COVID-19 Loan Programs - Small Business Relief Loans

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress created a new Small Business Administration (SBA) loan program called the Paycheck Protection Program (PPP).  The Paycheck Protection Program is designed to assist small businesses cover payroll and other operating expenses.  Economic Injury Disaster Loans (EIDL) are also available for affected small businesses due to the Coronavirus impact.  A comparison chart is provided with this article to aid in assessing the features of both programs, with this article focusing on the PPP.

Any qualifying small business may apply if harmed by the COVID-19 during the period from February 15 to June 30, 2020.  The program is retroactive to February 15, 2020, so that any employers are able to bring back any employees who may have already been laid off.

Other key highlights include the following (based on the latest guidance from the Treasury Department issued March 31, 2020):

• Eligibility – the following are eligible so long as the business was in operation and had payroll obligations as of February 15, 2020:
  • Small businesses (including nonprofits, veteran organizations or tribal business concerns) with fewer than 500 employees*
  • Sole proprietors, self-employed or independent contractors
• Loan size
  • The maximum loan in all cases is $10,000,000
  • Actual loan amount will be based on a formula – essentially 250% of the monthly average of payroll costs for 2019 (or from January 1 through February 29, 2020, for any business not in operation in 2019)
  • In determining 2019 payroll costs, the following costs are considered:
    • Compensation paid (subject to a cap of $100,000 per employee) to employees located in the United States
    • Paid leave payments (vacation, parental, medical, sick or family leave)
    • Group health benefit payments and insurance premiums
    • Allowances for dismissal/separation
    • Retirement benefit payments
    • State and local tax on employee compensation
  • Loan Forgiveness
    • All PPP loan proceeds spent during the 8 week window after loan issuance on the following payroll and payroll support costs will be forgiven:
      • Payroll costs (as described above)
      • Utilities
      • Rent (under any lease entered into before February 15, 2020)
      • Mortgage interest (under any mortgage entered into before February 15, 2020)
      • Interest on other debt obligations incurred before February 15, 2020
    • The amount of loan forgiveness is based on retention of employees and wages during the covered period (February 15 to June 30, 2020) – any reductions during that time will result in a proportionate percentage decrease in the amount of PPP loan that will be forgiven
    • Loan forgiveness may be reduced or eliminated if there is excess spending on non-payroll items – in short, no more than 25% of the loan forgiveness amount can be allocable to payments for rent, utilities or interest payments on pre-existing mortgages or debt obligations
  • Other terms
    • Any loan amounts not forgiven are subject to 1.0% interest and must be paid back over a two year term
    • Loan payments are deferred for six months
    • No fees
    • No prepayment penalties
    • No collateral requirements
    • No personal guaranties
    • Applicants may receive loans from other funding sources, including the SBA economic injury disaster loan program (EIDL), but PPP loan recipients cannot “double dip” by also using funds from EIDL on payroll costs

Interested parties should contact an SBA approved lender immediately.  The application process for small businesses and sole proprietorships opens on April 3, 2020.  The process opens for self-employed and independent contractors on April 10, 2020.  Applications must be received and processed by June 30, 2020, but PPP loans will be issued on a first come first served basis and there is a cap on funds available.

* Or (1) the applicable size standard in number of employees for the North American Industry Classification System (NAICS) as provided by the SBA, if higher, or (2) a business with not more than 500 employees per physical location that has a NAICS code beginning with 72 (accommodations and restaurants).

For more information from the U.S. Department of the Treasury, see here:

1. A program overview
2. A fact sheet for borrowers
3. A fact sheet for lenders
4. An application template for borrowers

If you have questions, please reach out to a Graydon attorney who can assist in guiding you into the right direction.