The CARES Act’s Paycheck Protection Program - Adviser Investments

The CARES Act’s Paycheck Protection Program

April 17, 2020

We’re continuing to unpack the CARES Act for you with a look at another important provision, the Paycheck Protection Program (PPP).

The PPP authorized the Small Business Administration (SBA) to distribute around $350 billion to banks to lend to small businesses, independent contractors and the self-employed. The SBA reported Thursday that it had maxed out its initial funding. More is needed, and we think it’s likely lawmakers will add to the coffers; Treasury Secretary Steven Mnuchin requested $250 billion more from Congress last week.

Here are the guidelines for these in-demand, forgivable government loans when they become available again:

  • All Small Businesses (and Some Large Ones) Welcome. Broadly speaking, any business with 500 or fewer employees (or self-employed individual or sole proprietorship in operation) as of February 15, 2020 can apply for a PPP loan at a base rate of 1%. Additionally, corporations in fields like hospitality and entertainment that have been disproportionately impacted by COVID-19 can apply even if they employ more than 500 people. Those are really the only hurdles to clear; PPP borrowers do not have to provide collateral or personal guarantees to receive the funds. Plus, neither the banks nor the government will charge fees on the loan.
  • Maintain the Status Quo and Be Forgiven. The PPP aims at smoothing some of the disruption caused by the coronavirus by covering major expenses for roughly eight weeks after disbursement. These major expenses include payroll and benefits costs, along with mortgage interest, lease, or utility payments. Perhaps the biggest benefit is that the PPP loans could be forgiven provided that the borrowers follow these two guidelines:
    1. Over that eight-week period, businesses must retain current employees and their payroll (as of February 15). In order for the loan to be fully forgiven, no employee can be terminated and their wages cannot be cut. (If a business has already let its employees go, it can still qualify for loan forgiveness by rehiring those employees at their previous salary.)
    2. The borrower is required to provide documentation of payroll and business costs to its lender. If the loan does not qualify for forgiveness, the amount borrowed will accrue interest at a rate of 1%. No payments will be required until six months from the disbursement date.
  • Be Ready to Act. Applications went live on April 3, 2020 for small businesses and sole proprietorships and April 10, 2020 for independent contractors and the self-employed—and any new funds added to the program are to be doled out on a first-come, first-served basis as well. You can find the Paycheck Protection Program application here. If you’re interested in applying, you should contact a lender as soon as loan funding is appropriated by Congress. Act fast: The demand is certain to remain high in this time of widespread need.

The relief provided by the PPP has been popular and remains economically necessary. We’re keeping a close eye on news out of Capitol Hill. For the latest updates or if you have any questions on this or any other CARES Act measure, don’t hesitate to call or email your wealth management team. We’re here for you.


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