Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program,  the initiative provides 100% federally guaranteed loans to small businesses.

Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.  The administration soon will release more details including the list of lenders offering loans under the program. In the meantime, the U.S. Chamber of Commerce has issued this guide to help small businesses and self-employed individuals prepare to file for a loan

Here are the questions you may be asking— and what you need to know.

You are eligible if you are:

• A small business with fewer than 500 employees
• A small business with fewer than 500 employees
• A small business that otherwise meets the SBA’s size standard
• A 501(c)(3) with fewer than 500 employees
• An individual who operates as a sole proprietor
• An individual who operates as an independent contractor
• An individual who is self-employed who regularly carries on any trade or business
• A Tribal business concern that meets the SBA size standard
• A 501(c)(19) Veterans Organization that meets the SBA size standard

In addition, some special rules may make you eligible:

• If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
• If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply

REMEMBER: The 500-employee threshold includes all employees: full-time, part-time, and any other status

What will lenders be looking for:

In evaluating eligibility, lenders are directed to consider whether the borrower was in operation before February 15, 2020, and had employees for whom they paid salaries and payroll taxes or paid independent contractors.

Lenders will also ask you for a good faith certification that:

• The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
• The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
• Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
• From Feb. 15, 2020, to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)

If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents  (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship

How much can I borrow?

Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.

Will this loan be FORGIVEN?

Borrowers are eligible to have their loans forgiven. How Much? A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:

• Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
• Interest on the mortgage obligation incurred in the ordinary  course of business
• Rent on a leasing agreement
• Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
• For borrowers with tipped employees, additional wages  paid to those employees The loan forgiveness cannot exceed the principal

How could the forgiveness be reduced? The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.