Paycheck Protection Program: Keeping Employees Employed

Lyons Gaddis COVID-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on the SBA Payckeck Protection Program recently announced in the wake of the COVID-19 pandemic.

April 1, 2020
Paycheck Protection Program: Keeping Employees Employed

As part of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act’s multipronged approach at addressing the broad economic impact of the COVID-19 pandemic, Congress allocated $350 billion for the Paycheck Protection Program (“PPP”). Under the PPP, the Small Business Administration (“SBA”) will back small-business loans through local lenders, working with more than 1800 lenders nation-wide. The PPP is designed to help small businesses continue to pay their employees and cover costs during this unprecedented health crisis. The goal is to help keep eligible businesses afloat through these difficult times and to ensure that employees are kept on payrolls or rehired quickly.

PPP funds are available to small businesses with fewer than 500 employees, 501(c)(3) non-profits with fewer than 500 workers, tribal business concerns, and some 501(c)(19) veterans’ groups. Businesses in certain industries may have more than 500 employees (up to 1,500 employees) provided that they meet the SBA’s size standards for those industries. Sole proprietorships, as well as self-employed, freelance and gig economy workers are also eligible to apply, provided that they were operating prior to February 15, 2020.

Loans of up to $10 million can be used to pay up to eight weeks of payroll costs, including benefits like sick leave and healthcare. The funds can also be used to pay interest on mortgages, rent, and utilities. The loan will be given up to a maximum of the lesser of $10 million or 2.5 times the average monthly payroll costs during the previous one-year period before the date the loan is made. Interest on the loan will be capped at 4%, with a term of up to ten years, and may be lowered.

Borrowers who retain their full staff and payroll may qualify to have all of their eligible expenses for up to eight weeks 100% forgiven. To qualify for loan forgiveness, the funds must be used for the purposes specifically allowed by the statute, e.g., payroll costs and other specified costs.

In order for amounts to be forgiven, it is critical that the employer maintain the same average number of employees as it did from February 15, 2019 to June 30, 2019, or from January 1, 2020 to February 15, 2020 during the initial eight-week period from the date of the loan. If the employer does not meet this requirement, the amount forgiven will be reduced.

To take advantage of the PPP program, a loan application form and required supporting documentation must be submitted to an approved lender that can process the application by June 30, 2020. Beginning April 3, 2020, small businesses and sole proprietorships can apply. On April 10, 2020, independent contractors and self-employed workers can apply. Applications may be made through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and participating Farm Credit System institutions. More information is available from the Treasury Department’s website here. The application form is available here. Employers are encouraged to apply as quickly as possible, as the PPP is subject to a funding cap.

Attorneys in the Employment Law and Litigation Group at Lyons Gaddis are available to advise you in relation to the new Act and its impact on your business, your employees, and other COVID-19 related matters impacting your current and future business operations.