Disclaimer: The issues discussed below are under further review, and guidance is not complete. Please continue to check back as we continue to update regularly.

Paycheck Protection Program (PPP)

Eligibility and Affiliations

Q: Who is eligible to receive PPP loans?

A: Generally, any business, 501(c)(3) nonprofit organization, 501(c)(19) veterans organization, or Tribal business with not more than:

• 500 employees, or
• if greater, the maximum size standard in number of employees established by the SBA for the industry in which the business, nonprofit organization, veterans’ organization, or Tribal business operates (which may be up to 1,500 employees depending on the industry).

Sole proprietors, independent contractors, and “eligible self-employed individuals” (as defined in the Families First Coronavirus Response Act) are also eligible, so long as they submit documentation evidencing eligibility (including payroll tax filings reported to the IRS, Forms 1099-MISC, and income and expenses).

An important exception has been made for businesses that, at the time of loan disbursal, is assigned a NAICS code beginning with 72 (accommodation and food services). These businesses can have more than 500 employees, so long as that business employs not more than 500 employees per physical location.

In order to qualify for the PPP, a business must include all affiliates in determining the 500-person limit unless:

• Business, at the time of loan disbursal, is assigned an NAICS code beginning with 72 (accommodation and food services); or
• Business is operating as a franchise that is assigned a franchise identifier code by the SBA; or
• Business receives financial assistance from a small business investment company (SBIC).

Additionally, in evaluating eligibility, a qualified lender is required to consider whether the business was in operation on February 15, 2020 and had employees for whom the borrower paid salaries and payroll taxes or paid independent contractors.

Q: How does a business determine its “affiliates”?

A: “Affiliate” status is determined under current SBA regulations, which provide generally for a broad definition based on control. Control/affiliation is a facts and circumstances test that includes both affirmative and negative control. Parties with significant equity, negative covenants, board seats, blocking rights, and other shareholder/contractual rights are generally considered affiliates, even when they don’t have a majority voting control or control of the board.

Q: If a business has financing available elsewhere is it still eligible for a PPP loan?

A: Yes. The SBA has waived its “credit-elsewhere” test.

Q: How does a PPP loan coordinate with the SBA’s existing loans?

A: Businesses can apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), traditional 7(a) loans, 504 loans, and microloans, and can also receive investment capital from Small Business Investment Corporation (SBIC). However, the business cannot use the PPP loan for the same purpose as its other SBA loan(s). For example, if a business uses its PPP loan to cover payroll for the 8-week covered period, it cannot use a different SBA loan product for payroll for those same costs in that period, although it could use it for payroll not during that period or for different workers.

Q: How does the PPP loan work with the temporary Emergency Economic Injury Grants (up to $10,000 each) awarded under the EIDL Program?

A: Emergency Economic Injury Grant (up to $10,000 each) and EIDL recipients may apply for and take out a PPP loan as long as there is no duplication in the uses of funds.

PPP Loan Amounts and Use of Proceeds

Q: What is the maximum amount of a PPP loan?

A: Businesses are eligible for the lesser of:

• $10,000,000
• 2.5 times the average monthly payroll costs (see below for definition) incurred during the one-year period before the date on which the loan is made.

Please note that for seasonal employers, as determined by the SBA, the measurement period is either the 12-week period beginning February 15, 2019 or March 1, 2019 to June 30, 2019, at the election of the borrower.

If the business was not operating during the period from February 15, 2019 until June 30, 2019, the relevant measurement period is January 1, 2020 through February 29, 2020.

Q: What is included in “payroll costs”?

A: “Payroll costs” include:

• salary, wages, commission, or similar compensation;
• payments of cash tips or the equivalent;
• payment for vacation, parental, family, medical or sick leave;
• allowance for dismissal or separation;
• payments required for the provision of group health care benefits, including insurance premiums;
• payment of any retirement benefit; and
• payment of state or local tax assessed on the employee.

Q: What is not included in “payroll costs”?

A: “Payroll costs” may not include:

• compensation of an individual employee in excess of an annual salary of $100,000 in one year, pro-rated;
• taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code during the covered period. These are amounts paid and withheld for FICA, railroad wages and federal income tax withholding;
• any compensation of an employee whose principal place of residence is outside of the United States; or
• qualified sick leave wages or family leave wages for which a credit is allowed under sections 7001 or 7003 of the Families First Coronavirus Response Act.

Q: Can the loan proceeds be used to pay any expenses in the borrower’s discretion?

A: No. Proceeds can only be used for the following:

• payroll costs (as noted above);
• costs related to continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
• employee salaries, commissions, or similar compensations (see exclusions above);
• payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
• rent (including rent under a lease agreement);
• utilities; and
• interest on any other debt obligations that were incurred before February 15, 2020.

Additionally, as part of the loan process, the business will need to acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.

PPP Lending Criteria and Loan Forgiveness

Q: What will the banks require to make the loan?

A: The CARES Act requires a lender to confirm the following:

• the borrower was in operation on February 15, 2020;
• either the borrower had employees for whom it paid salaries and payroll taxes, or it paid independent contractors; and
• with respect to loan deferrals, the borrower was adversely impacted by COVID-19 (although this requirement is presumed).

Q: Are PPP loans eligible for loan forgiveness?

A: Yes.

Q: What will be the terms of that forgiveness?

