At the end of business Tuesday, the Treasury Department released guidance on the 7a Paycheck Protection Program. The Paycheck Protection Program is part of the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into law on March 27, 2020 as a $2.3 trillion economic stimulus bill.  

Here are three important points for applicants to the program to keep in mind.

1. Under the right circumstances, these loans can be forgiven.

The $349 billion Paycheck Protection Program allows qualified businesses to apply for a loan with the potential for a portion of that loan to be forgiven. The loans are designated for small businesses under 500 employees that keep their employees on the payroll during the COVID-19 pandemic.  

Those who can benefit include small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, so long as they also meet program size standards. Businesses with more than 500 employees are eligible in certain industries.

Funds are provided in the form of loans that may be fully forgiven when used for qualified expenses. Qualified expenses include up to eight weeks of payroll costs, benefits, interest on mortgages, rent and utilities. 

At least 75% of the forgiven amount must have been used for payroll.  Loan forgiveness is based upon the employer maintaining or quickly rehiring employees and maintaining salary levels.  The forgiven amount will be reduced if the number of full-time employees declines or if salaries and wages decrease. 

2. These loans include several other favorable terms.

Loan payments will be deferred for six months, according to the Treasury guidelines. Also, no collateral or personal guarantees are required.

Neither the government nor lenders will charge small businesses any fees. The terms are standardized regardless of the lender or borrower.

Small businesses and sole proprietorships can apply beginning this Friday.  Independent contractors and self-employed individuals can apply beginning Friday, April 10, 2020. 

Applications can be made through any existing SBA 7a lender or through any participating federally insured depository institution, federal insured credit union and Farm Credit System institution.  Consult with your local lender as to its participation. 

3. There is a funding cap on the loans being made.

Therefore, we strongly recommend interested parties apply as soon as possible.

For the application form, click here.  

More information can be found at the following links:

• To see all information released by the Treasury on March 31, click here.
• For an information sheet, click here.    

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Shawna L. L’Italien, a lawyer in the Salem office of Harrington, Hoppe & Mitchell, focuses on business transactions, estate planning, probate, elder law and real estate law. She can be reached at (330) 337-6586 or at slitalien@hhmlaw.com.