What You Need to Know About SBA’s Paycheck Protection Program Loans

To help small businesses navigate the affects of COVID-19, the Department of the Treasury released guidance on the Paycheck Protection Program at the SBA – fully forgiven loans that pay up to 8 weeks of payroll costs including benefits. 

Please note that this situation is evolving rapidly: demand for these loans is anticipated to be massive – and some banks are uncertain if they are prepared for the launch of the program. 

The most recent guidance, released March 31, includes the following key provisions:

• Fixed loan terms of 2 years and a set 0.5% (50bps) interest rate. Banks must follow these terms.
• 75% of forgiven loan amount must go to payroll (this is a new requirement and not in the law)
• Small businesses and sole proprietorships can apply through a bank beginning April 3, while independent contractors and self-employed individuals can apply beginning April 10 (this was not in the law)
• Non-SBA lenders will be added as soon as they are approved by SBA and Treasury
• The limitation on non-profits to only c3 organizations is not found in the guidance
• Average payroll costs for 2019 (x 2.5), not the previous 12 months, will be used for loan size calculation
• Loan size is significantly less generous than legislation: benefits are included in $100,000 cap per employee and cap is now firmly set at $100,000 regardless of calculation
• Payments to 1099s are now unclear as being allowed for loan size or forgiveness
• As predicted, but now confirmed, companies have until April 26 as safe harbor for reduction of salary or headcount
• Interest will accrue (at 0.5%) during loan period, but is deferred for 6 months (unclear if interest is due if all of loan is forgiven)
• 2019 tax documents will be used determine loan size

Additional Resources: 

• Read the Treasury’s full FAQ here
• See a sample application form here
• The Tax Foundation’s resource on PPP

As always, 3C is committed to ensuring small business success, and we will continue to issue updates as they occur.