SBA Loans Video 9--Paycheck Protection Program Update

Attorney Thomas B. Burton discusses the latest updates and information regarding the Paycheck Protection Program in Video 9 of his series on these new SBA Loans under the CARES Act.


Link to SBA Interim Final Rule


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Transcript of Video: SBA Loans Video 9—Paycheck Protection Program Update

On the Paycheck protection program so

there's been a lot of news this week

about the Paycheck protection program

and if you've been following along you

know the program ran out of money last

week I believe on Thursday the initial

349 billion dollars was gone

currently there's a bill moving through

Congress to allocate more funds and

people it has passed the Senate they're

speculating it could pass the House as

soon as tomorrow but if you go to the

SBA website right now it's going to say

we're out of funds due to a funding

lapse but in the meantime I know some

people got their application in and I'm

hearing the funds that are coming may go

fast so if you're still thinking about

applying I would still get your

application in to your lender as soon as

you can and watch my previous eight

videos about some of the requirements

and things you want to watch to watch

for as you're applying but today I

wanted to talk briefly a little bit more

about these SBA interim final rules and

for those who have started to receive

your loan proceeds a reminder to look at

the allowable use of the funds going

forward so that you can qualify for that

maximum loan forgiveness under the

program and again remember you can use

the funds for payroll costs rent and

certain covered utilities for the eight

week period starting on the date you

receive your loan proceeds but one

thing to note about the payroll cost

I've gone over this before but you cannot

use it for any employee whose principal

place of residence is overseas so you

have to use it to pay us US-based employees

keep that in mind if you're a company

with people working remotely from

different locations and a reminder the

interest rate is 1% now I want to jump

ahead because some of my people I'm

talking to are starting to receive their

loans so you want to focus on some of

the

requirements of these loans and in this

interim rule from the SBA I'm putting a

link in this video

it's on the SBA website it came out April

15th and the comment period is open

until May 15th so if you have comments to

submit get them in in that comment

period but the question is when will I

have to begin paying principal and

interest on my PPP loan their answer is

you will not have to make any payments

on the six months following the date of

disbursement of the loan okay so if you

apply for the loan the date the money

actually gets dispersed to you in your

account that's going to be the date of

disbursement six months from that date a

payment is due however interest will accrue

on the PPP loan during that six

month period so you get the money it goes in

your bank account six months later the

first payment is due interest starts

accruing on day one and again that's 1%

it allows the Act allows the SBA to

defer loan payment for up to one year

but they determined six months deferment

was appropriate so but what you want to

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do is use the loan funds for the covered

reasons listed in the Act and then apply for

that loan forgiveness but the SBA goes a

little bit more into here how they came

up with that seventy five percent number

you'll recall I talked about how they

said they want 75% of the funds to be

used on payroll costs not on rent and

utilities and they say here the amount

of the loan forgiveness can my PPP loan

be forgiven in whole or in part? The

amount of loan forgiveness can be up to

the full principal amount of the loan

and any accrued interest that is if the

Borrower uses the loan for forgivable

purposes described below the actual loan

forgiveness will depend again on those

costs of payroll and

rent and utilities and they define in these

rules look through it you have to have a

mortgage payment obligations incurred

before February 15 2020 rent payments

on leases dated before February 15 2020

and utility payments under service

agreements dated before February 15th

2020 over the eight week period

following the date of the loan so again

get the loan and then look at what you can

pay with it after that however not more

than 25% of the loan forgiveness amount

may be attributable to non-payroll costs

so again they want you to use 75% at

least on payroll and they go into this

reasoning a little more in this rule it

says while the Act that the CARES Act

provides that borrowers are eligible for

forgiveness in an amount equal to the

sum of payroll costs and any payments of

mortgage interest rent and utilities the

administrator has determined that the

non payroll portion of the forgivable

loan amount should be limited to

effectuate the core purpose of the

statute and ensure finite program

resources and here they come up to how

they get to that 75% the Administrator

determined in consultation with the

secretary that 75% is an appropriate

percentage in light of the Acts

overarching purpose furthermore they

believe that this threshold is

consistent with the structure of the Act

so here's the key which provides the loan

amounts 75% of which is equivalent to

eight weeks of payroll eight weeks

divided by 2.5 months equals 56 days

divided by 76 days equals 74% rounded up

to 75% so that's where they get that 75 percent

from which again some lawyers pointed

out is not in the Act but that's where

they're getting that goal of the payroll

and I know this is tough on businesses

that have high overhead costs but maybe

not a high payroll like a gym or some

other business with

a lot of the costs into fixed assets but

then don't necessarily have the high

payroll cost but it seems here the

intent of the Act was to pay employees

with the money and that's what they're

going with with the 75% so I just found

that nugget in the interim rule today

to provide some clarity to you asking

about that and that's the math on where

they're getting to that 75% number now

quick summary again reminder you can use

it on payroll costs as defined in the

Act and in these rules they put it in

tough I'm not going to read them all

again rent payments utility payments

and interest payments on any other debt

obligations that were incurred before

February 15 2020 okay also the other

quick thing today they get a little bit

into the EIDL loan if you applied and

got that grant you can use it for

refinancing an SBA EIDL loan made

between January 31 2020 and April 3rd

2020 so if you got an EIDL loan in that

period you can refinance it into the PPP

if you received one through April 3rd

you can apply for a PPP loan however if

your EIDL loan was not used for

payroll costs it does not affect your

eligibility for PPP loans so for those

of you who got any EIDL look at this

segment of the interim final rules how

they play together if your EIDL loan was

used for payroll costs your PPP loan must

be used to refinance your EIDL loan okay

so if you got that EIDL before April 3rd and you used that on payroll you've got to

refinance it and then here it also says

proceeds from any advance up to $10,000

on the EIDL loan will be deducted from

the loan forgiveness amount on the PPP

loan and then again they say however 75%

of the PPP loan should be used on loan

forgiveness now one other quick hit here

in the news this week you've seen Shake

Shack returning the money Ruth Chris

these big companies that were getting

the money and then there was the public

uproar and people were saying wait did

could they make that good faith

certification they really need the funds

and the SBA is saying no those

businesses really aren't supposed to use this

because they have access to capital

markets as a publicly traded company

they can raise money that way but a

reminder to everyone here

what happens if PPP loan funds are

misused if you use PPP funds for an

unauthorized purpose SBA will direct you

to repay those amounts if you knowingly

use the funds for unauthorized purposes

you will be subject to additional

liability such as charges for fraud okay

so you want to know the rules here and

follow them because they are going to go

after people who misuse these funds and

unfortunately, we know that will happen

so that's today's update on the

paycheck protection program thanks for

watching stay safe be well and we'll see

you next time!

© 2020 Burton Law LLC. All Rights Reserved.

Transcript and captions provided for ease of access for the hearing impaired.

For questions about this topic, or to suggest a topic for a future blog post, please contact my office.


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