CARES Act: Paycheck Protection Program – Proactive Steps to Apply
April 16, 2020
UPDATE: As of April 16, 2020, the Small Business Administration is no longer accepting new loan applications for the Paycheck Protection Program after reaching its $349 billion lending limit. Approved applications that remain undisbursed are not expected to be affected by this application freeze, but unprocessed applications will be on hold unless Congress approves additional funding.
The process related to Paycheck Protection Program ("PPP") loans under the CARES Act is moving quickly. Lenders may begin processing PPP loans as early as Friday, April 3, 2020, but it's unlikely all lenders will be ready to process and/or fund loans by this time. Although PPP loans will be available through June 30, 2020, eligible businesses should apply as soon as possible given concerns that the allocated funds may not cover demand. Funds will be given on a first come, first serve basis.
On April 2, the U.S. Small Business Administration ("SBA") published its Interim Final Rule, which provides guidance on the implementation of the PPP, including a helpful Q&A section. Comments on the Interim Final Rule will be accepted through the Federal eRulemaking Portal for 30 days after date of publication of the Interim Final Rule in the Federal Register. The SBA will provide further guidance through SBA notices and a program guide, which will be posted to the SBA’s website. While full details about the PPP are still forthcoming, current guidance provides the following information:
Proactive Steps to Apply
Eligible businesses can apply through existing SBA Section 7(a) loan program lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution. Additional lenders will be able to make PPP loans once approved and enrolled in the PPP. It is anticipated that lenders will provide their specific application process information once available, which may be as soon as Friday, April 3, 2020.
Register to Submit Application
If a business believes it may be eligible for a PPP loan, it should connect as soon as possible with a PPP lender to get registered. Applications for a PPP loan will be specific to each lender, and you should obtain the proper forms from your lender. While businesses cannot yet apply, businesses may be able to "get a spot in line" to submit applications by reaching out to lenders now.
Assemble Potentially Required Application Documentation
While PPP loan application processes will be specific to each lender, the SBA has issued a sample application form to assist businesses in preparing for the lender's application. Based on the sample application form provided and traditional SBA loan rules, we suggest you assemble the following documentation to get a head start, keeping in mind that actual document requirements may vary across lenders. If you have an existing relationship with an SBA-approved lender, consider reaching out to that lender first for a PPP loan, as the lender likely already has on file potentially required documentation, which may speed up the application process.
- Traditional SBA Loan Documentation Requirements:
- Articles or Certificate of Incorporation/Organization for each borrower;
- Bylaws/Operating/Member Control Agreement for each borrower; and
- Driver's licenses for all owners.
- Payroll Expense Verification Documents:
- IRS Form 941 Employers Quarterly Tax Return and Form 944 Employers Annual Tax Return (if filed);
- Payroll summary report form provided with corresponding bank statements or employee paystubs as of February 15, 2020 (or corresponding period) with corresponding bank statements;
- 1099s for independent contractors;
- Statement that all employees are United States residents or detailed list of employees outside the United States with their salaries (whose wages must be excluded); and
- Profit and loss statement for the prior 12 months.
- Most recent mortgage statement or rent invoice and lease.
- Documentation of the average monthly payroll based on the 12 months between April 2019 to March 2020, reduced for payroll individuals that exceed $100,000 on an annualized basis (i.e., average payroll, capped at $100,000 (annualized) per employee).
- Average payroll should be separated by category: Salary, Hourly, Commissions, Vacation, Sick Leave, Group Health Care (both union / non-union), and Retirement Contributions (both union / non-union).
- Total monthly rent (or mortgage interest) over the prior 12 months.
- Total amount spent on utilities over the prior 12 months (Electricity, Gas, Water, Transportation, Telephone, and Internet, etc.).
- Total interest on other debt obligations incurred before February 15, 2020.
- Entity's tax EIN and full legal name (you can find this on your tax return).
- Personal financial statements may be requested for all owners.
Based on questions borrowers must answer on the SBA sample application form, the following factors may disqualify certain businesses from PPP loans. As more information is made available, we will clarify this list:
- If the business or any of its owners are presently involved in any bankruptcy;
- If the business or any of its owners are presently suspended, debarred, proposed for debarment, declared ineligible, or are voluntarily excluded from participation in the PPP by a federal department or agency;
- If the business or any of its owners, or any business owned or controlled by any of them, have ever taken a loan from the SBA or any other federal agency that is currently delinquent or that has defaulted in the last seven years and caused a loss to the government;
- If any 20% or more owner of the business is currently subject to an indictment, criminal information, arraignment, or any other means by which formal criminal charges are brought in any jurisdiction;
- If any 20% or more owner of the business is currently incarcerated, on probation, or on parole; and
- If any 20% or more owner of the business has, within the last seven years, pleaded guilty to, pleaded nolo contendere, been placed on pretrial diversion, been placed on any form of parole or probation, or been convicted of any felony or misdemeanor against a minor.
We Can Help
Please contact Maslon's Corporate & Securities Group if you have questions or need assistance applying for a PPP loan.