Major Updates for the Paycheck Protection Program

Posted By Mike Meyer, Friday, April 3, 2020

handing cash over

By Patrick O'Brien, JD, legal coordinator, American Med Spa Association

The Department of the Treasury and the Small Business Administration (SBA) have just released emergency interim rules to provide additional guidance and clarity for the Paycheck Protection Program (PPP). We have a webinar from Wednesday and a blog article from yesterday giving some details on this new loan initiative.

To briefly recap, the PPP allows small businesses, sole proprietors and independent contractors to get a loan equal to 2.5 times their average one-month payroll expenses. The entire amount of the loan can be forgivable, provided you spend it on approved payroll and operating costs within the first eight weeks after the loan is made. In order to qualify for 100% forgiveness, you must maintain your number of employees and their wage levels.

The new rules (available here) change some of the information that was previously available and clarify some of the questions many of you had.

The big change is for independent contractors (ICs). Previously, there was some confusion about how employers should count them, because ICs are able to apply for PPP loans as well. The new rules solve this by removing ICs from the employer's payroll calculations. Now ICs will need to separately apply for a PPP loan, and employers cannot count them in their calculations. (See notes h. and p. on page 11 and 15 of the rules.)

The other major change is in the terms of the loan. Previously, it was stated that the PPP loan would be made at the rate of 0.5% for two years; the new rules revise that to be 1% for two years. The reasoning given is to entice more lenders to participate in the program while still giving good loan terms to businesses. The two-year maturity was chosen because of the expected short duration of the current shutdown.

And finally, this update confirms two things we suspected:

  1. These loans are made on a first-come, first-serve basis. There currently is $349 billion set aside for the program, and once it is used up, no more loans can be made—unless, of course, the government provides additional funds.
  2. To be forgivable, 75% of the PPP loan funds must go to employment costs; 25% can go to mortgage interest, rent and utilities. The rules explain that the core function of this program is to support employment and keep workers from being laid off during this time, so they have limited how much can be forgiven when not used to support employment.

Once again, these are complex and fast-moving programs, and information is coming out and changing very rapidly. We will endeavor to keep you updated with the latest information available in this unprecedented time.

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