Paycheck Protection Program Loans: How to Get? Here is a Full Guide!

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On March 27, 2020, the Coronavirus Economic Aid, Rescue and Security Act (CARES), a financial assistance program in response to the COVID-19 pandemic, was promulgated. The CARES Act provides financial support at the federal level to the business sector, employees, individuals and families, as well as to specific industries that have been affected, including air transportation, health care and education.

The main aspects of the Paycheck Protection Program, a $ 349 billion loan, and a loan forgiveness program administered by the SBA, are described in Section A, Title I: Keeping American Workers Paid and Employees of the CARES Law.

General

The CARES law broadens the eligibility criteria for borrowers to qualify for loans available through the United States Small Business Administration (SBA) by adding the Paycheck Protection Program to the range of SBA loan programs. The Paycheque Protection Program offers federally guaranteed loans of up to $ 10 million to eligible businesses, which may be partially repayable (as shown below), to encourage businesses to keep their employees during the COVID -19 crisis to help pay certain operational costs. To take account of this expansion of the SBA, the CARES law authorized commitments to the SBA loan program 7a), as amended by the CARES law, for an amount of $ 349 billion. The paycheck protection program covers the period starting February 15, 2020 and ending June 30, 2020 (the period covered).

A. Increased eligibility for certain small businesses and organizations

In addition to a business that is considered a "small business" under the Small Business Act, any business, non-profit organization, veterans organization, or tribal business (each, a covered entity) is eligible for receive a loan (a paycheck protection loan) during the period covered if the covered entity does not employ more than (i) 500 employees (includes those employed full-time, part-time or otherwise) or ( ii) if corresponds to the standard number of employees established by the SBA for the sector in which the covered entity operates.

There are special exceptions to the standard SBA regulations which relax the eligibility restrictions for certain entities covered during the period covered. For example, an entity covered in the hotel and food industry designated as such in sector 72 of the North American Industry Classification System (NAICS) (https://www.naics.com/six-digit - naics /? code = 72) that employs less than 500 employees per physical location is eligible for a loan. In addition, federal regulations that reduce eligibility when assessing size based on affiliations with related parties will not apply in limited circumstances.

B. Authorized use of income

Payroll loan proceeds can be used to pay only for the following (in each case, subject to certain specific exclusions): (i) payroll costs, (ii) costs associated with collective health during paid sick leave, medical or family leave and insurance premiums, (iii) wages, commissions or similar compensation for employees, (iv) mortgage interest payments (but no prepayment or principal payment of a mortgage bond), (v) income, (vi) utilities and (vii) interest on any other debt contracted before the covered period.

C. Maximum loan amount, interest rate and maturity for loans with remaining balances

During the period covered, the maximum loan amount authorized for an eligible covered entity is the lesser of $ 10,000,000 and an amount calculated on the basis of a pay formula which essentially equals 2.5 times the monthly cost total average payroll incurred in the One year before the loan ends.

Interest rates for loans made by a covered entity under the program may not exceed four percent (4%).

Any paycheck protection loan that has a principal balance remaining after any applicable loan forgiveness (as detailed below) must have an expiration date no later than 10 years from the date on which the borrower asked for loan forgiveness.

D. Payment Deferral

The SBA will direct lenders to defer all payments (principal, interest and fees) otherwise due under a Paycheck Protection Loan for a minimum of 6 months and a maximum of 12 months.

E. Collateral or Other Credit Support

A borrower will not be required to pledge any collateral or provide personal guarantees to secure or support a Paycheck Protection Loan.

F. Loan Forgiveness (and Potential Reduction in the Forgiveness Amount)

During the 8-week period beginning on the date a Paycheck Protection Loan is funded (the Forgiveness Period), a borrower will be eligible for forgiveness and cancellation of indebtedness for up to the full principal amount of such loan. The amount eligible for forgiveness (the Total Eligible Forgiveness Amount) is equal to the total costs incurred and payments made during the Forgiveness Period for (1) payroll, (2) mortgage interest, (3) rent and (4) utilities.

The loan forgiveness amount available to a borrower is subject to reduction if the borrower terminates employees or reduces employee salary and wages during the Forgiveness Period. There is, however, relief from the forgiveness reduction if the borrower rehires employees or makes up for wage reductions by June 30, 2020.

G. Lender Eligibility, SBA Guaranty, Fees

Lenders who are already authorized to make loans under the SBA’s existing 7(a) loan program are automatically eligible to make Paycheck Protection Loans. The SBA and the Treasury Secretary will extend eligibility to additional qualified lenders that do not currently participate in such program. Participating lenders will be permitted to determine borrower eligibility under the Paycheck Protection Program, and will be entitled to make and approve Paycheck Protection Loans, without SBA review. Participating lenders will be directed to underwrite loans not based on borrower repayment ability, but rather whether the borrower was in operation on February 15, 2020, with one or more employees or independent contractors.

Repayment of a Paycheck Protection Loan will be 100% guaranteed by the SBA.

The SBA will not charge any fees on a Paycheck Protection Loan. Participating lenders will be entitled to charge a fee, as a percentage of the original principal balance of the Paycheck Protection Loan, not to exceed the following amounts:

For a loan with original principal balance of $350,000 or less, 5%;

For a loan with original principal balance greater than $350,000 but less than $2 million, 3%; and

For a loan with original principal balance of $2 million and above, 1%.

Agents that assist borrowers in preparing an application for a Paycheck Protection Loan will be entitled to a fee not to exceed the amount prescribed by the SBA for such services.

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