Issue brief: Payroll Protection Program – FAQs
Source: National Newspapers Association
Newspapers are lining up for the Payroll Protection Program loans. Regulations covering this forgivable loan program are coming into focus. Here is an issue brief answering common questions.
- What is this program?
It is a forgivable loan to small businesses to assist them in maintaining their workforces through the COVID-19 emergency. It was enacted by Congress as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
- Who is eligible for these loans?
A. Most small businesses
• with fewer than 500 employees
• operating with a principal place of residence in the United States
• were in operation on Feb. 15, 2020
• And had employees for whom salaries and benefits were paid or 1099-type independent contractors
• Have not been delinquent on another SBA or federal government loan or defaulted on such a loan over the past 7 years.
B. Independent contractors or self-employed individuals
- Do I have to put up collateral?
- Where should a business apply?
At any bank or other financial institution authorized to provide Small Business Administration loans. Farm Credit Institutions are eligible to provide these loans as well.
- When should a business apply?
Immediately. Applications will end on June 20, 2020, or whenever the approximately $350 billion in loan guarantees provided by Congress are exhausted. Some early reports indicate the funds may be depleted by the middle of April.
- How much may I borrow?
You are allowed to borrow up to 8 weeks of your payroll plus benefits and certain other costs, including rent, mortgage interest and utilities. You must calculate your average monthly payroll costs. Some costs cannot be included. For example, salaries over $100,000 must be prorated. Independent contractor costs MAY NOT be included. Those contractors are considered independent businesses and must apply on their own. A copy of the SBA form that lenders are asked to use is here, so you can review it before you go to the bank. (https://www.nna.org/pub/doc/PPP-Lender-Application-Form_0.pdf)
- What is the interest rate?
The federal government is setting the interest rate at 1%.
- How long can this loan run?
Up to two years.
- What will the bank ask me to show?
Banks are reportedly using a variety of processes, with the community banks being reported as being fastest out of the gate. You will be required to show calculations about your payroll and other costs, and certify that you are following the rules. For certification, you simply have to certify that you are meeting the various criteria, including your intent to use the money primarily for payroll. More extensive certification will be needed for the forgiveness phase.
- When must I begin repayment?
Payments begin six months after you receive the funds. Interest will accrue during those six months. But some or all of this loan may be forgiven.
- May I apply for more than one loan?
No. SBA has determined that you may received only one loan. So you should apply for the maximum amount you expect to need.
- How will loan forgiveness work?
First, only 25% of your loan can be used for non-payroll purposes, eg., rent, mortgage interest and utilities. Next, stay tuned for further guidance from the Small Business Administration on how the forgiveness process will work. The agency has issued only an interim rule at this point, with a goal of getting money into the community as quickly as possible. Finally, talk to your lending institution about this process. SBA authorizes the banks to rely on what you say when giving the loan.
- What if things don’t work out as I planned and I am unable to use 75% of the funds for payroll?
If you furloughed or laid off any employees after Feb. 15, you will have until June 20 to restore full payroll. If you cannot maintain full payroll for the next six months, a portion of your loan may not be forgiven and you will have to pay all or part back. If you are found to have intentionally violated the requirements, you may be subject to fraud charges. Knowingly-made false statements are subject to both fines and imprisonment.
- Does the bank make money on these loans?
SBA is paying processing fees to banks of 5% for loans under $350,000; 3% for loans between $350,000 and $2 Million and 1% for loans in excess of $2 million.
- What is NNA doing to help?
NNA continues to work with committees in Congress to provide information about the urgent need of community newspapers for forgivable loans and grants. NNA also is communicating with SBA on the process and criteria, including the burdens upon independent contractors who must navigate the complexities of this system on their own. Please provide feedback on your own SBA experience to NNA by responding to this survey. (https://www.surveymonkey.com/r/NNASBAloan)