The Treasury Department has announced new guidance and details about the Paycheck Protection Program (PPP), which will start issuing loans to small businesses on Friday.
The PPP loans—authorized by the CARES Act, which was passed and signed into law on Friday—will be all or partially forgiven if a company retains its workers or doesn’t cut their salaries.
The guidance, issued yesterday, includes tweaks to some previously announced details about the program:
– The interest rate has now been set as a flat 0.5% for all loans.
– The loans can equal up to two months of a business’s average monthly payroll costs for 2019—plus an additional 25%. They are capped at $10 million.
– The loans can be used for a variety of operational expenses—including payroll, mortgage interest, and utilities—for the eight-week period after the loan is issued. However, if businesses want all or part of the loan forgiven, 75% of the forgivable amount must have been spent on payroll costs.
– Payroll costs include salary, wages, commissions, or tips (capped at $100,000 a year per employee); benefits, including insurance premiums; retirement benefits; and state and local taxes.
– Loan forgiveness will be reduced if businesses decrease their full-time employee head count or reduce employees’ wages by more than 25%. Businesses have until June 30 to restore salaries and prior employment levels.
– The loans must be paid back within two years, a smaller time frame than originally announced. Loan payments can be deferred for up to six months—though interest will accrue over that period. If a business wants to pay the loans back quicker, there’s no prepayment penalty.
– While the PPP loans were originally supposed to be available through SBA-approved lenders, the agency is now inviting a wider range of FDIC-insured financial institutions to participate. SBA-approved lenders can be seen here. Businesses are also advised to contact their local lender to see if it is participating.
– Businesses need not supply a personal guarantee for the loan. However, if the proceeds were used for fraudulent purposes, the U.S. government could pursue criminal charges.
– Businesses that employ 500 people or fewer can apply for the loans starting Friday. Self-employed individuals and independent contractors can apply starting April 10.
Applications for the PPP loans can be found here. Applicants will need to supply payroll documentation. The deadline for applications is June 30.
Businesses are advised to apply as soon as possible due to heavy demand and a $349 billion funding cap.
The PPP loans are different from the SBA’s Economic Injury Disaster Loans (EIDL). The EIDL notes are more traditional loans with a higher interest rate (3.75%), but are notable because every business that applies gets an automatic emergency loan of up to $10,000. That emergency loan is automatically forgiven, even if the business is turned down for a larger loan. The SBA must send the emergency loan to the business within three days of the request.
Businesses can apply for both loans for both programs. However, the money must be used for different purposes, and the $10,000 EIDL grant will be subtracted from the amount that’s forgiven under PPP.
The National Federation of Independent Business has a side-by-side comparison of the EIDL and PPP programs here.
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