§1102 of the CARES Act establishes the Paycheck Protection Program (PPP) under the SBA 7(a) Loan Program & §1106 provides forgiveness of up to the full principal of loan.
To fulfill the expeditious intent of providing relief to small businesses, the SBA issued its final rule on 4/2/2020 without the typical 30-day delay for effectiveness.
We will be discussing the PPP in great detail on Real Estate Investing with Andrew Lieb this Sunday at noon on LI News Radio (WRCN / FM103.9) - If you are in business, don't miss this important segment - it could save your financial life.
Here is a Summary of the Interim Final Rule found at 13 CFR Part 120:
- Loan Terms:
- No collateral
- No personal guarantee
- No fees
- Loan payments deferred 6 months (interest accrues)
- 2-year maturity
- 1% interest rate
- Maximum loan $10MM
- Loan Amount (calculation methodology):
- Aggregate payroll costs from last 12 months
- Subtract amounts paid to employee over $100K
- Divide net of steps 1 & 2 by 12
- Multiply step 3 by 2.5
- Add outstanding amount of an Economic Injury Disaster Loan made from 1/31/2020 to 4/3/2020 less advances
- Loan Forgiveness Availability:
- Employees are on the payroll for 8 weeks
- Money used for payroll, rent (lease dated before 2/15/2020), mortgage interest (obligation incurred before 2/15/2020), or utilities (service agreement before 2/15/2020)
- 75% of loan forgiven must be used on payroll
- Payroll includes:
- Small business = Salary, wages, commission, cash tips, vacation / parental / family /medical / sick leave, allowance for separation / dismissal, employee benefits (health / retirement), state / local employment tax
- Independent Contractor = wage, commission, income, or net earnings
- Payroll doesn’t include:
- Employee with principal residence outside US
- Salary over $100k (prorated)
- Fed employment tax from 2/15/2020 to 6/30/2020
- Qualified sick & family leave wages
- To prove proper payments, lenders can rely on borrower’s documentation without any verification requirements
- Application:
- SBA Form 2483 (lender submits SBA Form 2484)
- Applicant certifies that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.
- Available from 4/3/2020 to 6/30/2020 or until exhausted
- Borrower can only get 1 loan
- First-come, first service
- E-signature / consent permitted
- Eligibility:
- Must be small business, non-profit, independent contractor (sole proprietor)
- Must have < 500 employees (certain exceptions if bigger) with principal place of residence in US
- Must be in operations on 2/15/2020 with W2 employees
- Must submit proof of eligibility of:
- Payroll processor records
- Payroll tax filings
- Form 1099-Misc
- Income & expenses for sole proprietorship
- If don’t have above, bank records to demonstrate qualifying payroll
- Ineligibility:
- You are engaged in illegal activity under federal, state or local law (no legal marijuana)
- Household employer of nannies / housekeepers
- Owner of 20% or more is incarcerated, on probation / parole, subject to indictment, criminal information, arraignment, or convicted of felony in last 5 years
- Delinquent / defaults on SBA loan within last 7 years
- Misuse Penalties:
- Knowingly using loan for unauthorized purposes is fraud
- False statements on application is up to 5 year imprisonment / up to $250K fine + up to 2 years imprisonment / up to $5K fine + up to 30 years imprisonment / up to $1MM fine
- Lenders Fees Paid from SBA:
- 5% of loans up to $350K
- 3% of loans over $350K & less than $2MM
- 1% of loans at least $2MM
- Agent Fees Paid by Lender from its Fees:
- 1% of loans up to $350K
- 0.5% of loans over $350K & less than $2MM
- 0.25% of loans at least $2MM
·
Questions should be made to Lender Relations Specialist at the
local SBA Field Office
