The SBA Paycheck Protection Program: An Overview
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Good news, bad news. The good news is that the new Paycheck Protection Program (PPP) loans through the Small Business Administration (SBA) look like they will provide a much needed lifeline for small businesses of every stripe, including sole proprietors, and non-profits. They provide for loans of up to $10 million for small businesses that will be forgiven if certain conditions are met to support small businesses and other eligible entities to pay workers, interest on mortgage obligations, rent, insurance, paid sick or medical leave, utilities, and payroll related costs incurred from February 15, 2020 to June 30, 2020. Generally, businesses with fewer than 500 employees will be eligible but that cap could be higher or lower for businesses that have an employee-based size standard through the SBA. Here are links to documents prepared by the Senate and the U.S. Chamber of Commerce that describe eligibility requirements and the terms of loan forgiveness.
The bad news is that it will be a while before anyone is receiving any funding under this new program and there is a real possibility that demand will outstrip supply.
The best way to access the new SBA loans will be to work with your existing commercial lender. Unfortunately, the authorizing legislation only came into being last Friday, March 27, 2020, and this is a brand new program. That means that the SBA has not yet created the forms, updated their systems, or established the processes for these new loans. After that is done, the SBA will need to have special training sessions with the commercial bankers about how the process will work. At that point, borrowers will be able to work with their lenders to learn what will be needed and to actually apply for the loans. The lenders will then need to work with the SBA to process all of the loan applications and fund the loans.
As you can imagine, there is expected to be unprecedented demand for these loans, with every eligible borrower wanting to apply at exactly the same time. No one has any experience with anything remotely like this.
Be patient, and work with your commercial lender. Remember that many of their customers are in the same boat and that there is not much they can do today.
Although it is pure speculation at this point, it does make sense to anticipate what might likely be required in a loan application under this new program, so we would suggest that you take the time now to gather some relevant financial information about your business, such as your most recent IRS Form 941 (Employer's Quarterly Federal Income Tax Return), a breakdown of your January 2019 through February 2020 payroll expenses, and 2019 financials (profit/loss and balance sheet) with year-to-date 2020 financials.
Please remember that bankers are business people too, and they are working under the same constraints that we all are (although they are required to remain open), and so please be patient and cooperative. They will want to get the money to you as fast as they are able, but they can only start when the SBA has the program ready to go.
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