The Latest Guidance on the Paycheck Protection Program

The CARES Act (Coronavirus aid, relief, and economic security act) that was passed on March 27, 2020, provides forgivable loans of about $10 million to qualifying small businesses under the paycheck protection program loan. We have addressed the latest considerations that are relevant to PPP borrowers and companies here.

What is a paycheck protection program?

The paycheck protection program is a loan that offers a direct incentive for small businesses and helps keep their workers on the payroll. The latest guidance also clarifies the ambiguous consent requirement in PPP loan documents, relevant to changes in the ownership.  The following of the credentials of the PPP. 

    • The rate of interest of the PPP loans is only 1%.
    • There is no requirement for any personal guarantees or collateral for these loans.
    • The government or the lending bank will not charge any fee from small businesses for these loans.
    • These loans have a maturity of about five years.

Latest guidelines for PPP loans:

The Small Business Association and the treasury continues to release additional guidance of the PPP program, that offers forgivable loans for businesses. This is mainly in pursuit of the current pandemic situation that has modified and clarified the interim final rules and the updates on the PPP. 

    • The application period has been extended to August 8, 2020, as the pandemic continues to impact businesses all over the country.
    • The data of the PPP loans will be made public but still, the transparency and protection of small businesses are served.
    • Businesses that are owned by large companies are eligible for the loan but the borrowers should certify that the loan is necessary for the ongoing operations of the business.
    • All borrowers should assess their economic need for a paycheck protection program loan under the standards laid by the CARES act and the PPP regulations act, at the time of application of the loan.

The borrower application form of the loan applicants should certify that the current economic uncertainty of the business, makes this loan request a necessity to support the operations of the business, on par with Section 1102 of the CARES Act. A safe harbor was also established for borrowers, who applied for the PPP loan before April 24th. Borrowers who have repaid their loans by May 14, 2020, will be appreciated by SBA to have made the certification in good faith.

Firms that are not eligible to apply for the paycheck protection program loan:

    • Hedge funds and equity firms that are engaged in speculation of investment are not eligible for this loan.
    • A portfolio company of a private equity fund is also prohibited from a PPP loan. 
    • Hospitals that are owned by Government entities, receiving 50% of their funding from local or state government sources is not eligible for the PPP loan.
    • If a business is involved in bankruptcy proceedings, then they are not eligible for PPP loans.
    • Agricultural producers, farmers, and also ranchers are not eligible for this loan if their business has fewer than 500 employees.

The latest guidance creates a strong incentive to repay the loan or complete the forgiveness process before undertaking the sale of more than 50% of the stock or assets of the borrower entity.