"Paycheck Protection Program" (PPP) Summary

COVID-19 Resources for our Tenants & Partners

(New SBA 7(a) Loan Program under Title I of CARES Act)

Updated: May 29, 2020

Disclaimer: Content on this page is regularly updated. We are providing these resources as a courtesy to assist you; however, for further information, including legal, insurance, and tax-related questions, we recommend that you contact your own advisors.
Loan Availability Period
  • Passage of CARES Act through June 30, 2020
  • $350BN initial size, increased by a further $310BN for a total size of $660BN
  • Lender must disburse the loan to the borrower not less than 10 calendar days after the loan is approved by SBA
Eligibility — Size Test and Affiliation

"Business" defined as non-profit, veterans organizations, Indian tribunal organizations (wholly or partially owned), sole proprietorships or independent contractors

  • Business substantially impacted by CVD-19

    • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant
  • US-domiciled business
  • Operational on February 15, 2020
  • May exclude private equity back portfolio companies

There are three categories of eligibility. Please note that the affiliation rules apply and the applicant plus its affiliates must satisfy one of the standards below.

  1. Size test: 500 or fewer employees
  2. SBA NAICS Size Standards. Applicants who fall under the traditional SBA size standards based on NAICS codes; and

    • under accommodation and food services,
    • certain franchises; or
    • businesses that receive financial assistance from a small business investment company
  3. SBA "Alternative Size Standard". Applicants who meet the “alternative size standard” set forth in the SBA guidance published on April 7. The applicant must meet both of the following:

    1. Employer's maximum tangible net worth on March 27, 2020, is not more than $15 million; and
    2. Employer's average net income after Federal income taxes (excluding any carry-over losses) for the two full fiscal years before the date of application is not more than $5 million.
Loan Limits

Lesser of:

  • 2.5x average monthly payroll (2019 or TTM), plus certain outstanding loans
  • or maximum amount of $10M

SBA Express Loan:

  • $1M through 12/31/2020; or
  • $500,000 after 12/31/2020
Allowable Uses of Loan Proceeds
  • Payroll Support (inc. paid sick or medical leave)
  • Rent (for leases in place on or before 2/15/2020)
  • Mortgage (for loans in place on or before 2/15/2020)
  • Interest on other debt obligations incurred before 2/15/2020
  • Utilities
  • Insurance
  • Other debt obligations
  • Borrowers that receive a section 7(a) loan for salaries, payroll support, mortgage payments and/or other debt obligations will not be able to receive an SBA EIDL loan for the same purpose so consult your advisor before applying to best maximize your benefits
Loan Forgiveness

A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the eight-week period beginning on the date of the origination of the loan:

  • Alternative Payroll Covered Period. The Forgiveness Application creates a new Alternative Payroll Covered Period, which allows borrowers to begin the eight-week Covered Period on the first day of the first pay period following the date the borrower received its PPP loan disbursement.

  • Payroll Costs Paid or Incurred. Payroll costs incurred and paid during the Covered Period or Alternative Payroll Covered Period remain forgivable. Payroll costs are "incurred" on the date the employee earns his or her pay and are "paid" on the day paychecks are distributed. Payroll costs that are incurred but have not been paid by the borrower during the last pay period of the Covered Period or Alternative Payroll Covered Period are forgivable, so long as the costs are paid on or prior to the next scheduled regular payroll date.

  • Non-Payroll Costs. Although there is significant discussion in Congress regarding relaxing the 75% requirement for Payroll Costs, the Forgiveness Application does not alter the current requirement that, for forgiveness of the full loan amount, at least seventy five percent (75%) of the loan proceeds must be used to pay payroll costs. Forgivable mortgage interest and rent now include both real and personal property. Mortgage, rent, and lease payment forgiveness is not limited to the real property used to house the business. Interest on a loan for a vehicle used for business purposes and similar expenses are eligible for forgiveness. The Forgiveness Application defines "utilities" to include electricity, gas, water, transportation, telephone, or internet access for services that began prior to February 15, 2020. It is unclear whether cloud services are considered utilities for purposes of loan forgiveness. Non-Payroll Costs may be paid or incurred during the Covered Period, so long as those incurred but not yet paid are paid by the next regular billing date. Note the Alternative Payroll Covered Period is not available for Non-Payroll Costs).

  • Full Time Equivalent Employees. The Forgiveness Application provides the calculation for Full Time Equivalent employees using a 40 hour per week standard and provides an alternative simplified method of 1.0 for all employees who work 40 hours or more per week and 0.5 for all employees who work less than 40 hours per week.

  • Workforce Reduction. There are new safe harbors for reductions in FTEs. A borrower's forgiveness amount will not be reduced due to employees who: (i) reject the borrower's good faith written offer to return to work; (ii) are terminated for cause; (iii) voluntarily resign; or (iv) voluntarily request a reduction in hours. In addition, the safe harbor permitting borrowers to rehire or increase wages back to February 15, 2020 levels by June 30, 2020 remains in place.

  • Document Retention. Borrowers must retain all documentation related to the PPP loan for six years from the date the loan is forgiven or repaid in full. Borrowers must allow the SBA to access these files, if the SBA makes such a request.

  • Mortgage interest. (incurred in ordinary course of business)

Consider opening a separate account for PPP proceed and expenditures

Amounts forgiven not to exceed loan amount

PPP forgiveness is reduced if workforce or pay reduced during relevant periods and not restored by June 30, 2020 (see Chamber of Commerce guide for calculations)

Term

2 year max

Prepayment Penalty

None

Interest Rate

1%

Loan Repayment

No payments for at least six months following the date of disbursement of the loan and up to one year; however, interest will accrue from date of disbursement.

Employment Levels
  • Forgiveness to be based on retaining certain levels of employees and compensation.
  • Borrowers that rehire workers previously laid off will not be penalized for having reduced payroll
Lender Fees

Borrow and lender fees waived

Restrictions
  • Salary caps of $100,000
  • Partnership distributions are included up to $100,000
Payroll Costs

Includes any compensation paid to employees that is

  • Salary wage, commission or other similar compensation
  • Cash tips or equivalent
  • Vacation, parental, family, medical or sick leave
  • Allowance for dismissal or separation
  • Healthcare benefits including insurance premiums
  • Payment of retirement benefits
  • And state or local tax assessed on the compensation of employees
Collateral and Personal Guarantee
  • None
  • No "credit elsewhere" requirement
  • Recourse only to the extent loan proceeds used for unauthorized purposes
Application Submission
Note:
Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties?

If a taxpayer deferred payroll, then got loan forgiveness, the taxpayer does not have to pay it back right away. That payroll deferral amount is paid back 50% next year, 50% the following year.

Proposed Revisions as of 05/29/2020

Revisions to the Paycheck Protection Program in an act currently dubbed the Paycheck Protection Program Flexibility Act (the "Flexibility Act"), with potential for Senate approval sometime in June. If passed in its current form, the Flexibility Act would:

  • remove the requirement that at least seventy five percent (75%) of loan proceeds be used for payroll for forgiveness;

  • allow borrowers additional time, up to twenty-four weeks, to use proceeds and rehire employees.

  • extend the maturity date of PPP loans beyond the current two-year term; and

  • allow borrowers to take advantage of both the PPP and available payroll tax deferments related to the pandemic