We previously blogged about the Paycheck Protection Program (PPP), an extension of the Small Business Administration’s (SBA) 7(a) loan program authorized by the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act appropriates $349 billion for PPP loans to small businesses affected by the COVID-19 pandemic, relaxes some of the requirements for acquiring such a loan, and provides for forgiveness of PPP loans used for certain purposes.
On March 31, 2020, the U.S. Department of the Treasury (“Treasury”) published a “top-line overview” of PPP, an information sheet for lenders, an information sheet for borrowers and an application form. These documents, released just days after the enactment of the CARES Act, are an important step towards the fulfillment of Treasury Secretary Steven Mnuchin’s promise that PPP loans would be available at “lightening speed.”
The top-line overview reiterates the portion of the CARES Act which states that PPP loans will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities. It further elaborates that “at least 75% of the forgiven amount must have been used for payroll.”
The overview also provides the first glimpse into the earliest availability of PPP loans, stating that small businesses and sole proprietors can apply beginning on April 3, 2020, and independent contractors and self-employed individuals can begin applying on April 10, 2020.
The lender information sheet states that “all existing SBA-certified lenders will be given delegated authority to speedily process PPP loans.” It also states that federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions are eligible to participate in the PPP, and should submit applications to DelegatedAuthority@sba.gov.
Lenders are also advised that the underwriting requirements for PPP loans include:
- Verification that a borrower was in operation on February 15, 2020.
- Verification that a borrower had employees for whom the borrower paid salaries and payroll taxes.
- Verification of the dollar amount of average monthly payroll costs.
- Compliance with applicable Bank Secrecy Act requirements.
Additionally, lenders are advised as to how they will be compensated, and that PPP loans can be sold on the secondary market.
The borrower fact sheet largely reiterates previously available information and information set forth in the lender fact sheet and top-line overview. It does clarify that each business may only acquire one PPP loan, the manner in which a borrower can apply for loan forgiveness, and that borrowers who use PPP loan proceeds for fraudulent purposes will be subject to criminal charges.
Finally, the loan application is a two-page form accompanied by a two-page instruction sheet. To complete the application, a business must provide the following information:
- Business name, address, phone number and taxpayer identification number.
- Average monthly payroll amount and number of jobs.
- Names, titles, addresses, and social security numbers of all business owners with an interest of 20% or more.
- A representation as to whether the business or any owner is presently involved in a bankruptcy or has been barred from engaging in the transaction by any federal agency, or has defaulted on any loan guaranteed by SBA or the federal government in the last 7 years.
- A representation as to whether the business or its owners also have an ownership interest in another business or common management with another business.
- A representation as to whether the business obtained an economic injury disaster loan between January 31, 2020 and April 3, 2020.
- A representation as to whether the business, or any owner with an interest of 20% or more, is subject to criminal charges, or is presently incarcerated, on probation or on parole in any jurisdiction.
- A representation as to whether, within the last 7 years, the business or any owner with an interest of 20% or more, with respect to any felony or misdemeanor against a minor, has been convicted, pleaded guilty or nolo contendere, or placed on pretrial diversion, probation or parole.
- Information as to citizenship status.
The application makes clear that the application will be denied if the answer to questions 4, 7 or 8 above is “yes,” or if the applicant or anyone with an ownership interest of 20% or greater is not a U.S. citizen or a lawful permanent resident.
The application also requires the borrower to make certain good faith certifications, including that current economic uncertainty makes the PPP loan necessary and that the information provided in the application is true and accurate.
If you are a business owner that requires assistance in obtaining a PPP loan, a lender that needs assistance in processing and closing PPP loans, or a financial institution that would like to become a SBA-approved lender, please contact Jessica M. Baquet at (516) 393-8292 or email@example.com, or Jothy Narendran at (516) 393-8245 or firstname.lastname@example.org.