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Care to get a loan that might be the difference between making payroll or shutting the doors amid the coronavirus pandemic? The federal government, through the much-anticipated Coronavirus Aid, Relief and Economic Security (CARES) Act, is here to help.
Of course, like most government things, even when designed to help, details are somewhat byzantine. Lawyers and bankers across the region have been analyzing the $2.2 trillion stimulus bill since President Trump signed it into law March 27.
“This act has lots of arms and legs,” says Chris Kneer a senior vice president and head of the SBA division at Valley Bank, which is run out of Ybor City and covers markets in Florida, Alabama, New York and New Jersey. “It’s been a mad rush to get it read, especially the Paycheck Protection Program.”
The CARES Act has five programs, all designed to give business owners, and employees, immediate relief from the severe drops in business brought on by the coronavirus pandemic. Of those five, the most common to likely be utilized by businesses is the Paycheck Protection Program. “It seems like every five minutes we get a call with someone with questions,” says Timothy Woodward, a partner in Tampa office of Shutts and Bowen, who leads the practice’s construction litigation practice.
Key questions include:
Q. How can a business apply for the Paycheck Protection Program?
The PPP can be accessed through the already existing national network of SBA lenders, which includes some 800 banks, many of them community banks. Valley, for example, has sent a note and CARES Act primer to 2,700 businesses, clients and clients of clients. “We’ve been working day and night to put together a solid submission program,” says Kneer.
Q. What companies are eligible?
A Business with 500 employees or fewer is the top eligibility rule. That can be broken down into individual restaurant locations under one company, as long as each location has less than 500 employees. Tribal businesses, 501(c)(19) veteran organizations and 501(c)(3) nonprofits, including religious organizations, are eligible. Sole proprietors and independent contractors are also eligible. “There are some carve outs that will allow larger groups to apply, depending on the industry,” Kneer adds.
Q. What’s the approval process for PPP loans?
One of the features of the bill, says Adam Woodruff, a partner in the Tampa office of Shutts and Bowen, is the streamlined approvals. It includes: no review of ability to repay; no personal guarantee or collateral required; and no “credit elsewhere” test.
Q. What does the PPP cover?
While the focus is to cover payroll costs, other covered costs include:
• Group health care benefits during periods of paid, sick, medical, or family leave and insurance premiums;
• Interest on a mortgage obligation;
• Rent, under lease agreements in force before Feb. 15, 2020;
• Utilities, for which service began before Feb. 15, 2020;
• Interest on any debt incurred before Feb. 15, 2020.
An important part of the coverage, says Kneer, is 75% of each company’s loan is supposed to go toward payroll expenses. The CARES Act, he says, “is designed to keep people paid and staying on at the company.”
• What’s the maximum amount a business can borrow?
The PPP loan is capped at 250% of a firm’s average monthly payroll expenses, up to a total of $10 million. That’s intended to cover eight weeks of payroll expenses and any additional amounts for making payments toward debt obligations, Kneer says. “If you are a smaller business, and don’t have a lot of payroll, then this might not be for you,” he adds.
Q. Will the federal government run out of funds to make PPP payouts?
Kneer and some attorneys say this question has come up often. The likely answer is no. “Treasury has been up front saying they will put more money in this if need be,” Kneer says.
Q. When is the loan forgiven and what periods will it cover?
The loan is forgiven, interest-free, at the end of the eight-week period after you take out the loan — given the company keeps all its employees. The covered period runs Feb. 15 to June 30, and borrowers can choose the eight weeks they want to count toward the covered period. “The enticing part of the PPP,” Woodruff says, “is if you use it for its intended purpose and you can document it, the loan will be forgiven.”
Q. What’s the most important thing a business can do to prepare for the application of any loan under the CARES Act?
Make sure papers — tax returns, profit and loss sheets and more — are in order and ready. “The three things I’m telling clients right now,” says Woodward, with Shutts and Bowen, “is to document, document, document.”
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