Eric Perlmutter-Gumbiner

Counsel
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Paycheck Protection Program Q&A

March 30, 2020Client Alert

The two trillion dollar CARES Act passed by congress and signed by the president into law on Friday, March 27, provides many valuable benefits for businesses. In part one of a multi-part series about the benefits of the CARES Act for businesses, we’ve put together an introductory Q&A about the Paycheck Protection Program—a government loan program that provides potentially forgivable loans to businesses.

What is the Paycheck Protection Program?

The Paycheck Protection Program is an expansion of the currently existing loan program under Section 7(a) of the Small Business Administration designed to make potentially forgivable loans to businesses.

Who is eligible to receive loans under the Paycheck Protection Program?

The program generally applies to businesses with less than 500 employees, and also includes eligibility for 501(c)3 nonprofits as well as sole proprietors, independent contractors, and self-employed individuals.

How large are the loans?

Subject to certain terms and conditions, businesses can borrow up to 2.5 times their monthly average payroll, up to a total of ten million dollars.

What is the interest rate on the loans?

The terms of each loan will vary, but the maximum interest rate on the loans is four percent.

Are there origination fees, collateral and personal guarantees?

The normal requirements for loans under Section 7(a) of the Small Business Administration are being waived. These loans will have no origination fees and will not require any collateral and, at least through the end of 2020, no personal guarantee.

What if I have an existing credit facility?

The Paycheck Protection Program waives the requirement that applicants for a loan under Section 7(a) of the Small Business Administration not be able to find credit elsewhere.

How can I spend the money from the loan?

Subject to certain terms and conditions, money from these loans used for mortgage interest, rent payments, leases, utility services, and payroll may all be forgiven. Payroll costs can include employee salaries (up to an annual rate of pay of $100,000), hourly wages and cash tips, paid sick and medical leave, and group health insurance premiums. Loan proceeds can also be used on other business-related expenses like inventory, but those will not be forgiven.

How much of the loan can be forgiven?

Subject to additional terms and conditions, all loan proceeds spent on covered expenses during the eight-week period after loan origination can be forgiven, provided that if the borrower reduces full-time employees or an employee’s salary by more than 25%, then the amount of the loan forgiven will be reduced by a corresponding amount.

Where and when can I apply?

You can apply at any Small Business Administration approved bank with applications expected to be available in the next few weeks through June 30, 2020.

Please feel free to reach out with further questions about the Paycheck Protection Program or for assistance with the application process.