Paycheck Protection Program

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During these trying times of the COVID-19 pandemic, many businesses are facing the difficult reality that they either have to close completely, or at the very least reduce their workforce.  However, many employers are unaware that there is another option which would allow the business to maintain its employees while also lessening its cash flow in order to survive.  This third option is the Paycheck Protection Program from the Small Business Administration.

The Paycheck Protection Program (PPP) is an expansion of the Small Business Association Loan Program and although it is administered by the Small Business Administration the funds are provided by private lenders.  Under the Program, a business is eligible for such loan if they have five hundred employees or fewer and were in operation on or before February 15, 2020.

Upon submitting an application, a qualified business may obtain a forgivable loan to aid in the payment of payroll and associated costs.  The specifics of the PPP loan include, but are not limited to the term of the loan being two years at a rate of 1% interest.  There is no collateral required by the borrower nor are there fees that are charged by the lender.  In fact, the lender is prohibited from requesting that the borrower provide a personal guarantee for the loan.  The loan amount is capped at ten million dollars, or two and a half times the average monthly payroll of the business for 2019 or the last 12 month period.

While this appears to be free money for the business, there are restrictions on how and what the money can be used for.  If the money is utilized by the business for unapproved reasons, the loan may be deemed due and owing immediately and/or the loan will no longer be eligible for forgiveness.  The approved expenses for which the PPP loan proceeds can be utilized include payroll costs, interest on mortgage and debt obligations incurred prior to February 15, 2020, certain refinancing and rent and utilities.  The term “payroll costs” include salaries, wages, commission and tips, along with payroll taxes and benefits (including but not limited to vacation, medical, certain sick leave, group healthcare benefits, and retirement benefits).

Provided that the employer can provide evidence that the funds were utilized for approved expenses, the PPP loan may be deemed forgivable if at least seventy five percent of the loan proceeds go to payroll costs and other restrictions are met.  The employer must make a request for forgiveness to the lender directly and be able to provide evidence of the usage of the funds.  It is recommended that any PPP funds be placed into a separate and distinct bank account so that the employer can provide any documentation that is necessary for the usage of the funds.

If you are an employer and are seeking a Small Business Association Paycheck Protection Program loan, please contact the experienced employment lawyers at Harlow, Adams & Friedman, and P.C. today at 203-878-0661 for a free consultation.

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