Dear ABC Central Ohio Members,
Within the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), there is a program that small businesses can use to maintain their workforce, inject liquidity, and ultimately receive loan forgiveness. It’s called the Payroll Protection Act.
1. What is the Payroll Protection Program?
Lenders under the Payroll Protection Program will be any financial institution that currently handles SBA lending. Those lenders will be authorized to make what is known as a Payroll Protection Loan under the new rules.
2. What Small Businesses are Eligible?
The CARES Act waives the “credit available elsewhere” test. This test typically applies to SBA 7(a) lending and requires a business to show that they sought other sources of capital and capital injections from their owners. Because of this, a lot more small businesses are eligible, even if their owners have liquid assets or they could raise capital elsewhere.
3. What are the Terms of a Payroll Protection Loan?
Loan Amount: Small Businesses are eligible for loans up to 2.5 times their 2019 monthly payroll costs. Payroll costs include salaries, certain employee benefits, state and local taxes, and some compensation to sole proprietors. Seasonal employers and businesses in operation less than a year have different calculations.
Use of Proceeds: Paycheck Protection Loans may be used to pay payroll costs, group healthcare benefits, insurance premiums, interest on pre-existing debt, rent and utility payments.
Collateral: Payment Protection Loans do not require collateral.
Guarantee: Payment Protection Loans do not require personal guarantees.
Interest: Not to exceed four percent (4%).
Maturity: Any portions of notes not forgiven as described below will have a term up to 2 years.
Deferment: The CARES Act defers loans automatically for at least six months and up to a year.
SBA Disaster Loans: After the date Payroll Protection Loans are available, you may not receive both a Payroll Protection Loan and an SBA disaster Loan.
4. How is the Loan Forgiven?
The loan forgiveness will be reduced proportionately by any reduction in employees during the covered period. Because of this, businesses are incentivized to keep their employees on staff and receiving paychecks. Forgiveness is also reduced if pay is cut so employers are incentivized to keep pay levels consistent.
To incentivize re-hiring, employers are not penalized if they re-hire employees who are laid off at the beginning of the period.
5. How is Lending Incentivized?
Borrowers are required to make certifications regarding the impact of COVID-19 on their business and their intentions to use the Paycheck Protection Loan.
Additional information about small business loan opportunity can be found here. A Payroll Template for maximum loan eligibility can be found here. Finally, a copy of the Paycheck Protection Program Application Form can be found here.
If you have any additional comments, questions, or concerns, please contact me at firstname.lastname@example.org or via telephone at 614-597-3591.