Timely Additional Guidance on the New SBA Paycheck Protection Loan Program

Apr 1, 2020 | Blog

The Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted this past week, provides new potential financial lifelines to qualified small businesses as a result of and in response to the COVID-19 pandemic. Earlier this week we outlined companies’ eligibility for these loan programs.

Yesterday, the U.S. Department of Treasury (Treasury) issued additional guidance (Guidance) on one of the key revised loan programs under the CARES Act, the Paycheck Protection Program a/k/a SBA 7(a) loans (PPP Loan).

Most importantly, Treasury has disclosed key upcoming dates that begin as early as this Friday, April 3. Qualified small business and sole proprietorship borrowers can begin applying, directly through their SBA-authorized bank lender, for PPP loans beginning on April 3. At the same time, independent contractors and self-employed individuals can begin applying a week later on April 10.

The SBA has posted a sample application form on its website for the PPP loans. An interested borrower can download this form here. A borrower can review and work with this form in advance of this Friday to familiarize itself with the type of information that will be requested of it so that it can essentially hit the ground running with its SBA-authorized lending bank and allow for the timely processing of its loan request.

The Treasury’s Guidance also provides more information about (1) the use of the PPP loan proceeds by a borrower, (2) the notable loan forgiveness element of the PPP loans, (3) certain loan terms and (4) who needs to sign off on the application for the borrowing entity.

As to the use of the loan proceeds, the Guidance makes clear that an approved borrower may use the PPP loan proceeds for (1) payroll costs, including benefits, (2) interest on mortgage obligations incurred prior to February 15, 2020, (3) rent due under lease agreements that were in force prior to February 15, 2020, and (4) utilities where the service provided began prior to February 15, 2020.

Critically, concerning the PPP loan forgiveness element, the Guidance clarifies that not more than 25% of the amount to be forgiven may be for loan proceeds used for non-payroll costs.

The Guidance also discloses that the loan terms will include a fixed interest rate of 0.5% and a maturity of 2 years.

Finally, regarding the appropriate signers needed for each borrower’s PPP loan request, those signatories must be (1) for a corporation, all owners of 20% or more of the corporation, (2) for limited liability companies (LLC), all members owning more than 20% or more of the LLC, (3) for a partnership, all general partners and all limited partners owning 20% or more of the firm’s equity, (4) for a sole proprietorship, the sole proprietor, and (5) if the applying borrower is a trust, then the trustor.

The Treasury has also provided a 4-page fact sheet to provide additional summary information for potential borrowers.

Barton LLP has attorneys well versed in each of the SBA loan programs, the application process and other beneficial provisions of the CARES Act. We look forward to working with and on your behalf and assisting you and your business through the challenging times we know you and your business are faced with during this pandemic.


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