SBA INTERIM FINAL RULES ON THE PAYCHECK PROTECTION PROGRAM (“PPP Loan”) UNDER THE CARES ACT [Updated on 06-04-2020]
1. Eligibility: Per the US Small Business Administration’s Affiliation Interim Final Rule effective April 3, 2020:
A. An entity generally is eligible for the PPP Loan if:
- it, combined with its affiliates, is a small business as defined in section 3 of the Small Business Act (15 U.S.C. 632) or
- has 500 or fewer employees whose principal place of residence is in the United States or is a business that operates in a certain industry and meets applicable SBA employee-based size standards for that industry
- it is a tax-exempt non-profit organization, a tax-exempt veterans organization, or a tribal business concern.
B. Borrower must be in operation on February 15, 2020
Note that individuals who operate under a sole proprietorship or as an independent contractor or are eligible self-employed individuals and were in operation on February 15, 2020, are also eligible.
2. Affiliation Rules: PPP loan borrowers are subject to the affiliation rules contained in 13 CFR 121.301. SBA’s Affiliation interim final rules effective April 3, 2020, can be found here: https://home.treasury.gov/system/files/136/SBA%20IFR%202.pdf; and SBA’s guidance on the applicability of the “affiliation rules” to the PPP Loan borrowers. Guidance can be found here: https://home.treasury.gov/system/files/136/Affiliation%20rules%20overview%20(for%20public).pdf
Refer to the Inventus Law Chart and FAQs on Loans Under CARES Act for a detailed analysis of the affiliation rules.
3. Maximum Loan Amount
Step 1:Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020, less the amount of any “advance” under an EIDL loan (because it does not have to be repaid).
4. Status of Independent Contractors. Independent contractors have the ability to apply for a PPP Loan on their own and they do not count for purposes of a borrower’s PPP Loan calculation.
5. Interest Rate and Maturity Date. 1% interest rate with a two (2) year term.
6. PPP is first come, first served.
7. Payment Deferrals. A borrower will not have to make any payments for six months following the date of the disbursement of the PPP loan. However, interest will continue to accrue on PPP loans during this six-month deferment.
8. Forgivable Loan Amount. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest if used for the legitimate expenses, BUT non-payroll costs are limited to 25 percent of the forgiveness amount. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
9. Consequences of misuse of PPP loan funds? If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
10. Can a borrower apply for both PPP loan and the EIDL loan? If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.