Paycheck Protection Program loans, backed by the Small Business Administration, and forgiven by the federal government, is one of the many relief options available through the SBA: Organizations, including 501(c)(3) nonprofits, and self-employed individuals will have access to forgivable loans, through a streamlined application process intended to provide rapid relief that will keep workers on the payroll and help self-employed workers.
UPDATE: On April 24, 2020, a supplementary bill was signed into law to recapitalize the SBA's Paycheck Protection Program, providing for an additional $310 billion for small business relief. $60 billion of these new funds will be reserved for smaller lending institutions, such as credit unions, community banks, Community Development Financial Institutions and Minority Depository Institutions. The SBA will resume accepting PPP loan applications on Monday, April 27, 2020 at 10:30 a.m. EDT from approved lenders on behalf of any eligible borrower. The SBA is encouraging all approved lenders to process loan applications previously submitted by eligible borrowers and disburse funds expeditiously. All eligible borrowers who need these funds should work with an approved lender to apply.
Loans will be provided by local lending institutions that are authorized by the Small Business Administration (SBA). Talk to a lender who already knows you. They need to be approved to do 7a loans in order to process this loan. Here is a list of the top most active 100 SBA lenders or you can find an eligible lender here. Eligible organizations are subject to a size cap of up to 500 employees (counting individuals employed on a full-time, part-time, or other basis). The maximum loan amount is $10 million.
Loans may cover expenses incurred beginning February 15, 2020 and ending on June 30, 2020. Loan payments will be deferred for at least six months and up to one year, and the term of the loans will be up to ten years, at no more than 4% interest. Eligible uses of the loans include payroll costs (including salary, wages, compensation, leave, severance, health care benefits, insurance premiums, retirement benefits, and state and local taxes), rent, utilities, and mortgage interest payments.
Applicants may apply to their lender for loan forgiveness. The Senate summary states that a, "borrower shall be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan." The portion of the loan that can be forgiven will be reduced by an amount related to positions that have been eliminated and wages that have been reduced, unless those positions and wages are restored by June 30, 2020.
Local lenders backed by the SBA are processing loan applications from employers with fewer than 500 employees, as well as applications from self-employed workers. These aim to support eight weeks of eligible costs through loan forgiveness. The U.S. Department of the Treasury has posted an overview for borrowers, an overview for lenders, and an example of the loan application form. Of particular concern to some organizations has been the question of how the 500 employee limit will be calculated. The U.S. Department of the Treasury confirmed that it will use the following SBA method of calculation.
UPDATE: As of May 4, 2020, the Treasury has issued new rules for seasonal employers that allow applicants to determine their maximum loan amount by calculating average monthly payroll over the period of March 1 to June 30, 2019 (as announced in the orginal guidelines) OR May 1 to September 15, 2019 (a new time frame, for those with more staff in summer months). Interim guidelines for self-employed applicants are also now available, which is important for artists who were previously shut out.
Have a question about the Paycheck Protection Program not addressed here? You may find the answer in these FAQs from the Department of the Treasury. Please check back as this is updated regularly.
UPDATE: As of May 26, 2020, the U.S. Department of the Treasury and the Small Business Administration released further guidance related to the Paycheck Protection Program’s loan forgiveness process. Here are the links to the previously-issued loan forgiveness form, the new interim rules for loan forgiveness, and the new interim rules detailing how the SBA will review loan eligibility and the amount entitled to loan forgiveness
UPDATE: On June 5, 2020, the Paycheck Protection Program Flexibility Act was signed into law, to provide much-needed flexibility for borrowers to get their loans fully forgiven. Key highlights are that the law extends deadlines for PPP usage, changes the forgiveness formula for PPP loans, expands conditions and interest rate around repaying the loans, outlines deferment plans for monthly loan repayments, and lengthens the forgiveness rehire date. This legislation also corrected an item in the original CARES ACT and would now allow employers who receive PPP loans to be also eligible to defer payment of the employer's portion of a W-2 employee's 2020 FICA tax so that 50% can be paid in 2021 and 50% in 2022.
UPDATE: On June 16, 2020, the Small Business Administration released new rules implementing the provisions of the Paycheck Protection Program Flexibility Act. While more guidance may soon follow, the rules include some helpful clarification, including confirmation that borrowers with less than 60% of expenditures dedicated to payroll will be eligible for partial loan forgiveness. you may find this analysis of the new rules helpful.
For those who have already received a PPP loan and may be nearing the completion of your loan period, be aware of significant developments regarding the loan forgiveness application process. We recommend that you watch the replay of this excellent webinar from The League of American Orchestras on the loan forgiveness process, including an overview of the Flexibility Act. Also, the SBA has just made available a new EZ forgiveness application which promises to take only 20 minutes to complete and for which many may qualify.
With more than $100 billion remaining in Paycheck Protection Program (PPP) resources, any potential applicant should take note that the opportunity to apply for a loan closes on June 30, 2020.
UPDATE: On July 3, 2020, the PPP Extension Act was signed into law, extending the application deadline to August 8, 2020. Here is a helpful article that clarifies and explains some common issues around the latest PPP changes.
UPDATE: On October 8, 2020, the the Small Business Administration issued a new PPP Forgiveness Application Form 3508S and 3508S Instructions for those small businesses that secured a PPP loan of $50,000 or less. The most significant benefit of the new form is that employee reductions and salary reductions are no longer penalized. Additionally, the new form does not require submitting mathematical calculations on how the funds were spent, but it still requires the borrower to submit to the lender evidence (bank statements, invoices, etc.) that the funds were properly spent. Interestingly, the SBA also reduced the lender’s responsibility to “verify” the evidence submitted. SBA just recently began approving PPP forgiveness applications and remitting forgiveness amounts to lenders on October 2, 2020.
UPDATE: On January 11, 2021, following the COVID Relief bill passed in late December 2020, the SBA announced that it would accept applications for Second Draw PPP Loans from January 13, 2021 to March 31, 2021. At least $25 billion is being set aside for Second Draw PPP Loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods. Additional funds are also available for First Draw PPP Loans. The SBA is also offering guidance for Minority, Underserved, Veteran and Women-Owned Businesses.