CARES Act Paycheck Protection Program: Latest Details
As described in our March 28 alert available on the Pepper Hamilton/Troutman Sanders COVID-19 Resource Center website, the CARES Act created a new program within the SBA’s flagship 7(a) loan program called the Paycheck Protection Program (PPP). Today, the United States Department of the Treasury released the following additional guidance.
Overview
The CARES Act authorized $349 billion in PPP funds, which the SBA will use to guarantee 100% of the amounts loaned under the PPP by lenders to eligible small businesses, nonprofits, veterans organizations, and tribal businesses. Self-employed individuals and independent contractors also are eligible, provided that they meet the PPP’s size standards.
PPP funds can be used to pay up to eight weeks of payroll costs, including benefits, and also may be used to pay interest on mortgages, rent, and utilities. PPP loans will be forgiven if used for payroll costs, interest on mortgages, rent, and utilities. Payroll costs are capped at $100,000 on an annualized basis for each employee. Importantly, forgiveness is based on employers maintaining (or quickly rehiring employees) and maintaining salary levels. Due to high subscription rates, the SBA anticipates that least 75% of forgiven amounts will need to be applied to payroll costs. A top line summary of the PPP’s key points is available here.
Lender Information
Eligible borrowers can apply through any existing SBA 7(a) lender or through any participating bank, savings association, and Farm Credit System institution. All existing SBA-certified lenders will be given delegated authority to speedily process PPP loans. A list of the Top 100 most active SBA 7(a) lenders is available here. More lenders, including fintechs, will be available once approved by the SBA, which we expect will be a very rapid process.
All loans will have the same terms regardless of lender or borrower. Loan payments are deferred for six months with the loan term being two years from origination. The interest rate will be 0.5% per annum. No collateral or personal guarantees are required, and neither the SBA nor the lenders will charge any fees to borrowers. Lenders are subject to certain underwriting and applicant verification standards, including Bank Secrecy Act requirements. Lender compensation comes from processing fees based on the balance of the loan outstanding at final disbursement:
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Loans $350,000 and under: 5%
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Loans greater than $350,000 to $2 million: 3%
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Loans greater than $2 million: 1%
Fees payable to third-party agents (e.g., attorneys, consultants, loan brokers, etc.) that help borrowers are payable only by the lenders, not the borrowers. More detailed information for lenders is available here.
Borrower Information
Eligible participants are permitted to borrow up to $10 million under the PPP (covered loans) from February 15, 2020 through June 30, 2020 (covered period). Each borrower is limited to one loan under the PPP. Prospective applicants must act quickly because of the PPP’s funding cap (i.e., $349 million). Starting April 3, small businesses and sole proprietorships can apply. Starting April 10, independent contractors and self-employed individuals can apply. More detailed information for borrowers is available here and additional information can be obtained on the SBA’s website here. Information on the CARES Act, the PPP, and other assistance programs for small businesses is available from the United States Department of the Treasury here.
Borrower Application
Borrowers can directly access the PPP Application Form here. The application is short (four pages with instructions) and requires the applicant to submit current tax documentation to the lender to calculate eligible loan amounts.
Please visit the Pepper Hamilton/Troutman Sanders COVID-19 Resource Center for COVID-19-related news and developments, recommendations from leading health organizations, and tools that businesses can use free of charge.