A: While the SBA will be issuing further guidance on loan forgiveness, the CARES Act states that the loan obligations eligible for forgiveness include amounts expended for those obligations and services listed below that are incurred during the “Covered Period” (which means for purposes of this question and the next, the 8-week period beginning on the origination date of the covered loan), but only where such obligation or service (in the case of mortgage obligations, rent and utilities) was an existing obligation as of February 15, 2020:

• all payroll costs expended (see definition above) excluding compensation for any individual employee over $100,000; plus
• any payment of interest on any mortgage incurred by borrower on real or personal property (not including any prepayment or payment of principal); plus
• any payment of rent obligated under a leasing agreement; plus
• any utility payment (electricity, gas, water, transportation, telephone, or internet access) (collectively, the “8-Week Costs”).

The limitations and adjustments to forgiveness of the 8-Week Costs are as follows:

1. The amount of forgiveness cannot exceed the principal balance of the loan.
2. The amount of forgiveness will be reduced based on the reduction in number of employees (as measured by the formula described below).
3. The amount of forgiveness will also be reduced by the amount by which there is a reduction in total salary or wages for any employee that is in excess of 25% of the total salary or wages of such employee during the most recent full quarter during which the employee was employed prior to the Covered Period (excluding, subject to further review of the SBA regulations, reductions for employees making in excess of $100,000).
4. Increased wages paid to tipped workers are eligible for forgiveness.
5. The CARES Act also includes exemptions for rehires to encourage companies to hire workers that have been laid off due to COVID-19. In particular, reductions in employees and in salaries that occur between February 15, 2020 and ending on the date 30 days from enactment of the CARES Act are excluded from the reductions described in subsection (2) and (3) above, so long as the borrower re-hires or restores pay (as applicable) for the affected workers before June 30, 2020.
6. The amount of forgiveness of the PPP loan shall also be reduced by any EIDL Grant amount (discussed below) received by borrower.

Q: How does the borrower receive forgiveness on its PPP loan?

A: The CARES Act requires that the borrower must apply to the lender by submitting:

• Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.
• Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
• Certification from a representative of the business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the PPP guidelines for use.

Q: What happens after the forgiveness period?

A: Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of two years, at a maximum interest rate of 0.50%. Principal and interest will continue to be deferred, for a total of six months to a year after disbursement of the loan.

PPP Application Process

Q: How do small businesses apply for a PPP loan?

A: PPP loans will be made through an SBA-approved lender and will be guaranteed by the SBA. If the business has a relationship with a lender, it should immediately contact that lender to see if that lender will be making PPP loans. The business should immediately begin working with an SBA-approved lender to confirm eligibility and to start the application process.

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Economic Injury Disaster Loans (EIDL) and Emergency Economic Injury Grants (EIDL Grants)

Q: What is an Economic Injury Disaster Loan and does the law that Congress just passed apply to closures ordered due to the coronavirus?

A: The SBA’s EIDL program provides small businesses with working capital loans of up to $2 million to help overcome the temporary loss of revenue as the result of a declared disaster. The CARES Act sets out new rules that make it easier for small businesses that were damaged by closures, or had other losses, due to the coronavirus to apply for and receive loans quickly. $30 billion was added to the EIDL loan fund. $10 billion more was added for the EIDL Grants connected to the EIDL loans.

EIDLs are available from January 31, 2020 – December 31, 2020. The EIDL Grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive an EIDL Grant.

Q: If a business needs funds immediately, can the EIDL loan help?

A: Yes. A borrower can apply for an EIDL loan and receive an advance in the form of a $10,000 EIDL Grant within 3 days, if an advance is requested. The borrower will not be required to pay back the $10,000, even if the EIDL loan is later denied. The borrower will be required to certify to the SBA, under penalty of perjury, that it is eligible to apply. The EIDL Grant funds can be used for maintaining payroll, providing sick leave to employees, rent or mortgages payments, and paying other obligations that cannot be paid due to lost revenue.

Q: Are there other special provisions that make it easier to get an EIDL loan based on the coronavirus?

A: The CARES Act has simplified the process for EIDL applications for coronavirus loans made before December 31, 2020. For example:

• The SBA will waive personal guarantees on advances and loans below $200,000.
• The SBA will waive the test as to whether you can get credit elsewhere.
• The SBA will waive the usual requirement that you needed to be in business for a year before the declaration.
• The SBA will rely on your credit score instead of the usual “determination of ability to repay.” If you have trouble with a credit score, the SBA has authority to determine if a reasonable alternative can be used.

Q: What kinds of businesses can qualify and what proof do they need that they qualify?

A: Sole proprietors (with or without employees), independent contractors, cooperatives and employee owned businesses, and Tribal small businesses with 500 or fewer employees are eligible for EIDLs.

Also, small business concerns and small agricultural cooperatives that meet the applicable size standard for the SBA are also eligible, as well as most private non-profits of any size.

In advance of disbursing the EIDL Grant, the SBA must verify that the entity is an eligible applicant for an EIDL. To do this, applicants must certify with the SBA, under penalty of perjury, that they are eligible.

Q: If a business receives an EIDL and/or an EIDL Grant, can it also get a PPP loan?

A: Yes. Whether the business has already received an EIDL unrelated to Coronavirus or a Coronavirus-related EIDL and/or an EIDL Grant between January 31, 2020 and June 30, 2020, it may also apply for a PPP loan.

If the business also receives a PPP loan, or refinances an EIDL into a PPP loan, any EIDL Grant amount will be subtracted from the amount forgiven in the PPP loan.

Also, a business cannot use the EIDL for the same purpose as its PPP loan. For example, if the business used the EIDL to cover payroll for certain workers in April, it cannot use a PPP loan for payroll for those same workers in April, although it could use it for payroll in March or for different workers in April.