As a result of the current COVID-19 pandemic, many small businesses have felt substantial strains over the past several months. In order to stay afloat during the prolonged standstill which has gripped most sectors of the economy, small business owners have had to make the unenviable choice of either keeping the lights on or keeping their employees. In an attempt to alleviate this problem, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, otherwise known as the CARES Act.
Included in the CARES Act is legislation which creates the Paycheck Protection Program, a loan program specifically created to help small businesses of fewer than 500 employees navigate the current economic uncertainties. Under the terms of the Paycheck Protection Program, a small business may be able to receive a loan equal to two and a half months of its operating costs, with a ceiling of $10 million. The Paycheck Protection loans do come with strings, and they may only be used for certain purposes, such as to cover payroll costs.
The loans made available through the Paycheck Protection Program are uniquely appealing for a number of reasons. For one, the loans are fully guaranteed by the federal government. Additionally, and as will come as a relief to any small business owner who has previously applied for a loan from the Small Business Administration, the process is designed to be less rigorous. The standard loan fees are waived, and there is no personal guarantee or collateral required. The loans also come with a 1% interest rate and repayment is automatically deferred for six months. Perhaps most importantly, some or all of the loan amount may be forgiven. However, as with the limitation on the allowable uses of the loan proceeds, forgiveness of the loan is contingent on abiding by the government guidelines on limiting the uses of the loan proceeds. As the core purpose of this loan program is to keep employees employed, at least 75% of loan proceeds must be used for payroll costs.
The application period for the Paycheck Protection loans opened on April 3, 2020 for small businesses and sole proprietors and April 10, 2020 for independent contractors and self-employed individuals. While the original provisions of the CARES Act provided $349 billion in capital to fund the Program, demand has been high and it is expected that more funding will be provided. Interested small business owners with further questions should review the online government-provided material regarding these loans or contact an attorney.
Luke D. Whetstone is an attorney at Cook, Yancey, King & Galloway, A Professional Law Corporation. He is licensed to practice law in Louisiana and Arkansas and his practice includes compliance, litigation, and labor and employment.