBA has released a fact sheet with details regarding PPP for borrowers and the application form is now available. Since these loans will be made through approved SBA lenders, which includes most large banks as well as many regional or community banks, you must contact those institutions to understand what information is necessary to submit an application. Please note that the information needed may vary by lender and it is very important to act quickly since many businesses will seek this funding – TIME IS OF THE ESSENCE.

Please contact your RS&F Client Advisor for additional details regarding PPP, if you need assistance with the loan application, and/or if you would like a referral to an SBA lender who can assist you through this process.

Additional details regarding PPP are as follows:

  • Eligibility Period: PPP loans must be made for the period prior to June 30, 2020.
  • Eligible Businesses: Applicants must be businesses with less than 500 employees, operated on or prior to February 15, 2020, and have been substantially impacted by COVID-19.
    • Businesses not eligible include churches, cannabis companies, casinos, land developers, and any business involved in an illegal or prurient activity are not eligible per federal law; and
    • Affiliation rules of limiting to one entity are waived for this loan in certain industries.
  • Use of PPP Loan Proceeds: The funds received under the PPP loan requirements must be for the following expenses:
    • Payroll (salaries, wages, vacation, parental, family, medical, or sick leave, severance, retirement benefits, and state or local taxes);
    • PPP funds cannot be used to pay salaries over $100,000;
    • Costs for related group health care benefits;
    • Employee commissions and tips;
    • Interest on mortgage payments (not applicable for principle portion of payments) and on additional debt incurred prior to obtaining the loan; and
    • Rent and utilities.
  • Payment Forgiveness
    • For 8 weeks from the origination date of the loan, specified funds may be forgiven when used for payrolls costs, mortgage interest, rent, and utility as described above.
    • The amount of loan forgiveness cannot exceed the principle amount of the loan;
    • To get the full benefit of loan forgiveness, the business must retain their employees and pay at least 75% of their prior year compensation;
    • The amount of forgiveness will be reduced by the comparison of current year and prior year FTE’s; and
    • Businesses must submit applicable supporting documentation to request loan forgiveness.
  • PPP Loan Terms
    • Loan amounts can be as large as 250% of the business’s average monthly payroll cost over the last 12 months (not to exceed $10M);
    • Compensation over $100,000 may not be counted in the payroll calculation to determine the size of the loan;
    • Interest rates may be no more than 4%;
    • Terms can be up to 10 years from the origination date; and
    • No collateral or personal guarantees are required.
  • Miscellaneous Terms
    • Payments on PPP loans can be deferred for 6 months and up to one year; and
    • Borrowers must make a good faith certification that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.

Once again, we encourage you to contact your RS&F client advisor for assistance and we look forward to partnering with you as we work through this crisis together.

Warm regards,

Jeff Rosen, CPA, CGMA, MBA
Co-Managing Partner