The CARES Act’s Paycheck Protection Program (“PPP”) provides employers with a potential alternative to a furlough or layoff to ride out the COVID-19 storm. In short, PPP amends the Small Business Act (“SBA”) and creates a new PPP loan option for eligible employers.
What is a PPP Loan?
On Friday, March 27, 2020, the President signed the CARES Act into law. The bill provides for $2.2 trillion in emergency aid to ease the financial impact of the COVID-19 crisis, including $349 billion for new, partially forgivable small business loans to cover, among other things, certain payroll costs, mortgage interests, rents and utilities payments. The Paycheck Protection Loans, which we call PPP loans, will charge interest at no more than 4% and will be administered by the Small Business Administration (SBA). Payment of interest, principal and fees will be deferred for at least six months but not more than 1 year. As the program’s name implies, PPP Loans are designed to provide cash to small businesses, including sole proprietors and independent contractors.
Who is eligible for a PPP loan?
Each business that was existing and paying payroll and payroll taxes on or before February 15, 2020, with no more than 500 employees (or the size standard in number of employees that may be established by the SBA), can apply for the new PPP loans. The number of employees would need to be added across all the business’s affiliates (i.e. the total number of employees of the business, any parent, any subsidiary, and any other business under common control must not exceed the applicable threshold), except for franchisees, certain businesses in the hospitality and food service industries (those in NAICS Sector 72), and other companies that receive financing from a small business investment company licensed under the SBA. In addition, the 500 employee threshold is determined on a per-location basis for certain businesses in the hospitality and food service industries.
What are the conditions applicable to PPP Loans?
An applicant for a PPP Loan must certify in good faith that (i) the PPP Loan is necessary to support the ongoing operations of the business due to the uncertainty of current economic conditions, (ii) funds will be used to retain workers, maintain payroll or make mortgage payments, lease payments and utility payments, (iii) the company does not have a pending application for a duplicative loan under Section 7(a) of the Small Business Act, and (iv) for the period from February 15, 2020 through December 31, 2020, the company has not received any such duplicative loans under Section 7(a) of the Small Business Act.
What is the maximum loan amount under the PPP?
The size of the loan available to a business depends on the size of a business’s payroll. Each loan is subject to a payroll-based cap of 2.5 times historic average monthly payroll costs (plus any existing SBA loans), not to exceed $10 million. “Payroll costs” include salaries, wages, leave payments, severance payments, payments of group health benefits and retirement benefits, and payments of compensation-related taxes, but exclude, among other items, (i) compensation in excess of $100,000 for any individual employee (on an annual basis), (ii) Social Security, Medicare and income withholding taxes and (iii) compensation paid to residents of foreign countries.
Are PPP Loans eligible for loan forgiveness?
A business’s PPP Loan may be forgiven up to the principal amount by application to the lender, together with certain supporting documentation. The amount of the PPP Loan eligible for forgiveness is the amount expended by the business during the eight-week period after the start date of the PPP Loan on (i) payroll costs and (ii) to the extent the arrangements were in place prior to February 15, 2020, mortgage interest payments, lease payments and utility payments. The amount eligible for forgiveness is subject to reduction if during the eight-week period the business (x) employs fewer full-time employees per month on average than it did during specified earlier periods or (y) reduces salary or wages by more than 25% for any employee earning less than $100,000 annually compared to their compensation in the most recent full quarter unless such reduction is eliminated no later than June 30, 2020. Any remaining PPP Loan balance is subject to a maximum maturity of 10 years from the date of application for forgiveness.
Am I responsible for interest on the forgiven loan amount?
No, if the full principal of the PPP loan is forgiven, the borrower is not responsible for the interest accrued in the 8-week covered period. The remainder of the loan that is not forgiven will operate according to the loan terms agreed upon by you and the lender.
I am an independent contractor, am I eligible?
Yes. Sole proprietors, independent contractors, gig economy workers, and self-employed individuals are all eligible for the Paycheck Protection Program.
How long will PPP Loans be available?
The program expires on June 30, 2020.
Highpoint is proud to partner with Allegiance Bank and
we are sharing this information as a convenience and information purposes only.
Please note that the following information is being provided, subject the final version to be provided by U.S. Small Business Administration and the U.S. Department of the Treasury. The roll-out of the final version is anticipated to be in less than two weeks.
The Houston Regions Largest Community-Based Bank and SBA Lender – Allegiance Bank – is preparing to support the small business community through the CARES Act and its signature loan program — the SBA Paycheck Protection Program (“PPP”).
The Allegiance Bank SBA Department and Allegiance Bank’s 27 Bank offices in the greater Houston/Beaumont area will assist small businesses in obtaining financing through this program. The PPP is meant to assist small businesses with support for payroll and other business-related expenses as they deal with the impacts of COVID-19.
The PPP is meant to assist small businesses with support for payroll and other business-related expenses as they deal with the impacts of COVID-19.
Eligibility: (SBA will provide additional guidance)
– All businesses with up to 500 employees
– Non-Profit Organizations
– 501c3 Organization that do not receive Medicaid
– Veterans Organization
– Tribal Business Concern
– Sole Proprietorship
– Independent Contractor
– Eligible Self-Employed Individuals
Expenses Covered: (SBA will provide additional guidance)
– Payroll Expenses
– Group health insurance benefits, paid sick leave, medical and insurance premiums
– Mortgage or Rent Payments
– Interest on any other debt obligations incurred before the loan period
Note Terms: (SBA will provide additional guidance)
– SBA Fees Waived
– No Collateral
– No Personal Guarantee
– If you maintain employment for the covered period, your loan balance will be forgiven
– Loan amounts not forgiven, can be paid over 10 years with an interest of no more than 4%
Please contact your loan/relationship officer, administrative assistant or bank office staff member and let them know of your interest in the PPP loan. If you are a non-customer and know a loan/relationship officer, please feel free to contact them or call 281-894-3200.