Yesterday, the Department of Treasury and Small Business Administration issued rules and the application for the Paycheck Protection Program (PPP). While many questions remain unanswered, this guidance provides more information about the program and application process.

Loan Forgiveness:  Is 100% Loan Forgiveness Realistic?

  • PPP loans may qualify for forgiveness for loan proceeds used to cover certain payroll costs, and most mortgage interest, rent, and utility costs during the 8-week period after the date the loan is made.
  • The Department of Treasury and SBA issued guidance providing that it is anticipated that no more than 25% of the forgiven amount may be for non-payroll costs.
  • As noted in our past alert here, it is anticipated that PPP funds will be depleted by early next week, so interested borrowers must act quickly.
  • If loan proceeds must be used in the next 8 weeks but stay-at-home orders are expected to remain in place through the end of April or even longer, will borrowers with drastically reduced payroll be able to use sufficient funds for forgivable payroll costs during the next 8 weeks? Many borrowers should not count on 100% of the loan being forgiven if payrolls have been cut and won't be restored during the 8-week period.

-Loan forgiveness will be reduced if a borrower decreases full-time employee headcount or salaries and wages by more than 25% for any employees that made less than $100,000 annualized in 2019.   

-In many cases, a borrower's loan forgiveness will not be penalized for a reduction in the number of employees or compensation between February 15, 2020 and April 26, 2020 if a borrower restores full-time employment and salaries by June 30, 2020.


-However, if stay-at-home orders remain in place through May and June (as some fear) and previously reduced payrolls are not increased during the 8-week period after the loan is made, a borrower may not qualify for 100% loan forgiveness even if it restores full-time employment by June 30, 2020.


  • Borrowers must request forgiveness and submit documents to their lender verifying the number of employees and pay rates as well as payments for expenses that qualify for forgiveness. Lenders will have 60 days to make a decision on the forgiveness request.


Important Dates:


Small businesses and sole proprietorship can apply beginning April 3, 2020, through existing SBA lenders.


Independent contractors and self-employed individuals can apply beginning April 10, 2020, through existing SBA lenders.  It's unclear whether funds will be set aside for these types of borrowers if funds are depleted as expected before this date.

Other lenders will be available to make loans as they are approved and enrolled in the program.


Application Process for Borrowers:


The SBA has published PPP information on its website, including high-level process and lender information.


Interest Rate and Loan Maturity:


Treasury and the SBA have specified that the interest rate for PPP loans will be fixed at 0.5%. Payments will be deferred for the first 6 months of the loan; however, interest will accrue over this period.  The balance of the loan that is not forgiven (as further described above) will mature 2 years from the loan origination date, and there are no prepayment penalties or fees.


If you are interested in applying for the PPP, we strongly encourage you to reach out to an eligible lender right away as we expect PPP funds to be depleted within a few days.


For more program details, please see our previous client alerts:

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