Understanding the CARES Act Paycheck Protection Program

June 3, 2020

Small business owners are among Virginia’s hardest working citizens. In many cases, they’re also the hardest hit by the economic fallout of COVID-19. Executive Order 53 closed all non-essential retailers to the public, and Executive Order 55 limits Virginians’ ability to leave their residences. These orders restrict many small businesses’ capacity to generate income. Further, self-employed individuals, independent contractors, and small business owners cannot claim traditional Virginia unemployment compensation. These factors may leave nearly half of the Commonwealth’s private workforce financially insecure.

In response to the pandemic, the federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. Congress designated $349 billion to relieve the self-employed and small businesses from the financial strain of COVID-19. Virginia small business owners may apply for the CARES Act’s Paycheck Protection Program (PPP) with the help of a qualified Virginia attorney at McClanahan Powers, PLLC. The federal government prioritized preserving jobs and protecting small businesses during this outbreak – discuss your eligibility for federal relief with us today by calling (703) 520-1326 or contacting us online.

Understanding the Paycheck Protection Program (PPP)

Entities eligible for the CARES Act’s Paycheck Protection Program (PPP) may receive forgivable loans to cover up to eight weeks of payroll, benefits, rent, mortgage interest, and utility costs. These entirely forgivable payroll loans do not require personal guarantees or collateral and average around $80,000. Lenders cannot charge any originating fees, and all loan terms are the same. Loans are forgivable if at least 75% of the funds cover payroll and employee benefits. However, lending caps out at $100,000 per employee.  Unforgiven funds mature in two years with a 1% interest rate after a six-month grace period.

To qualify for complete loan forgiveness, employers must maintain their workforce or quickly rehire laid-off employees at their regular salary rate. Workforce or wage reductions may result in only partial loan forgiveness. The Small Business Administration (SBA) administers the PPP on behalf of the federal government on a first-come basis.

Entities and Individuals Qualifying for Forgivable Payroll Loans

Nearly all SBA affiliated businesses with 500 or fewer employees qualify to apply for the PPP program. Unaffiliated businesses in the hotel or food service industries, those receiving financial assistance from a licensed SBA investment company, or entities appearing in the SBA franchise directory are also eligible for a PPP loan. Eligible entities may include:

  • Corporations
  • Limited Liability Companies (LLCs)
  • Partnerships
  • Sole proprietorships
  • Independent contractors
  • 501(c)(3) nonprofits
  • Veterans organizations
  • Self-employed individuals
  • Tribal entities

Further, businesses with more than 500 employees may obtain a payroll loan if they qualify as a “small business” according to SBA industry size standards. Many manufacturing, transportation, and food service entities with more than 500 employees still qualify as small businesses. If you do not qualify for a forgivable loan under this program, you might obtain relief from another provision of the CARES Act. Speak with a local attorney to discuss your options today.

Applying for the CARES Act PPP Loan

Businesses can apply for PPP loans directly with an SBA participating lender, and most state and national financial institutions participate in this program. After selecting a lender, the borrower submits a PPP Borrower Application Form available through the SBA. Borrowers must provide identifying information such as their legal names, entity types, EIN/SSNs, addresses, and contact information. Additional required information includes the names, titles, EIN/SSN, and ownership percentage of any person/entity with more than a 20% stake in the business, the number of employees, average monthly payroll, and the primary reason for the loan.

Businesses may use 2019 numbers to calculate average monthly payroll, excluding costs over $100,000 per employee. Seasonal entities and new companies may utilize a different standard but should consult with an attorney. Businesses submit the completed application and any additional documentation directly to the participating lender, not the SBA. The participating lender makes the eligibility determination for a PPP loan, and the SBA may address improper denials.

Potential Reasons for Paycheck Protection Program Loan Denials

PPP applicants must identify whether any owner has been debarred, declared ineligible to participate in federal financial transactions, or has a pending bankruptcy petition. Applicants must also identify any delinquencies or defaults on federal loans over the past seven years by any owner, not just the company itself. Report all owners (20% or more) facing pending criminal charges or currently incarcerated or on parole. Further, applicants must state whether any owner was convicted of a felony over the past five years, including through a guilty plea, pretrial diversion, probation, or plea of nolo contendere.

After providing this information, the SBA requires the following good faith certifications:

  • The business was operating on February 15, 2020, with salaried/hourly employees and/or independent contractors and paid all required taxes
  • The loan is necessary to support ongoing business due to COVID-19
  • The PPP funds will be used to pay workers or for another legal purpose under the CARES Act
  • The applicant will provide the lender with requested documentation as to payroll costs and other covered expenses
  • That loan forgiveness applies for documented payroll costs and up to 25% of eligible non-payroll costs
  • That the applicant has not and will not receive another PPP loan between February 15, 2020, and December 31, 2020
  • That all information provided is true

 

Businesses that cannot make one or more of the above certifications should speak with an SBA attorney at McClanahan Powers, PLLC, before applying for PPP funding. Providing false information qualifies as a federal felony and could result in imprisonment and hefty fines.

Take Full Advantage of the Paycheck Protection Program’s Loan Forgiveness with McClanahan Powers, PLLC

The American economy counts on small businesses. In these uncertain times, take full advantage of the payroll protection available through the CARE Act Paycheck Protection Program. An experienced small business lawyer at McClanahan Powers, PLLC may help applicants determine their eligibility, prepare for loan forgiveness, explain alternative options for financing, and appeal denials to the SBA. Contact us before PPP funding runs out by calling (703) 520-1326 or reaching out online.