Summary of Anticipated Provisions While Awaiting Final Approval of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

The CARES Act will establish the Paycheck Protection Program (PPP). Here are the expected highlights of the PPP:

Who will be eligible? Among those eligible will include:

• Small businesses and 501(c)(3) nonprofits with not more than 500 employees, or the applicable size standard for the industry as provided by the SBA, if that number is higher
• If a business has more than one physical location, depending on its industry it could still be eligible if it employs no more than 500 employees per physical location and is below a gross annual receipts threshold for its industry
• Sole-proprietors, independent contractors, and other self-employed individuals
• Borrowers will be required to make a good faith certification that (i) the loan is necessary due to the uncertainty of current economic conditions caused by the COVID-19 situation, (ii) funds will be used to retain workers and maintain payroll, lease and utility payments, and (iii) they are not receiving duplicative funds for the same uses from another SBA program

Who will lend the money?

Loans will come directly from approved lenders, not directly from the SBA. Loans will be guaranteed by the SBA (guarantee percentage to be increased to 100 percent until December 31, 2020, and then to return to pre-PPP limits/levels)

What is the maximum loan amount and interest rate?

• The maximum 7(a) loan amount will be $10 million through December 31, 2020, with the size of the loan being determined by a formula tied to payroll costs incurred by the business
• Interest will not exceed 4 percent

What are the permitted uses of the loan?

Permitted uses include payroll support, insurance premiums, and qualified mortgage, rent, and utility payments

Will collateral and/or personal guarantees be required?

The PPP will waive collateral and personal guarantee requirements

What does the loan forgiveness program really mean for businesses?

• The PPP includes a loan forgiveness provision, where a borrower will be eligible for loan forgiveness equal to the amount spent by the borrower during an eight-week period after the origination date of the loan on (i) payroll costs, (ii) interest payment on any mortgage incurred prior to February 15, 2020, (iii) payment of rent on any lease in force prior to February 15, 2020, and (iv) payment on any utility for which service began before February 15, 2020
• The cap on the amount forgiven will be the principal amount of the loan
• Please note that the amount forgiven is subject to reduction based on reduction in full-time employees and certain salary reductions during the covered period. Employers who re-hire employees who have already been laid off will not be penalized.
• Canceled indebtedness will not be required to be included in a borrower’s taxable income

As most questions we have fielded so far involve the loan forgiveness aspect of the PPP, we will be providing a separate, more detailed update on that topic as well. Stay tuned.

Please contact Alexis Schostak (248-203-0598), Mary Beth McGowan (202-906-8631) or your regular Dykema attorney with any questions. We are here to help you and your business navigate this difficult time.

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