The $349 billion Payment Protection Program (PPP) established by Title I of the Coronavirus Aid, Relief, and Economic Stability Act (CARES Act) is intended to help small businesses sustain themselves and keep their workers employed. Under the program, eligible small businesses may borrow 2.5 times their average monthly payroll costs, not to exceed $10 million. To the extent that loan proceeds are used to pay payroll costs (including salaries, group health costs and insurance premiums, mortgage interest or rent payments, utility payments, and interest on certain other debt obligations) during the eight-week period immediately following receipt of the loan proceeds, the PPP loan will be forgiven. The CARES Act authorizes the U.S. Small Business Administration (SBA) to provide $349 billion in PPP loans and to promptly implement the PPP. For more information on the PPP, please read McCarter’s alert “SBA’s Paycheck Protection Program and Other SBA Relief for Small Businesses Provided in CARES Act.”
The U.S. Department of the Treasury issued additional guidance on the PPP, including the following loan terms: the interest rate will be 0.5% with two-year maturity.
Applying for PPP Loans
While the application process for PPP loans is currently being solidified by the SBA and participating lenders, it is recommended that potentially eligible small businesses begin communicating with the SBA departments of the lenders with which they have existing relationships. Market intelligence indicates that lenders participating in SBA loan programs are prioritizing existing customers and other small businesses that already have outstanding SBA loans. Potentially eligible borrowers whose lenders do not participate in SBA programs can review the SBA website or communicate with their pertinent SBA District Office to find participating lenders. For a list of the 100 most active SBA lenders, click here.
The SBA also released a four-page application template form for PPP loans. Potentially eligible borrowers should begin completing this application, known as Form 2483. Potential borrowers will have to provide information on the application concerning business trade names, average monthly payroll amounts, number of employees, ownership structure, previous loan history, owners’ criminal history, and other items. Form 2483 also asks potential borrowers to certify to the use of PPP funds and to the truth of information presented on the application. Furthermore, owners of 20% or more of the borrower are required to be identified and to make certain certifications. For more information on the application, please read McCarter’s alert “Paycheck Protection Program (PPP) Application Form Made Available by Treasury Department.”
It is anticipated that potential business borrowers can start submitting applications by email on April 3, while self-employed individuals and independent contractors can start submitting applications on April 10. We expect that after receiving and reviewing the short application, participating banks will require the submission of supporting materials.
We recommend that in addition to submitting the application, potentially eligible borrowers begin conducting their own due diligence and assembling relevant supporting documentation to submit to participating lenders so they can expedite the approval process. Supporting documents include:
- formation documents (articles of incorporation, certificates of formation, bylaws, etc.)
- state tax filings
- payroll and unemployment insurance filings
- annual profit and loss statements
- mortgage and rent statements
- utility statements
- appropriate tax returns of the business
- evidence reflecting the number of employees
- evidence reflecting payroll costs from February 15 to the time of application
- evidence reflecting mortgage interest payments from February 15 to the time of application
- evidence reflecting rent payments from February 15 to the time of application
- evidence reflecting utilities payments from February 15 to the time of application
Eligibility for PPP Loans
Those eligible for PPP relief include small businesses, nonprofits, 501(c)(19) veteran organizations, self-employed individuals operating as sole proprietors, and independent contractors with 500 or fewer employees. Qualifying food service and accommodation businesses with multiple locations can have 500 employees at each location and still be eligible for financing.
When determining eligibility, potential borrowers must also consider whether they have affiliated businesses and whether those affiliates make the borrower too large for SBA loans. While an analysis of business affiliation differs on a case-by-case basis, potential borrowers should, where applicable, look at whether a majority or significant percentages of their voting stock are owned by other entities or individuals who own separate business entities. They should also consider, where applicable, whether another entity controls the management of the borrower. Ultimately, potential borrowers are advised to present questions concerning affiliation to their attorneys or loan officers at participating lenders.
Steps for Borrowers Going Forward
- Potential borrowers should contact their lenders’ SBA loan originators and advise them that they intend on applying for PPP relief.
- Potential borrowers without affiliates should complete Form 2483 and submit it to their lenders’ SBA loan originators as soon as possible.
- Potential borrowers with affiliates should begin completing Form 2483 but confer with their attorneys or SBA loan officers concerning affiliation and the effect it could have on eligibility, and then make a determination as to whether they should submit their application.
- Potential borrowers should begin assembling the due diligence documentation listed above in anticipation of SBA loan originators requesting such documentation.
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