SBA Paycheck Protection Program (PPP) Loans under the CARES Act

Simon PLC Attorneys & Counselors – Supplemental Interim April 2020 Memorandum

SBA Paycheck Protection Program (PPP) Loans under the CARES Act

Bloomfield Hills, Michigan – In response to the COVID-19 crisis, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides for the U.S. Small Business Administration (SBA) to authorize fully-guaranteed Paycheck Protection Program (PPP) Loans.

PPP Loans have a term of two years, with payments deferred for the first six months.  The interest rate is one percent (1.00%) per annum.  There are no fees assessed to the borrower other than an allowable processing fee payable to the lender.  There is no collateral required of borrower, and no personal guaranties are taken.  Loan amounts may be up to 2.5 times a borrower’s average monthly payroll costs, up to $10 million.

The goal of the program is to allow employers to retain or rehire employees while maintaining salary levels.  Therefore, PPP Loans may only be used for the following specific purposes:  Payroll Costs, Mortgage Interest, Rent, Utilities, and Interest on Other Debt Obligations, with at least 75% of the loan amount used for Payroll Costs. 

Borrowers are eligible to apply for PPP loans if they have 500 or fewer employees whose principal place of residence is in the United States, or are a business that operates in a certain industry and meets the applicable SBA employee-based size standards for that industry, and if they are (i) a “small business concern” as determined by SBA definitions and exceptions; or (ii) a tax-exempt 501(c)(3), a tax-exempt veterans organization, or Tribal business concern as defined by the SBA; and, such business must also have been in operation as of February 15, 2020 and paying salaries and payroll taxes.

Most importantly for borrowers, PPP Loans may be forgiven up to an amount equal to the sum of eligible costs incurred by the borrower during the 8-week period beginning with the first disbursement of proceeds.  The borrower must submit acceptable evidence (defined within the Act) of these costs to the lender, who will then submit the request to SBA.  The SBA may approve a portion of or the entire amount requested.  It is crucial to maintain excellent recordkeeping, and to have used loan proceeds for the objectives of the program.  For example, forgiveness will be reduced in proportion to reduction in full-time headcount or decreased wages.  Also, borrowers who have existing SBA Economic Injury Disaster (EIDL) Loans will have any approved forgiveness amount reduced by the amount of EIDL advances already made.

What does the program require of lenders?  Lenders must be party to an approved Lender Agreement with SBA and document approved loans in accordance with the terms of the authorization issued by SBA.  Lenders must continue to be in compliance with all program requirements, including any amended rules or guidance issued from time to time. 

Lenders will receive a one-time processing fee for each loan, calculated as follows:  5% on loans of not more than $350,000; 3% on loans of more than $350,000 and less than $2,000,000; and 1% on loans of at least $2,000,000.

The Act allows a lender to request that SBA purchase in advance the expected forgiveness amount of a Loan.  The expected amount must be documented in detail using the statutory formula provided as well as supplemental documentation. 

The government continues to modify guidelines for the PPP, and Simon PLC’s Transactional Group is monitoring these developments.  We are prepared to advise lenders and borrowers to successfully navigate the PPP.  For lenders, we can provide loan agreements, notes, checklists, and all necessary documentation, all in compliance with the most recent guidance and interim rules issued by the SBA.  We can assist business owners and independent contractors with the application process and advise you how to keep records that will qualify you for full loan forgiveness.  Call us at any time to be connected with solutions.

N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.

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