PAYCHECK PROTECTION PROGRAM
Part of the CARES Act, the Paycheck Protection Program (PPP) provides small businesses and sole proprietorships cash flow assistance through 100% federally guaranteed loans. PPP is intended to encourage eligible employers to keep employees on their payroll, despite the economic hardship related to the COVID-19 pandemic.
The Paycheck Protection Program and Health Care Enhancement Act was signed into law Friday April 24, 2020, adding $310 billion in funding for PPP. Smaller lenders now have $60 billion specifically allocated for PPP loans are now approved lenders for the PPP loan with a designated $60 billion for loans. Insured depository institutions, credit unions and community financial institutions with assets that amount to less than $50 billion qualify to be lenders, in addition to the previously eligible 7(a) lenders.
- Borrowers may defer principal and interest payments until the SBA compensates lenders for any forgiven amounts, instead of the previous six month deferral period. Borrowers must apply for loan forgiveness within 10 months of the end of the covered period.
- Borrowers loan duration period is now five years (previously two years).
- Loans may now be spent over a 24 week period (previously 8 weeks) following disbursement or through Dec. 31, 2020.
- Employers may now spend only 60 percent of the loan proceeds on payroll costs instead of 75 percent, leaving 40 percent of the loan to non-payroll expenses such as mortgage interest, rent and covered utilities.
Small businesses can have PPP loans fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. On June 5, 2020 the Paycheck Protection Program Flexibility Act of 2020 was signed into law extending the benefits of the program which are outlined below.
Employers have until Dec. 31, 2020 to apply for loan forgiveness.
Calculating Loan Forgiveness
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 24-week period beginning on the date of the loan’s origination:
- Payroll costs
- Interest on mortgage obligation incurred in the ordinary course of business
- Rent on leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone or internet)
- For borrowers with tipped employees, additional wages paid to those employees
A maximum of 40% of the loan amount used for eligible non-payroll costs is expected to be forgivable.
The 24-week coverage period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender should disburse the loan no later than 10 calendar days from the date of loan approval.
Employers now have until Dec. 31, 2020 (previously June 30, 2020) to restore staffing levels for any reductions made between Feb. 15, 2020 and April 27, 2020.
- Employers who are unable to restore employee levels may still be eligible for loan forgiveness if they document an employee did not accept a rehire offer, the inability to hire a similarly qualified worker for the position or an hindrance to rehire employees due to compliance with federal guidelines for sanitation or social distancing.
COVID-19 BUSINESS RESOURCES GUIDE
The Arizona Commerce Authority's COVID-19 Business Resources Guide provides information on funding opportunities, workforce navigation services, manufacturing supports and ways the community is pitching in during this public health emergency. To share with your networks, download it below.