The Federal coronavirus stimulus bill, which was just passed, contains relief for small businesses who are facing uncertain times.  One provision that’s getting a lot of attention is the Paycheck Protection Program (PPP), which is specially designed to help out small businesses.  This program is an expansion of the existing SBA 7(a) loan program, and businesses that qualify will be eligible for a loan of 250% of their average monthly payroll expenses, not to exceed $10,000,000. 

Basically, the loan is intended to cover eight weeks of payroll expenses and any additional amounts for making payments towards debt obligations—so businesses may use the loans on payroll costs, health care benefits, mortgage interest expenses, rent obligations, utility payments, and interest on debt obligations incurred prior to February 15, 2020.  It appears that the eight-week period has some flexibility and may be applied to any time frame between February 15, 2020 and June 30, 2020.  Seasonal businesses are eligible, too, but are treated differently.  Their expenses will be measured using a 12-week period beginning February 15, 2019, or March 1, 2019, whichever the seasonal employer chooses.

So how does it work?  Businesses are eligible for a loan under the PPP if they employ 500 employees or fewer, or if their business is in an industry that has an employee-based size standard through SBA that is higher than 500 employees.  Because the hospitality industry has been hit particularly hard, restaurants, hotels, or businesses that fall within NAICS code 72 (“Accommodation and Food Services”) can qualify, too, if each location has 500 employees or fewer.  Tribal businesses, 501(c)(19) veteran organizations, and 501(c)(3) nonprofits, including religious organizations, and SBA-approved independently owned franchises with under 500 employees are also eligible.

The great thing about the loan is that if it is used for covered expenses, a significant portion of it will be forgiven.  Keep in mind that the purpose of the PPP is to help businesses keep their employees employed at their current pay.  If a business reduces its employees or it payroll, there are provisions in the PPP that reduce the amount of loan forgiveness available—so if a business’s total payroll expenses on workers making less than $100,000 annually decreases by more than 25 percent, the loan forgiveness will be reduced by the same amount.  That said, there is a saving provision in the PPP: for businesses that have been forced to lay off some employees already, they can be forgiven for the full amount of their payroll costs if they rehire their employees by June 30, 2020.

If businesses do maintain their payroll, the amount eligible to be forgiven is equal to the sum of what was discussed above: expenses for payroll, and existing interest payments on mortgages, rent payments, leases, and utility service agreements.  Payroll costs include employee salaries, hourly wages and cash tips, paid sick or medical leave, and group health insurance premiums. There are some exclusions from payroll costs.  While salaries up to an annual rate of pay of $100,000 are eligible, amounts over $100,000 are not, nor it appears are salaries of employees who reside outside the country.  

Some businesses may need the loan to meet other business expenses.  That’s acceptable under the PPP.  Keep in mind, however, that portion of the loan will not be forgiven.  The balance of the loan not spent on a covered expense will have a 10-year maturity term at rate of 4%, which is still pretty generous.

The PPP recognizes the extraordinary circumstances we are in right now.  Businesses will not have to pay any fees on the loan.  They will not have to post collateral and no personal guarantees are required, either. Loan payments will be deferred for at least six months (and potentially up to one year) starting at the origination of the loan.

So how can businesses apply?  Businesses can apply for the PPP at any lending institution that is approved to participate in the program through the SBA 7(a) lending program and, eventually, any additional lenders approved by the Department of Treasury.  For many applicants, this might even be the bank you do business with already.  Businesses do not have to visit the SBA to apply for the program.  They simply need to reach out to their bank or find an SBA-approved lender, which can be done online at the Lender Match website:  Businesses may apply for the PPP loan up until June 30th, 2020.

These are the important highlights of the PPP.  Specific issues will arise as businesses determine their eligibility or their covered payroll costs.  If you are a business with questions about this program, we can help.  Contact Tim Lambrecht at or 315-445-1700.