On Tuesday, March 31, the Department of the Treasury and the Small Business Administration released initial details regarding the nearly $350 billion Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act. Under the program, private lenders will offer SBA-guaranteed loans to small businesses that require capital to meet payroll and other expenses.
The SBA published a COVID-19-specific webpage with additional information about programs and resources, and Treasury posted four documents outlining key features of the program, as well as information for borrowers and lenders:
- The PPP Overview describes the program’s scope, eligibility requirements, and application process. It notes that no-fee loans used to meet payroll and to pay mortgage interest, rent, or utilities may be forgiven, with payments deferred for up to six months. Businesses in all industries with up to 500 employees are eligible, and larger businesses in certain industries may also be eligible. Applications will be accepted starting April 3, 2020.
- The PPP Lender Information Fact Sheet provides details regarding lenders that are eligible to make the SBA-guaranteed loans. Importantly, all existing SBA-certified lenders are granted “delegated authority” to originate loans eligible for the SBA guarantee (subject to eligibility and other requirements). Federally insured depository institutions and credit unions, as well as Farm Credit System institutions, may also make SBA-guaranteed loans under the program. Lenders that currently do not hold SBA certification may submit applications to participate to the address noted in the Lender Fact Sheet. We expect additional detail regarding the application process in the near future.
- The PPP Borrower Fact Sheet sets forth information for potential small-business borrowers. One important condition of obtaining a loan under the program: Employee and compensation levels must be maintained. However payroll costs are capped at $100,000 on an annualized basis for each employee, so any amounts above $100,000 paid to a single employee will not be calculated in the loan amount nor towards meeting a potential threshold for loan forgiveness (e.g., SBA indicates non-payroll costs may be limited to not more than 25% of the forgiven amount). Additional details regarding an exact percentage of the loan that must be used for payroll are forthcoming.
- The PPP Application Form is now available online. Small businesses will need to provide basic information and respond to disclosure questions, including whether the business is delinquent on any federal debt. The application form requires that the borrower respond to seven certification statements that relate to the intended use of funds, the necessity of the loan to support ongoing obligations of the business, the total number of employees, and that the information in the application is correct. It appears that lenders will calculate loan amounts by referencing the businesses’ prior-year tax returns. Due to the federal extension on filing taxes, most businesses will likely submit 2018 tax returns for review.
Please see Orrick's March 30 Special Alert for additional information on the program. If you have any questions regarding the matters discussed in this alert, please contact an Orrick attorney with whom you have worked in the past.