SBA Loans and the Paycheck Protection Program

Dear clients, family and friends,

We hope you all are well and safe. At Linkenheimer, our staff continue to work hard from home to help our clients find peace of mind and navigate this difficult, evolving situation. As the shelter in place continues for Sonoma County and California, we understand that many of our clients are feeling the stress of protecting and paying employees, managing rent and overhead costs and keeping their business afloat. On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES Act contains many provisions for businesses and individuals, but the most impactful provision for small businesses in the immediate future is the Paycheck Protection loan program (PPP). This new program will provide up to $349 billion in federally guaranteed loans for small businesses. The Program will provide much-needed relief to millions of small businesses so they can sustain their businesses and keep their workers employed.

“This legislation provides small business job retention loans to provide eight weeks of payroll and certain overhead to keep workers employed,” said Secretary Mnuchin. “Treasury and the Small Business Administration expect to have this program up and running by April 3rd so that businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day. The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses.”

The new loan program will help small businesses with their payroll and other business operating expenses. It will provide critical capital to businesses without collateral requirements, personal guarantees, or SBA fees – all with a 100% guarantee from SBA. All loan payments will be deferred for six months. Most importantly, the SBA will forgive the portion of the loan proceeds that are used to cover the first eight weeks of payroll costs, rent, utilities, and mortgage interest.

Loan Terms and Conditions:

Eligible businesses: All businesses, including non-profits, Veterans organizations, Tribal concerns, sole proprietorships, self-employed individuals, and independent contractors, with 500 or fewer employees, or no greater than the number of employees set by the SBA as the size standard for certain industries
Maximum loan amount up to $10 million
Loan forgiveness if proceeds used for payroll costs and other designated business operating expenses in the 8 weeks following the date of loan origination (due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs)
All loans under this program will have the following identical features:
- Interest rate of 1%
- Maturity of 2 years
- First payment deferred for six months
- 100% guarantee by SBA
- No collateral
- No personal guarantees
- No borrower or lender fees payable to SBA

The Paycheck Protection loans can be used for the following expenses:

Payroll costs (up to $100,000 per employee);
Group health coverage;
Business occupancy costs (mortgage interest, rent, and utilities); and
Interest on other loan obligations.

The loans may be forgiven for amounts used for these expenses for up to eight weeks from the loan origination date. However, loan forgiveness will be reduced by reductions in employee compensation, or layoffs of employees during the period of February 15, 2020, through June 30, 2020.

The new loan program will be available retroactive from Feb. 15, 2020, so employers can rehire their recently laid-off employees through June 30, 2020.

The Department of Treasury has released the Paycheck Protection Program application and supplemental information, all available on their website. We strongly recommend that download and review these documents and discuss the implications and strategy with your Linkenheimer CPA:

Review the Chamber of Commerce Small Business Loan overview
Download the application and accompanying borrower guide
Contact your local banker to discuss the lender guide to ensure they are aware of program requirements. While it is our understanding that virtually all banks and credit unions will be able to process program applications, you should verify that your bank intends to support the program. Your Linkenheimer CPA can also recommend local lenders to assist you in this process.

Additional resources:

SBA Paycheck Protection Program

US Treasury Coronavirus Page

Treasury Department FAQs

As a final note, businesses receiving Paycheck Protection loans are ineligible for the Employee Retention Credit, which is a new credit available to small businesses under the CARES Act. We would be happy to consult with you to compare Paycheck Protection loans and the Employee Retention Credit. Please contact us to discuss these programs. We will continue to provide you updates, accurate information and the advice that you and your business need. We appreciate the trust you’ve have placed in us and we look forward to working with you through these difficult times.

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Wishing you all health, safety and peace of mind!