As the federal government continues its efforts to provide stimulus to our struggling economy, it is our objective to summarize and issue guidance on the programs that are potentially available to you. This communication will specifically discuss the Paycheck Protection Program (PPP) of the CARES Act. While PPP only applies to the small business owner, we felt it could also be valuable to our non-business owner clients, who may have loved ones that could utilize the summary.
The PPP, passed last week, has garnered the most attention due to the forgivable loan component. Its purpose is essentially to mitigate rising unemployment by providing incentives to businesses to maintain payroll. It is effectively a government funded/bank managed/small business executed unemployment funding program.
Due to the speed at which the federal government desires to provide liquidity to the market, there has been much confusion and significant changes to the program over the past week.
The remaining portion of this letter contains valuable data points and our current recommendations: Please note that this information may change
Loan Program
SBA Paycheck Protection Program (PPP)
Loan Amount
Up to $10M, but capped at 2.5 times your average monthly payroll in 2019. Payroll is capped at $100,000 per employee. Please note that in previous iterations of PPP, independent contractor payments were part of the calculation but are now no longer included. They will be able to apply for their own PPP loans.
Interest Rate
Fixed 1.0%
Loan Payments
Payments may be delayed anywhere from 6 to 12 months
Loan Forgiveness
Up to 100% of the loan may be forgiven. Current guidance implies that the funds must be used for specific purposes, as outlined below, in order to be forgiven.
Permitted Use of Funds
Payroll, mortgage interest, rent, utilities, and potentially, interest on debt incurred before February 15, 2020. However, recent guidance implies that payroll must account for 75% of the aforementioned expenses. Considering the dynamic nature of this program, it is certainly possible that further restrictions will be placed on non-payroll expenses.
When Can I Apply?
Per the government, applications can be submitted beginning today, April 3rd, 2020.
How Do I Apply?
As of this morning, it seems that the best (and potentially only) method of applying is via your current bank. We have reached out to many of our banking relationships who have confirmed that they will only be processing loans for businesses with a pre-existing relationship. However, it seems that there is still much confusion between the banks and the federal government. As of last night, JP Morgan Chase indicated they would unlikely be able to accept applications today. Just this morning, we received communication from Bank of America that they will only accept applications from clients who have both a business banking and lending relationship (including business credit card). For those banks who are accepting applications, most have built an online process for applying.
What Documentation to I Need to Apply?
Total payroll for the full year 2019 as reported to the IRS, payroll report for the February 15, 2020 payroll (or closest date after) with details by employee, and other information included in the “Fact Sheet” provided by the US Department of Treasury.
We recommend that our small business clients apply for funding if they are eligible. As of today, roughly $350 billion of funds are reserved for the program. Funds will be distributed on the first-come, first-serve basis. Considering the lack of preparation to accept applications and the expectation that funds will be depleted quickly, there is already discussion of the government increasing the available funds for this program.
We will continue to provide updates as they become available. We thank you for entrusting us with your business. As always, please feel free to contact us at 310-450-6004 if you have any questions.
The PPP, passed last week, has garnered the most attention due to the forgivable loan component. Its purpose is essentially to mitigate rising unemployment by providing incentives to businesses to maintain payroll. It is effectively a government funded/bank managed/small business executed unemployment funding program.
Due to the speed at which the federal government desires to provide liquidity to the market, there has been much confusion and significant changes to the program over the past week.
The remaining portion of this letter contains valuable data points and our current recommendations: Please note that this information may change
Loan Program
SBA Paycheck Protection Program (PPP)
Loan Amount
Up to $10M, but capped at 2.5 times your average monthly payroll in 2019. Payroll is capped at $100,000 per employee. Please note that in previous iterations of PPP, independent contractor payments were part of the calculation but are now no longer included. They will be able to apply for their own PPP loans.
Interest Rate
Fixed 1.0%
Loan Payments
Payments may be delayed anywhere from 6 to 12 months
Loan Forgiveness
Up to 100% of the loan may be forgiven. Current guidance implies that the funds must be used for specific purposes, as outlined below, in order to be forgiven.
Permitted Use of Funds
Payroll, mortgage interest, rent, utilities, and potentially, interest on debt incurred before February 15, 2020. However, recent guidance implies that payroll must account for 75% of the aforementioned expenses. Considering the dynamic nature of this program, it is certainly possible that further restrictions will be placed on non-payroll expenses.
When Can I Apply?
Per the government, applications can be submitted beginning today, April 3rd, 2020.
How Do I Apply?
As of this morning, it seems that the best (and potentially only) method of applying is via your current bank. We have reached out to many of our banking relationships who have confirmed that they will only be processing loans for businesses with a pre-existing relationship. However, it seems that there is still much confusion between the banks and the federal government. As of last night, JP Morgan Chase indicated they would unlikely be able to accept applications today. Just this morning, we received communication from Bank of America that they will only accept applications from clients who have both a business banking and lending relationship (including business credit card). For those banks who are accepting applications, most have built an online process for applying.
What Documentation to I Need to Apply?
Total payroll for the full year 2019 as reported to the IRS, payroll report for the February 15, 2020 payroll (or closest date after) with details by employee, and other information included in the “Fact Sheet” provided by the US Department of Treasury.
We recommend that our small business clients apply for funding if they are eligible. As of today, roughly $350 billion of funds are reserved for the program. Funds will be distributed on the first-come, first-serve basis. Considering the lack of preparation to accept applications and the expectation that funds will be depleted quickly, there is already discussion of the government increasing the available funds for this program.
We will continue to provide updates as they become available. We thank you for entrusting us with your business. As always, please feel free to contact us at 310-450-6004 if you have any questions.