On March 31, 2020, the U.S. Department of the Treasury issued guidance on the Payroll Protection Program (PPP) under the CARES Act. The PPP provides small business with funds to pay payroll costs, including employee benefits. The funds can also be used to pay interest on mortgages, rent and utilities. The specific guidance issued included the borrower loan application form and fact sheets providing information to borrowers on completing the loan application as well as how the loans will work.
Consistent with the description of the PPP in the CARES Act, the guidance specifically states that the loans will be fully forgiven when used for payroll costs, interest on mortgages, rent and utilities, but noted that due to likely high subscription rates “it is anticipated that not more than twenty-five percent (25%) of the forgiven amount may be for non-payroll costs”. It is also noteworthy that unlike other SBA products, PPP loans will not be negotiated and all loans will be on the same terms. Interest rates are set at 0.5%, which is well below the 4% statutory limit set forth in the CARES Act. The term of each loan will be 2 years (subject to a deferral period), which is also below the 10-year limit specified in the CARES Act. Finally, the deferral period will be 6 months whereas the minimum statutory length under the CARES Act could have gone up to 12 months. There also appears to be immediate approval (without any approval process) for insured banks, credit unions, and Farm Credit System institutions to participate as lenders. The specifics regarding guidance on “additional lenders” under the PPP are still to come.