Relief for Small Businesses Under the Stimulus Bill

The following are eligible borrowers to receive one PPP loan before the June 30 deadline:

• Any business, profit or nonprofit; veterans’ group; or tribal business; in each case, with 500 or fewer employees, or fewer than the number already set by the SBA for the relevant industry. ^[1]
• Sole proprietors, independent contractors, and eligible self-employed workers.
• Hotel and food service chains with 500 or fewer employees per location.

The amount that can be borrowed under the PPP is the sum of:

2.5 times the average total monthly payroll costs for the year immediately preceding the date of the PPP loan, up to $10 million, plus the amount any EIDL loan made from January 31, 2020 through April 3, 2020.

See the EIDL Loans paragraph at the end of this section for a description of the amounts of an outstanding EIDL loan to be refinanced with proceeds of a PPP loan.

Borrower can use the proceeds of a PPP loan for:

• payroll costs, including benefits;
• mortgage interest (not principal) on mortgage obligations incurred before February 15, 2020;
• rent under leases in place before February 15, 2020;
• utilities for service that began before February 15, 2020; and
• interest on any other debt obligations that were incurred before the covered period.

“Payroll costs” include the following:

• salaries, wages, commissions or similar compensation, up to $100,000 on an annualized basis for each employee;
• payment of cash tips or equivalent;
• payments for vacation, parental, family medical or sick leave;
• allowance for dismissal or separation;
• payments to maintain group health care benefits, including insurance premiums;
• payment of retirement benefits; and
• state or local taxes on employee compensation.

For sole proprietors and independent contractors, it includes wages, commissions, income, net earnings from self-employment or similar compensation, subject to the same $100,000 limitation.

The following are specifically excluded from payroll costs:

• individual employee compensation in excess of $100,000 on an annualized basis;
• withheld federal payroll and income taxes;
• compensation to employees outside the United States; and
• sick leave or family leave for which credits are already allowed under the Families First Coronavirus Response Act (Public Law 116-127).

The interest rate for PPP loans is now set at 1.0% p.a. (This is a change from the 0.5% rate announced earlier this week.)

SBA fees are waived.

2 years for the amount of the PPP loan that is not otherwise forgiven (see next paragraph).

No prepayment penalties.

Within 60 days of application and submission of proof to the loan servicer, the principal amount of a PPP loan can be forgiven in an amount equal to the sum of payroll costs, interest, rent and utilities paid during the 8 weeks following loan origination.

The forgiven amount will not be taxable as forgiveness of indebtedness income.

The full amount of a PPP loan may be forgiven if during the 8 weeks after loan origination all the loan proceeds are used for the “forgivable” purposes described above.

However, the SBA also has described an expected limit on the amount of non-payroll costs that will be included in the calculation—specifically, that not more than 25% of non-payroll costs will be included in the total amount to be forgiven.

The current understanding of the forgiveness math is that the forgiven amount will be:

• Reduced for layoffs of FTEs.
• Reduced for wage cuts of 25% or more affecting employees making less than $100,000 per year.
• Increased for rehires made until June 30, 2020, to give borrowers time to restore their full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Note that the rules for forgiveness will continue to evolve as the PPP is implemented. The SBA has promised to issue additional guidance.

Lenders’ credit decisions are to be based solely on proof of the following: The borrower’s business was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or had independent contractors as reported on Form 1099-MISC.

If the borrower is a sole-proprietor or independent contractor, proof that it has traditionally received income as a sole-proprietor or independent contractor.

Proof that the borrower is unable to obtain credit elsewhere not required.

Borrowers will be required to certify, among other things, that:

• The uncertainty of the current economic conditions makes the loan necessary to support ongoing operations[2].
• Funds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments.
• The borrower has not and will not receive another loan under the PPP.
• The truth and accuracy of the borrower’s application and all supporting documents and forms.
• Acknowledgement that the lender will use borrower’s tax documents to calculate the loan amount and that those documents are identical to those filed with the IRS and that those documents can be shared with the SBA’s authorized representatives.

Because of the need to deploy these funds quickly, the Act provides for immediate expansion of the SBA lender base and additional operational funds to the SBA.

However, we expect this expansion of capacity to take some time to catch up to the expected volume of applications.

Meanwhile, get in the queue and work to get your documents prepared.

Here are some guidelines:

Keep excellent records. As described above, you will be required to certify that the documents you submit are true and correct, especially in your application for debt forgiveness.

Recommended essential documents to retain or prepare.

• payroll tax filings reported to the IRS;
• state income, payroll, and unemployment insurance filings;
• statements verifying payment on debt obligations incurred before the covered period;
• past 3 years of federal tax returns;
• IRS Form 4506-T-Request of Tax Transcripts;
• copies of real estate leases, if applicable;
• business financial statements; and
• forms indicating total payroll burden in 2019; and
• completed SBA Form 1919-Borrower Form Section I.

As implementation continues to unfold, the SBA and the lenders may require additional documentation. Continue to watch the websites for the SBA and its district offices and consult with your existing advisors and lenders.

EIDL Loans

Note that the Act specifically allows for borrowers under the PPP to refinance prior EIDL loans.

Small business owners in all 50 states are now allowed to apply for Economic Injury Loan advance.

In summary, as modified by the Act, EIDL loans will have the following features:

• The EIDL program provides small businesses with working capital loans of up to $2 million.
• EIDL advance loans are made within 3 days of request for an amount up to $10,000.
• This advance will not have to be repaid if the funds are used for payroll, even if the EIDL loan is ultimately denied.

The SBA’s “Final Interim Rule,” soon to be published in the Federal Register states that a recipient of an EIDL loan during the period January 31 through April 3, 2020 can still apply for a PPP loan–even if the EIDL was not used for payroll costs.  If, on the other hand, the EIDL loan was used for payroll costs, the PPP loan must be used to refinance the EIDL loan.

Advances on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.