Payroll Protection Program

Small Business Owners Should Consider the Paycheck Protection Program

As you all know, last week Congress passed, and the President signed into law, a $2.2T recovery act that significantly expanded unemployment insurance protection.  However, the act also included the Paycheck Protection Program (the “PPP”) which establishes $349B as a subsidy to closely held business owners for employment taxes, rent, wages, and utilities for keeping their employees with their companies.  The provisions governing the PPP are, and continue to be, in a state of flux as interim regulations were issued by the SBA last night.  However, we wanted to provide you with a brief current outline of the PPP since applications to the program begin today (Friday, April 3, 2020).

Under the terms of the PPP, a company can obtain a government-backed loan that can be used to cover the business’ payroll costs, wages, benefits, rent, and utilities.  This loan can equal up to 2.5 times your average monthly payroll.  An individual employee’s annual salary may not exceed $100,000.  So, for example, if a company’s payroll cost is $125,000 per month, the loan application could be for up to $312,500.  

A company wishing to apply for this loan can go to any Small Business Administration (“SBA”) lender but may have more success if they process the request through their existing bank.  Once the loan is approved, to the extent loan proceeds are then used for a proper purpose, a certain portion of those proceeds could be forgiven under the PPP.  Any portion not forgiven would bear interest at an annual rate as low as 1% for up to a two-year period.

It is important to note, that while an employer is able to use these loan proceeds for a list of various business-related expenses, if you want the loan to be eligible for forgiveness, then at least 75% of the loan proceeds must be used to cover payroll costs (including wages and benefits).  

Loans under the PPP are just one type of disaster loan and the SBA also sponsors other disaster loans with attractive terms.  However, it is anticipated that there will be a huge demand for loans under the PPP.  Therefore, you should immediately be contacting your tax advisers and determining if such a loan is the right move for your company.  If you would like any assistance, or additional information, please CLICK HERE.  

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