​White House and Senate Agreed to Replenish PPP Loan

April 21, 2020

​On April 21, 2020, the White House and the Senate agreed on a new funding package in excess of $480 billion to reopen the aid to small businesses stricken by COVID-19. The House is expected to vote on the legislation within this week. A total of $320 billion will be allocated for the Small Business Administration’s Paycheck Protection Program (PPP). The package also includes $60 billion for the Economic Injury Disaster Loan program (EIDL).
​
The Paycheck Protection Program is designed to expand the access and availability of loans to small businesses affected by the COVID-19 pandemic. The initial funding for the program in the amount of $350 billion was exhausted quickly.

​CARES ACT CLIENT ALERT

April 1, 2020

We want to draw your attention to the newly enacted Coronavirus Aid, Relief, and Economic Security Act (CARES). Many businesses may be able to tap into the Payroll Protection Program (“PPP”) and the COVID-19 Economic Injury Disaster Loan Program (“EIDL”) created under CARES.
​
PPP Loans.

• Eligibility. Generally, a PPP loan borrower should be a “small business” in operation on February 15, 2020 and must have no more than 500 employees.
• Loan Amount.  The loan amount is up to two months of average monthly payroll costs from the last year plus an additional 25% of that amount, subject to a 10 million cap. Payroll costs include salary, wages, commissions, tips, paid time off (PTO), health insurance, retirement benefits and local employment taxes, capped at $100,000 annualized paid to each service provider. 
• Interest Rate. The loan bears an interest no more than 4% per annum during the “covered period” (i.e.   February 15, 2020 - June 30, 2020) – Caveat: Under the existing language in CARES, it is unclear whether the rates would go up after the covered period.
• Term. The term of PPP loans may be up to 10 years.
• Fee. Legal and other agent fees are to the lenders.
• Deferment.  All loan payments are deferred for at least six months, and up to one year.
• Guarantee. Personal guarantee generally is not required.
• Loan Forgiveness. All of the borrower’s payroll costs, mortgage interest payments, rent and utility payments during the eight weeks following loan origination (up to the total loan principal amount) is eligible for payment forgiveness. The forgiveness amount may be reduced depending on whether the borrower reduces its employee headcounts and/or employee salaries.
• Participating Bank. A PPP loan can be obtained from a participating bank – Chances are the bank that the Company uses is a participating bank as currently more than 1,800 banks are participants and there will be more.

COVID-19 EIDL Loans

• Eligibility.  An EIDL loan borrower should be a “small business” with no more than 500 employees. The previous EIDL requirement that an applicant be in business for one year prior to the date it applies is waived, so long as the business was in operation by January 31, 2020.
• Advance. The borrower will receive an advance of $10,000 within three days of applying for the loan. This advance need not be repaid even if the applicant is subsequently denied an EIDL.
• Interest Rate.  The interest rate for SBA’s COVD-19 EIDL loan is 3.75% for businesses.
• Term.  The term of EIDL loans may be up to 30 years.
• Guarantee. Personal guarantees will not be required for loans of less than $200,000.
• PPP Loan.  A borrower that has taken out an EIDL loan for payroll costs or certain other permitted uses under the Payroll Protection Program may be able to refinance its EIDL through a PPP loan.

 
Both PPP and EIDL loans are made on a first-come, first-served basis.  EIDL loans can be applied online now at https://covid19relief.sba.gov/#/, and the application for PPP loans start on April 3, 2020. To assist clients navigating the CARES application process, we have assembled a team of attorneys. If you have any questions, please contact us at CARES@magstonelaw.com.