New Treasury Department Guidance on Implementation of Paycheck Protection Program

On March 31, the Treasury Department issued new guidance on the implementation of the Paycheck Protection Program (PPP), which includes additional details on the programs for each of prospective PPP borrowers and lenders in the form of Q&As, as well as a sample PPP loan application so that borrowers may familiarize themselves with the necessary requirements ahead of the full program rollout. The below summarizes certain new information provided in the Treasury Department guidance that was either not previously covered in or amends a portion of our March 27 alert following the enactment of the CARES Act found here: COVID-19 Update: Financial Assistance Programs. The full text of this guidance can be found here: Treasury Department — Assistance for Small Businesses.

Timing of PPP Rollout:

• Small businesses and sole proprietorships can apply for and receive PPP loans starting April 3 through existing Small Business Association (SBA) lenders.
• Independent contractors and self-employed individuals can apply for and receive PPP loans starting on April 10 through existing SBA lenders.
• Additional regulated lenders will be available to make PPP loans as soon as they are approved and enrolled in the PPP.
• All PPP loan applications must be processed by June 30, but the Treasury Department recommends eligible borrowers apply as soon as possible, since funding is capped at $349 billion and expected to be quickly depleted based on the number of anticipated applicants.

PPP Loan Application Process:

• Eligible borrowers may apply for PPP loans by submitting an application and payroll documentation to any federally insured depository institution, federally insured credit union or Farm Credit System institution that is participating in the PPP. Borrowers should consult with their local lenders, or lenders of choice, as to whether they are approved SBA lenders participating in the PPP. The SBA maintains a list of the 100 most active SBA 7(a) lenders through Dec. 31, 2019, here: SBA — 100 Most Active SBA 7(a) Lenders.
• Prospective borrowers must certify that the information provided in the PPP loan application and the information provided in all supporting documents and forms is true and accurate under penalty of imprisonment and/or a fine.
• Prospective borrowers will be disqualified if the business or any of its owners are presently involved in a bankruptcy.
• Additionally, lenders will be required to confirm with each prospective borrower (i) that the borrower was in operation on Feb. 15, (ii) that the borrower had employees for whom the borrower paid salaries and payroll taxes, and (iii) the dollar amount of the prospective borrower’s average monthly payroll costs.
• The PPP application form can be found here: Treasury Department — Paycheck Protection Program Application Form.
• No further guidance was supplied with respect to additional waivers of the affiliation rule for purposes of determining whether an applicant has no more than the maximum number of employees permitted for participation (500 employees or the size standard related to the applicable NAICS Code).

PPP Loan Terms:

• Loan terms will be consistent for all PPP loan applicants.
• A borrower may receive only one PPP loan.
• Any portion of the loan not forgiven will be subject to a maturity term of two years. Loan service payments will be deferred for six months, though interest will continue to accrue during this period.
• The interest rate on PPP loans is a 0.50% fixed rate.
• For purposes of determining the forgiveness amount on a PPP loan, it is anticipated that not more than 25% of the forgiven amount will be in respect of non-payroll costs. A borrower must submit a request for forgiveness (including documentation verifying the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease and utility obligations) directly to the lender that is servicing its loan, and the lender must make a decision on the amount of forgiveness within 60 days.
• Notwithstanding the text of the CARES Act, the guidance suggests loan proceeds may only be used for employee salary payments up to $100,000 on an annualized basis for such employee (in contrast, the CARES Act had as a separate use of proceeds, in addition to payroll costs, “employee salaries, commissions, or similar compensation” not limited to any maximum amount).Borrowers have until June 30 to restore full-time employment and salary levels for any changes made between Feb. 15 and April 26 in order to avoid reductions in loan forgiveness amounts (although the test period for reduction in employee and/or salary is the eight-week period following loan origination).

PPP Lender Terms:

• The SBA guarantees 100% of the balance on the PPP loans, but waives all SBA guaranty fees, including upfront and annual servicing fees.
• Lenders will need to follow applicable Bank Secrecy Act requirements.
• Lenders may not collect any fees from the applicant. Lender processing fees will be based on the balance of the financing outstanding at the time of final loan disbursement:
  
  • Loans $350,000 and under: 5.00%
  • Loans greater than $350,000 to $2 million: 3.00%
  • Loans greater than $2 million: 1.00%
• Agent fees will be paid out of lender fees.
• Prospective lenders may submit their application to participate in the PPP to DelegatedAuthority@sba.gov.