The Paycheck Protection Program (the “PPP”) is one of the loan programs administered by the Small Business Administration (the “SBA”) that will be available to small businesses as a result of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
PPP loans will be made by participating commercial banks between February 15, 2020 and June 30, 2020, subject to certain eligibility requirements, and will be 100% guaranteed by the SBA. Most employers with fewer than 500 employees who were in operation on February 15, 2020 will be eligible and can use the loan proceeds to help pay operational expenses like payroll, rent, health benefits, insurance premiums, utilities and other costs . Borrowers can apply for forgiveness of all or a portion of a PPP loan, subject to limitations generally tied to maintaining employees and contractors and compliance with the CARES Act.
The Treasury Department has just released a PPP Loan Application – https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf
and a related Information Sheet for borrowers – https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf
Starting April 3, 2020, borrowers that are small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Starting April 10, 2020, borrowers that are independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
In addition to the Loan Application, Borrowers will need to submit payroll documentation. While the exact documentation required is not yet clear, it appears that borrowers should collect the following:
- Last 12 months of payroll reports beginning with last payroll date and going back 12 months. Include:
- gross wages
- paid time off
- vacation pay
- family medical leave pay
- state and local taxes assessed on each employee’s compensation
- 1099’s for 2019 for independent contractors that would otherwise be an employee. Do NOT include 1099’s for services.
- Documentation showing total of all health insurance premiums paid under a group health plan.
- Documentation showing the sum of all retirement plan funding (such as 401K plans, Simple IRA, SEP IRAs) paid by the borrower (not funding paid by employees and deducted from their paychecks).
Since the CARES Act only authorizes the SBA to guarantee up to a certain maximum amount of loans, once that monetary threshold is reached, no further loans could be guaranteed without further Congressional action. As a result, borrowers should consider filing their application as soon as they can after the applicable filing date.
Also, since all or a portion of a PPP loan may qualify for forgiveness based on payroll costs incurred, and mortgage interest payments, rent payments and utility payments made during the covered period ( February 15, 2020 through June 30, 2020), at the end of the covered period Borrowers should be ready to submit to their lender:
- Documentation verifying FTEE on payroll and their pay rates;
- Documentation on covered costs/payments (e.g., documents verifying mortgage, rent, and utility payments);
- Certification from a business representative that the documentation is true and correct and that forgiveness amounts requested were used to retain employees and make other forgiveness-eligible payments; and
- Any other documentation the SBA Administrator and the lender may require.
If you would like more guidance, please contact your Brown Moskowitz & Kallen, P.C. attorney at (973) 376-0909 via the office extensions below or the mobile telephone numbers provided.
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This article is for informational purposes only and is not intended to constitute, and does not constitute, legal advice.