This afternoon, the Treasury Department released new information and guidance surrounding the Paycheck Protection Program. The application window for most companies will now open this Friday, April 3rd. The four documents below were provided on the Treasury Department’s website:
- A program overview
- A fact sheet for borrowers
- A fact sheet for lenders
- An application template for borrowers
Below are the key highlights:
- New Restrictions in Fund Usage – Treasury has now stipulated that at least 75% of the forgivable amount of the loan must have been used to cover payroll expenses. We expect this would likely already be the case for most borrowers.
- Application Dates – Applications will open on Friday, April 3rd for small businesses and sole proprietorships. For independent contractors and self-employed individuals, applications will open April 10th.
- Funding Limit – Treasury encourages applications as quickly as possible because in their words, “there is a funding cap.” We have also been hearing speculation that applications will exceed available funds, which, unfortunately, could lead to a “first-come, first-served” environment.
- Rehiring – The borrower information fact sheet indicates companies have until 6/30/20 to restore full-time employment for any changes made between 2/15/20 and 4/26/20. However, the language included in the CARES Act indicates the relevant time period (in terms of FTE levels) is the eight weeks following your receipt of loan funds, AND the fact sheet appears to indicate the same further down (See the fourth bullet in the “What do I need to certify?” section of the borrower information fact sheet). So, to the extent possible, any furloughed employees should be returned to payroll on the date the loan is closed, or as soon as practical thereafter.
- Terms – Interest rates for unforgiven portions of the loan will be a fixed 0.5%, and the loan term (per Treasury’s guidance) will be a standard two years. Language in the CARES Act that we referred to in previous updates indicated a “maximum maturity of 10 years” for the loan, so it appears Treasury’s set two-year term falls within that window.
- Average Monthly Payroll Calculation – Per the instructions, companies in business throughout 2019 that do not have seasonal payroll will use average monthly payroll for 2019, excluding amounts over $100,000 per employee. The language in the CARES Act appeared to suggest this period would be the 12 months preceding the application, so this is a departure from that suggestion – though we expect this will certainly make things easier for application and review.
- Other Application Notes –
- Affiliates (Question #3) – The application requires a list of (1) any owner of the applying business that owns another business, (2) any owner of the applying business that shares common management with the business, (3) any companies owned by the applying business, and (4) any companies sharing common management with the applying business. Note: An “owner” for purposes of this application appears to generally be limited to individuals or entities with at least a 20% ownership interest in the applying business (See paragraph #2 of the instructions on page 3).
- Owner Signatures – This application requires signatures (and several initials!) from both the applicant and any > 20% owner of the business.
If you are interested in participating in this program, here’s what we would recommend you go ahead and do now:
- Contact your banker and confirm their application requirements (e.g., Will they just be asking for this completed form? What supporting documentation, such as payroll registers, will they be requiring?). One note on banks – This program is open to banks that are not currently approved for SBA loans; however, there may be some delay in their approval and ability to process SBA loans if they are not already setup to do so. As such, we would recommend ensuring you use a bank that already provides SBA loans to prevent any processing delays that could put you further down the line for funding.
- Complete the application and compile all supporting documentation requested by your bank.
- Submit the completed application (including any additional information or different application your bank may request) to your bank on or before THIS FRIDAY, 4/3 to ensure you are at the front of the line.
Please contact us if you have any questions or require any assistance with the application.