ADVISORIES AND ALERTS

HE SMALL BUSINESS ADMINISTRATION’S PAYCHECK PROTECTION PROGRAM’S LOAN FORGIVENESS APPLICATION

On Friday, May 15, 2020, the Small Business Administration (SBA), in consultation with the Department of the Treasury, released the Paycheck Protection Program (PPP) Loan Forgiveness Application and detailed instructions for the application.

In its press release, the SBA indicated that form and instructions inform borrowers how to apply for forgiveness of their PPP loans, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The SBA indicated that it would also issue regulations and guidance in the immediate future to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.

The SBA indicated that the form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

• Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
• Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan
• Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
• Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30
• Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined

The link to SBA Form 3508 can be found here. Many analysts have indicated that the SBA has left some important questions concerning the forgiveness process. Hopefully, the SBA’s future guidance referenced above will resolve these questions.

For an explanation of the SBA’s Paycheck Protection Program, please visit the Advisories and Alerts Page of BHL’s website.

Please contact Robert E. Kelly at rkelly@bhlpc.com for more information concerning this Firm Advisory.

The information provided in this Firm Advisory does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this Firm Advisory and on this site are for general informational purposes only.

THE SMALL BUSINESS ADMINISTRATION’S PAYCHECK PROTECTION PROGRAM

The newly-created Paycheck Protection Program is designed to allow SBA-approved lenders to issue forgivable loans of up to $10 million available to certain qualified small businesses so that such businesses may to keep their workers on the payroll. Lenders may begin processing Paycheck Protection Program loan applications as soon as April 3, 2020.

BACKGROUND:
The CARES ACT signed into law March 27, 2020, established several programs for funding areas of the economy. The first section of the Act creates the “Paycheck Protection Program”, which provides for forgivable loans of up to $10 million available to certain qualified small businesses. Congress has appropriated $349 billion for this program.

ELIGIBILITY:
A qualified small businesses is a business that does not have more than 500 employees. The CARES Act defines “employees” as individuals employed on a full-time, part-time, or other basis (including independent contractors).

MAXIMUM AMOUNT OF THE LOAN:
The maximum amount of the loan is set by formula (average monthly payroll cost prior to the February 15, 2020) times 2.5 up to a maximum of $10 million.
“Payroll costs” in the CARES Act is defined as the sum of payments of any compensation with respect to employees (including independent contractors) that is employee salary, wages and commissions; payment of cash tips; payment of vacation; parental, family, medical or sick-leave; allowance for dismissal or separation; payment required for group health benefits (including insurance premiums); payment of retirement benefits; or payment of state or local tax assessed on employee compensation MINUS annual compensation greater than $100,000 for individual employees or independent contractors. So, it appears the amount in the calculation could be more than just basic salary.

CALCULATION OF LOAN
Calculate the loan amount by multiplying the average total monthly payments for payroll costs (defined above) incurred in the 1-year period before the date of the loan by 2.5. So the applicant should calculate the total payroll costs for the above period 12-month period and find the average. Then multiply by 2.5 for the total of the loan sought.

FOREGIVENESS OF LOAN
The loan forgiveness will equal the amount spent by the borrower in the eight-week period after the loan origination date on the following items (not to exceed the original principal amount of the loan): payroll costs, interest (not principal) payments on any mortgage obligations or other debt obligations incurred before February 15, 2020 (but not any payments or prepayments of principal); rent and utilities. The borrower must apply to the lender for loan forgiveness with supporting documentation for every cost.
Should employment numbers be reduced, the amount forgiven will be reduced proportionally by any reduction in the number of employees retained as compared to the prior year.

USE OF PROCEEDS
Applicable uses for the loan proceeds include: (1) qualified payroll costs; (2) rent; (3) utilities; and
(4) interest on mortgage and other debt obligations incurred prior to February 15, 2020.

APPLICATION PROCESS
The CARES Act puts this on the fast track. No personal guarantee. No collateral. Applicant only need to show it was in business prior to February 15, 2020 and had employees and paid salaries and taxes or had independent contractors and filed 1099-MISC for them. Applicant must certify: (a) Current uncertain economic times make the loan request necessary to support ongoing operations; (b) Funds will be used to keep workers and make payroll, mortgage payments, lease payments and utility payments; and (c) Applicant does not already have an application pending for other payroll assistance under the CARES Act.
Also, Loans are non-recourse to the shareholders, members and partners of the borrower. In addition, the borrower does not have to demonstrate it was unable to secure financing elsewhere before qualifying for SBA financing.

The SBA has posted the sample Paycheck Protection Program Application Form, SBA Form 2483, on its website, here .
Please contact Robert E. Kelly at rkelly@bhlpc.com for more information concerning this post.