Employers with fewer than 500 employees should contact their bank as soon as possible to start the process of applying for a “Paycheck Protection Loan.” Paycheck protection loans are SBA loans designed to help employers cover payroll costs and other expenses during the COVID-19 pandemic. Paycheck protection loans do not require personal guarantees or collateral. Best of all, the loans are forgivable if employers maintain their employees on the payroll (without substantially reducing their pay) for 8 weeks after receiving the loan. The US Chamber of Commerce has provided this easy to read flow chart to explain who is eligible and how to apply for financial assistance.
Stimulus Bill Fact Sheet for Small Employers: “Paycheck Protection Loans”
- Available to small businesses and nonprofits with fewer than 500 employees (contact a member of Gardner Skelton’s employment law team to ask about special exceptions and counting rules if you are on or around the 500 employee threshold)
- Covered period for loans can be retroactive to 2/15/2020 and run until 6/30/2020 (meant to encourage rehiring of furloughed or laid-off employees)
- Modeled after existing SBA 7(a) program, but no collateral or personal guarantee is required
- Amount of loans cannot exceed the sum of 2.5 times employer’s average monthly payroll cost (salaries in excess of $100,000 annually are carved back to $100,000 in determining the applicable loan amount) during the year prior to the loan (and the amount of economic injury disaster loans being refinanced under the program, if applicable); capped at $10 million
- Loans can be used for any of the following expenses:
- Payroll costs (capped per employee at $100,000 in pro-rated annual compensation)
- Mortgage and loan interest (not principal)
- Certain employee benefits costs
- Loans will be forgiven, up to 100% of the principal for qualifying uses. The amount eligible for forgiveness will be reduced:
- Proportionally by the number of full-time equivalents per month during the first eight weeks following the loan, divided by the average number of full-time equivalents per month employed between February 15, 2019 and June 30, 2019 or January 1, 2020 and February 29, 2020 (at the employer’s option)
- For seasonal employers, proportionally by the number of full-time equivalents during the first eight weeks following the loan divided by the average full-time equivalents employed between February 15, 2019 and June 30, 2019
- In addition to the reductions above, by the amount of any reduction in total salary of any employee exceeding 25% of the employee’s total salary in the most recent full quarter (excluding employees paid over $100,000 on an annualized basis in any pay period in 2019) if employers maintain their workforce for eight weeks following the loan without substantially reducing employee compensation.
- On any portion of the loan that is not forgiven, borrowers may defer payments for at least 6 months (and for some lenders, up to 1 year). The interest rate cannot exceed 4%. Terms may vary somewhat based on your lender.
- Any bank that is an SBA lender can provide these loans. For a list of currently actively SBA lenders, click here.
- Deadline to apply is June 30, 2020
There are some nuances to the new law that may be worth exploring to help maximize your cash flow during this time. If you have questions or need assistance, contact Nicole Gardner, or one of the attorneys with whom you regularly work, and we will be happy to help.