CARES : Paycheck Protection Program

CARES : Paycheck Protection Program

The Paycheck Protection Program (PPP) is a $349 billion lending legislation of the CARES Act to help America’s small and midsized businesses (SMBs).

The PPP of the Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to extend government-backed loans not only to for-profit businesses that ordinarily qualify for SBA 7(a) loans. Unlike SBA loans though, the CARES Act PPP includes not only corporations that employ 500 or fewer workers; or business organizations that realize gross annual receipts below the threshold specified for certain industries.

As codified in Section 1102 of the CARES Act, the PPP qualifies the following for PPP eligibility ;

  • Nonprofit entities organized and classified under Section 501(c)(3) of the IRS Code
  • Veteran organizations that were given distinction from other nonprofit organizations as they fall under Section 501(c)(19) of the IRS Code.
  • Sole-proprietorships
  • Self-employed individuals including those earning income by way of independent long or short contracts, and freelancers being employed as labor force of the gig-economy.

Main Features of the Paycheck Protection Program

Generally, nearly all small businesses may apply for a PPP loan for as long as a company, proprietor, self-employed individual, independent contractor or freelancer, makes a good faith certification that justifies and ties the need for a loan to the economic uncertainties presented by the Covid-19 crisis.

In which case, a PPP borrower will be required to use the funds mainly for business purposes such as payment for utilities, lease/rent, mortgages plus interests, and in sustaining employee-payroll including claims for vacation, maternity or paternity leaves..

Through the CARES Act, the Small Business Administration assumes responsibility in giving authorization to lend funds under the PPP program, to qualified institutions like banks, insured credit unions and fin-tech companies. Such institutions will serve as additional lending agents to the group of lenders already and previously qualified by the SBA

Basically, the PPP-SBA 7(a) loans extended by lenders are guaranteed by the government by 100 hundred percent (100%) up to December 31, 2020. After said date, the government guarantee under the PPP scheme will revert to 75% for loan values of more than $150,000 and 85% for loans valued at $150,000 and less.

Main Restrictions of the Payroll Protection Program

Corporations that borrowed funds through the PPP are barred from declaring and issuing dividends to shareholders. The 1-year restriction will be counted from from the date the PPP loan has been fully settled.

Employers must retain an employment level of at least 90% from March 24 through September 30. 2020.

A PPP borrower must not have received an SBA Economic Injury Disaster Loan from the SBA, which cites financial hardships posed by the Covid-19 crisis as main reason/s.

Can a Bankrupt Business Apply for a PPP Loan?

The loans granted under the PPP of the CARES Act basically falls under the SBA 7(a) loan category. However, it is not clear if a business that has been driven to bankruptcy by the Covid-19 crisis before March 24, 2020, is still eligible to apply for a PPP loan.

The SBA’s lending rules qualify only those with a past bankruptcy that has been discharged at least a few years before applying for an SBA loan.

Nonetheless, corporations or business owners who have already been driven to insolvency by the Covid-19 crisis before the PPP became available, should seek legal help from a bankruptcy attorney. The Covid-19 crisis could have resulted in several bankruptcy cases even before the CARES Act was legislated.

Considering that seven counties in the San Francisco Bay Area had in fact ordered nonessential businesses to close and residents to shelter-in place as early as March 17, 2020. In such cases, a bankruptcy attorney san diego business owners would recommend, will be the likeliest resource person to get in touch with, when contemplating to borrow government-backed funds.