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
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!
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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.