Important details on SBA’s Paycheck Protection Program loans
In response to the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) passed by Congress on March 27, we’re sharing resources with you and your small business insureds to help them get started in the loan process. As you know, the estimated $2 trillion CARES Act provides for disaster recovery loans, known as Economic Injury Disaster Loans (EIDL), which are for general business use and must be repaid. For small business owners, the Act also allows for Paycheck Protection Program (PPP) loans for payroll and related taxes, rent, mortgage, utilities and some other expenses, and which may be forgiven entirely in some cases.
It’s the third stimulus package from Congress to help the U.S. overcome the health and economic issues caused by the coronavirus.
Paycheck Protection Program (PPP) authorizes up to $349 billion in loans to small businesses to pay their employees during the COVID-19 crisis. All businesses with 500 or fewer employees can apply. The loan amounts will be forgiven, as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
- Employee and compensation levels are maintained.
Am I eligible?
According to information published by the U.S. Chamber of Commerce, you are eligible if you are:
- A small business with fewer than 500 employees
- A small business that otherwise meets the SBA’s size standard
- A 501(c)(3) with fewer than 500 employees
- An individual who operates as a sole proprietor
- An individual who operates as an independent contractor
- An individual who is self-employed who regularly carries on any trade or business
- A Tribal business concern that meets the SBA size standard
- A 501(c)(19) Veterans Organization that meets the SBA size standard
In addition, some special rules may make you eligible:
- If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis.
- If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company, the normal affiliation rules do not apply.
How do I apply?
Applications for the Paycheck Protection Program loan started last Friday and can be made directly through your local SBA-approved lender. View this information sheet from the Treasury Department, which includes links for the application and a list of approved SBA lenders.
- Local SBA lenders are available to provide guidance and support through the loan process.
- There are many reputable sources of good information about these loans. The U.S. Chamber of Commerce guide provides good general information about eligibility and more here.
What is required to apply for a Paycheck Protection Program loan?
Good faith certification that the loan is necessary is required, stating that:
- The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations.
- The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments.
- Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here.
- From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here. (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan.)
If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.
How much can I borrow?
- This Quick Calculator worksheet will help you estimate monthly amounts that the PPP can be used to cover.
- Procor Solutions, a brand we trust, has provided more detailed worksheets and a checklist you can download here.
Our goal is to provide actionable information during these challenging times. The above links are intended to provide a starting point to access the Paycheck Protection Program loan under the CARES Act.
Please be advised that any and all information, comments, analysis and/or recommendations set forth above relative to the possible impact of COVID-19 on potential insurance coverage or other policy implications are intended solely for informational purposes and should not be relied upon as legal advice. We have no authority to make coverage decisions, as that ability rests solely with the issuing carrier. Therefore, all claims should be submitted to the carrier for evaluation. The positions expressed herein are opinions only and are not to be construed as any form of guarantee or warranty. Finally, given the extremely dynamic and rapidly evolving COVID-19 situation, comments above do not take into account any applicable pending or future legislation introduced with the intent to override, alter or amend current policy language.