An Interim Final Rule was published last night by the SBA. Although there are still questions, it contains some much-needed guidance on the Paycheck Protection Program loans to be made available by the SBA. Certain banks are accepting applications for PPP loans today.  Here are the highlights:

  • Wages paid to independent contractors may not be included in the calculation of payroll costs for purposes of determining the amount of a PPP Loan.
  • Interest is 1%.
  • There is only a 6-month deferral on the non-forgivable portion of the loan, and interest will continue to accrue during the deferral period.
  • The PPP Loan must be applied for by June 30, 2020. The 8-week covered period for determining forgiveness begins on the date the loan is originated. At the end of the 8-week covered period, you can request forgiveness from your lender.

The SBA still has not provided much guidance on the process for applying for forgiveness of a PPP Loan.  Here’s what we do know:

  • The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs (which cannot include payments made to independent contractors (1099) workers), payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However, not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs, so payroll costs must be at least 75% of the actual amount of loan forgiveness.
  • There may be reductions in forgivable amounts if you reduce the number of your employees or reduce salaries and wages of employees earning less than $100,000 in excess of 25% for any employee.  There are two options for calculating a reduction of employees for this purpose. Page 3 of this U.S. Chamber of Commerce Guide is helpful in explaining the formula options:
  • There is no reduction in loan forgiveness for employee reductions between Feb 15, 2020 and April 26, 2020 if the employees are hired and/or pay is restored before June 30, 2020.

As mentioned above, there is very little guidance for borrowers at this point regarding the process for applying for forgiveness. Other important highlights:

  • You must submit SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation, supporting your loan amount request.  You can find the form on the SBA website:–paycheck-protection-program-borrower-application-form  You must apply through an SBA approved lender.  If your current bank is not an SBA approved lender, I can recommend one, however, an SBA approved lender’s existing customers will have preference, and you may be put on a waiting list.  You can also find a list of SBA approved lenders here:
  • The proceeds of a PPP loan are to be used for payroll costs, costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums, mortgage interest payments (but not mortgage prepayments or principal payments); rent payments; utility payments;  interest payments on any other debt obligations that were incurred before February 15, 2020; and/or refinancing an SBA Economic Injury Disaster Loan (EIDL) loan made between January 31, 2020 and April 3, 2020.
  • If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
  • As noted above, at least 75 percent of the PPP loan proceeds must be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, you will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.

On the Paycheck Protection Program application, an authorized representative of the applicant must certify in good faith as follows:

  • The applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.
  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.
  • The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments; borrower understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold borrower legally liable such as for charges of fraud.  As explained above, not more than 25 percent of loan proceeds may be used for non-payroll costs.
  • You will need to provide to your lender documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the 8 week period following the loan.
  • Loan forgiveness may be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. As explained above, not more than 25 % of the forgiven amount may be for non-payroll costs.
  • During the period beginning on February 15, 2020 and ending on December 31, 2020, you cannot receive another loan under this program.
  • You will also need to certify that the information provided in the application and the information provided in all supporting documents and forms is true and accurate in all material respects; that you understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, and by imprisonment of two to thirty years and/or a fine of between $5,000 and $1,000,000 depending on the circumstances.

Archstone Law Group is monitoring updates from the federal government for additional guidance. If we can be helpful as you navigate through this, please contact your Archstone lawyer.