News, Insights & Events
What You Need to Know About the CARES Act Paycheck Protection Program
April 1, 2020
Gregory P. Bergethon
Sands Anderson PC
Richmond, Virginia
In these challenging financial times, we know businesses are considering how to handle their payrolls and whether or not to furlough or terminate employees. The federal government has several newly enacted or expanded programs to provide relief to nonprofit and for-profit organizations.
Sands Anderson wants to ensure you are aware of the Paycheck Protection Program (PPP) – a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act – which begins April 3, 2020. This loan was developed to help small businesses keep their employees on payroll during the COVID-19 pandemic. This loan may also be used to pay rent, mortgage, and interest on certain loans. Based on the program’s criteria, eligible applicants should consider applying for this loan to assist with the financial needs your organization may be experiencing. Our team of attorneys are available to provide you with more information on the program, and are actively advising and assisting clients with their loan application and related needs.
We understand that your loan is an urgent matter for your business now. We highly recommend that the loan application be completed correctly so as not to jeopardize your ability to obtain the loan proceeds in a timely manner. Timing is critical and the funds are finite. Sands Anderson stands ready to help you with this critical financing.
The PPP loan is a new SBA Section 7(a) loan program and is one of the SBA’s primary programs for providing financial assistance to those experiencing hardship due to the COVID-19 pandemic. Generally, a business with fewer than 500 employees can qualify for the PPP loans. Businesses in certain industries, most notably in manufacturing, can have more than 500 employees and still qualify. The 500 employee limit for businesses in hotel and food service industries (NAICS Code beginning with 72) are counted on a per physical location basis and more lenient affiliation rules apply to such businesses.
These 7(a) loans are:
– available for payroll and certain other specified operating expenses
– 100% guaranteed by the federal government through December 31, 2020 (i.e., there are no personal guarantees), and
– subject to loan forgiveness up to the entire loan amount subject to certain restrictions. The PPP loan permits you to receive (a) the lesser of (i) $10 million or (ii) 2.5 times your average monthly “payroll costs” (a legally defined term) (b) plus any outstanding amount owed by the borrower under an SBA Economic Injury Disaster Loan (EIDL), which is another SBA program we encourage you to consider.
The PPP loan can be applied for beginning Friday, April 3, 2020 through existing SBA lenders. The list of lenders is available at sba.gov. Our understanding at this time is that businesses are already meeting with their lenders regarding the PPP loan applications. The lender must perform the following limited due diligence/verification:
– Verify that a borrower was in operation on February 15, 2020.
– Verify that a borrower had employees for whom the borrower paid salaries and payroll taxes.
– Verify the dollar amount of average monthly payroll costs.
– Follow applicable Bank Secrecy Act requirements.
There are other federal relief programs to consider such as:
- Economic Injury Disaster Loans (“EIDL”); and
- Employer tax credits to assist with payments for paid leave under the Families First Coronavirus Response Act.
Employment issues during this crisis are also critical right now. As business executives and owners, even if you recently furloughed or laid off employees, or decreased employee pay, there are guidelines that allow for loan forgiveness contingent upon your rehiring of employees, or restoring them to their previous amount of pay, as applicable. Our attorneys can help guide you through this, and are happy to discuss other concerns you may have related to the COVID-19 pandemic, including:
- Employment law
- Real estate issues, including landlord and tenant matters
- Tax issues
- Other federal and state relief initiatives
We are available to discuss this opportunity with you, and to help navigate this challenging time while maximizing the amount of federal assistance that may be available to you.