Further Details on the Paycheck Protection Program under the CARES Act

On March 27, 2020, President Trump signed the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act), the third such legislation to address the impact of COVID-19 on workers and businesses.

Program overview. The CARES Act (Sec. 1102) amends 15 USC 636 which authorizes the Small Business Administration (SBA) to make loans to qualified businesses under certain circumstances. The provision establishes the Paycheck Protection Program (PPP). The program will provide up to eight weeks of cash-flow assistance through 100% federally guaranteed loans to eligible recipients to maintain payroll during the COVID-19 public health emergency and cover certain other expenses.

Under the program, eligible recipients may qualify for loans of up to $10 million determined by eight weeks of prior average payroll. The first loan payment is deferred for six months. If the recipient maintains their workforce, up to 100% of the loan is forgivable by the SBA if the loan proceeds are used to cover the first eight weeks of payroll, rent, mortgage interest, or utilities. The Treasury Department anticipates that no more than 25% of the forgiven amount may be for non-payroll costs. Payroll includes employee salaries (up to an annual salary of $100,000), hourly wages, cash tips, paid sick or medical leave, group health insurance premiums, retirement benefit payments, state or local tax on employee wages, and compensation to a sole proprietor or independent contractor of up to $100,000 per year. If the recipient does not retain the entire workforce, the level of forgiveness is reduced by the percentage of decrease. However, if the laid off workers are rehired by June 30, the full amount of the loan may still be forgiven.

Eligible recipients. Eligible recipients include small employers including non-profits, self-employed individuals and “gig economy” workers with 500 or fewer employees. Businesses in certain industries with more than 500 employees may be eligible if they meet the SBA’s size standards for those industries. See the SBA’s White Paper on Size Standard Methodology, effective April 11, 2019 for further information.

Program period. The covered period of the program begins retroactively Feb. 15, 2020 and ends June 20, 2020. The retroactive date of the program allows eligible recipients to bring back workers onto the payroll who have been laid off during the COVID-19 emergency.

Interest rate, terms, and fees.  All loans under PPP will have an interest rate of 0.5%, a maturity of two years. No borrower or lender fees will be charged [U.S. Treasury, Press Release, 3/31/20].

Participating lending institutions. Eligible recipients may apply for the PPP at lending institutions approved to participate in the program through the SBA’s 7(a) lending program. or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Eligible recipients can contact their bank to find out if they are participating in SBA loaning programs.

PPP application. On March 31, the Treasury Department released the PPP Application Form. The form requires applicants to provide the average monthly payroll and multiply by 2.5 to determine the loan amount and indicate the number of jobs involved. Lenders may begin processing loan applications as soon as April 3, 2020.

Resources. The SBA has created a webpage regarding the program.