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US Small Business Administration Paycheck Protection Program (“PPP Loan”)

The CARES Act, passed on March 27th, provides an authorization for the SBA 7(a) program to provide relief loans for operating costs to eligible small businesses.

While the bill has passed, the SBA has not yet provided guidance to lenders on how to operate within the program. Once the guidance is provided to Banks, you can apply on the FVCbank website.

Here is what we know about the program at this point:

Loan Attributes

  • Loan amounts will be based on the average monthly payroll expense for the last 12 months multiplied by 2.5
    • Salaries in excess of $100k may not be considered
  • These loans will be guaranteed 100% by the US Government
  • They will be 2-year term loans from the date of application for forgiveness
  • The maximum interest rate will be 0.50%
  • There will be no borrower fees for participating in the program
  • There are no credit elsewhere tests for funds provided under this program
  • There will not be any personal guarantees necessary or collateral requirements for these loans
  • Any loan amount that is not forgiven by June 30, 2020 will amortize over 2 years
  • Loan payments will be deferred for 6 months
  • There will be no prepayment penalties

Who is Eligible?

  1. If your business or Non-Profit has fewer than 500 employees (full time, part time or any other basis), you are eligible for this program
  2. Lenders will have to determine if the business was in operations on February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or paid an independent contractor
  3. Borrowers must make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19

Specific allowable uses of the loan include:

  1. Employee salaries (including commissions and tips)
  2. Group health premiums
  3. Mortgage, rent, and utility payments
  4. Interest on other debt obligations originating from before 2/15/20, not principal payments
  5. Retirement benefits
  6. State or local tax assessed on compensation
  7. Vacation, paid leave (family, medical, etc.)

Loan Forgiveness

Up to 100% of the principal amount of the loan may be forgiven if you use the proceeds on qualifying expenses. The forgiveness program is designed to support employment – if you don’t maintain certain levels of employees or compensation, then part of the loan will not be forgiven. The finer details of the forgiveness program are still being determined – we look forward to sharing more details and explaining the process better once we have the guidance from the SBA.

Loan Payments

We expect the SBA to cover 6 months of payments for all current 7(a) borrowers in regular servicing. The details about how they will pay and report has yet to be determined, but the bill does allocate funding for this purpose.

We are seeking confirmation as to whether you can qualify for a Paycheck Protection loan and a disaster loan. At this point, we believe you can qualify for both, but you would need to certify that your disaster loan was used for purposed other than the Paycheck Protection loan.