As the $349 billion Paycheck Protection Program (PPP) of the CARES Act began rolling out in early April, details about applying for the coronavirus disaster relief came into clearer focus.
The bottom line is qualified business owners and other employers should apply for these loans, which have a cap of $10 million.
That said, the loan program is complex enough it’s advisable to partner with experienced business and tax attorneys to navigate the process.
Lenders appreciate receiving complete and comprehensive applications, and the CARES Act allows banks to pay attorneys’ fees directly through the loan process. (Connect with Cramer & Anderson attorneys via links at the end, or through our Business Law page.)
The aspect of the PPP grabbing headlines for good reason is loan forgiveness.
Loans will be fully forgiven if funds are used for payroll costs, interest on mortgages, rent, and utilities, according to the U.S. Small Business Administration (SBA). At least 75% of the amount to be forgiven must be used for payroll.
Loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels, and forgiveness will be reduced if a business’ full-time headcount declines, or if salaries and wages decrease.
The details underpinning those general statements are quantified in a new PPP fact sheet from the U.S. Department of the Treasury.
Some PPP Basics, as published by the SBA
- The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll
- SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities
- You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program
- The Paycheck Protection Program will be available through June 30, 2020
Who Qualifies to Participate in the Paycheck Protection Program
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
- 500 employees, or
- That meets the SBA industry size standard if more than 500
- Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
- Sole proprietors, independent contractors, and self-employed persons
Key Elements in Determining Your Maximum Loan
- Employee compensation, as defined in PPP guidelines
- Group health insurance premium payments
- Retirement benefit payments
- State and local taxes on employee compensation (unemployment tax)
Example of Payroll Documentation You’ll Need to Provide a Lender When Applying
- IRS Forms 941 for 3/31/19, 6/30/19, 9/30/19 and 12/31/19 OR
- IRS Form 940 for the year ended 12/31/19 OR
- Payroll Reports:
- Summary report for the 12 months ending 2019 (gross wages prior to Section 125 or Deductions)
- Report detailing each employee and their gross pay for the 12 months ending 2019 (totals should agree with summary report)
- Report detailing vacation, severance pay, group health benefits, retirement benefits, etc… AND
- IRS Forms W-2, W-3 for 2019 (REQUIRED)
- Supporting documentation for health, dental, and retirement benefits paid for calendar 2019.
- A schedule summarizing each category of these costs.
- Copies of state unemployment tax filings for 2019.
*Source: Washington Trust
Two Reasons to Proceed Carefully
- There has been confusion about how the employee compensation used to establish loan amounts is calculated. The concerns are broken down a recent Forbes story.
- A National Law Journal piece warns that False Claims Act litigation may result from CARES Act coronavirus relief packages. Concerns regarding PPP loans center on a certification requirement in the application that says, “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The wording has been criticized as too vague and potentially problematic.
How Cramer & Anderson’s Attorneys Can Help
For those planning to apply, an advisable first step is to get in touch with an experienced Business Law attorney for assistance.
Step two is to contact your bank or other lender, let them know you will be applying, and ask for their list of necessary documentation. If you decide to seek counsel in preparing the application, also tell the banker that an attorney/law firm will be assisting you with the application process.
CARES Act and Paycheck Protection Program Business Law Attorneys
Other Issues of Concern in This Moment
Questions have also arisen about the ability of employees, including health care employees, to file COVID-19 Workers’ Compensation claims.
Family Law has become another area of focus.