By: Jenna Seigel, Partner
The CARES Act is the largest economic relief bill in U.S. history, allocating $2.2 trillion in support to individuals and businesses affected by the COVID-19 pandemic and economic downturn. There are many elements to the CARES Act including rebates, payroll tax changes, unemployment insurance changes, and material changes to unemployment benefits. For businesses, an important component of the CARES Act is the establishment of a new $349 billion Paycheck Protection Program (PPP).
PPP is intended to provide immediate relief to small businesses so they can sustain their business and continue employing their workers. Speed, cash infusion, business continuity, and employees maintaining their jobs are the primary goals.
While lenders are waiting on guidance for PPP, the expectation is that the program will be officially running by April 3, 2020. Businesses can go to an SBA 7(a) lender, bank, or credit union and apply for a loan with approval coming on the same day.
The PPP loans will have no collateral requirements, personal guarantees, or SBA fees, and they will be 100% guaranteed by the SBA. All loan payments will be deferred for six months, and any portion of loan proceeds used to cover the first eight weeks (following the date of loan origination) of payroll costs, rent, utilities and mortgage interest will be forgiven. The maximum loan amount is up to $10 million, and the loan will have a maturity of two years and interest rate of 0.5%. PPP funds will be available retroactive from February 15, 2020, so employers can rehire their recently laid-off employees through June 30, 2020. As a general rule, all businesses with 500 or fewer employees are eligible to apply (including non-profits, tribal, veterans organizations, sole proprietorships, self-employed individuals, and independent contractors). Due to the anticipated high subscription of these loans, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
While PPP funds are largely positive, accessing them may preclude certain tax credits. It is possible the SBA may set different employee size numbers as the size standard for certain industries. Likewise, these funds are currently unavailable to cannabis businesses.
Please note that new guidance continues to be released daily; the above information is a summary and is subject to change as new guidance is provided.
Jenna is a corporate/business transactions attorney working with individuals, investors, and businesses of all shapes and sizes. You can reach her at firstname.lastname@example.org.