[ Blog/News ]
SBA’s Paycheck Protection Program: Coronavirus Relief Act Offers Loans to Management Companies, Others
By Michelle Ein, J.D. & Ken Harer, CCAL
Management companies and other vendors hit hard by the coronavirus may have some relief headed their way. On Friday, April 3, 2020, the application process opens for the Small Business Administrations’ Paycheck Protection Program (“PPP”). This $350 billion emergency program is part of the federal government’s $2 trillion federal coronavirus relief package, officially known as the CARES Act.
The PPP is not only a loan; it is meant to incentivize business owners to keep employees on the payroll by offering loan forgiveness. Details of the program are still being ironed out, but here is what is known at the time this post goes live:
Who is Eligible?
- Small businesses with fewer than 500 employees.
- Note that for some types of industries (restaurants and hotels), locations with fewer than 500 employees may apply for loans even if they belong to a larger chain. This may apply to management companies with a national reach.
- Includes self-employed individuals, independent contractors and sole proprietors.
- Entities must have been in business as of February 15, 2020.
Some Features of the Program:
- Loan amounts up to 250% of the average covered monthly payroll and selected overhead expenses (payroll, benefits, rent, mortgage and interest) not to exceed $10 million.
- No fees.
- No prepayment penalties.
- No business collateral or personal guarantees are required.
- Use the funds for anything your business needs.
- Loan forgiveness available for eligible payroll and benefits, rent, mortgage and interest for the 8-week period after origination. Reduced forgiveness amount if payroll costs are lessened through layoffs or wage cuts.
- Payments may be deferred up to 12 months.
- Repayment term of 10 years.
What Portions of the Loan May Be Forgiven?
While there’s no limit on what the loan can be used for, loan forgiveness is available for certain expenses paid with loan proceeds within the first 8 weeks after loan origination:
- Payroll (but not exceeding salaries is excess of $100,000 a year).
- Health care for employees.
- Mortgage payments on preexisting loans.
- Rent on preexisting leases.
- Interest on debt for preexisting loans.
Which Lenders Are Participating?
Any SBA-approved lender. As of this writing, Chase Bank has announced that while it will have the program up and running on April 3, it will not offer PPP loans except to existing business customers. US Bank, the largest SBA lender in the Seattle area, also expects to be up and running on April 3, and will accept all applications, whether or not the borrower is a current US Bank client.
How To Apply
- Lender applications will be accepted through June 30, 2020 or until funds run out
- The program is first come, first served, so apply early!
- The Treasury Department has an application form available:
- However, it is unknown whether lenders will be using this form in conjunction with their own applications, or whether the banks’ applications will replace the Treasury Department’s form. It may be worthwhile to check your preferred lender’s website first.
- At a minimum, you’ll want to have the following information:
- The date you started your business.
- Your company’s mailing address.
- Detailed information in order to calculate the past 12 months’ payroll for your employees, mortgage, rent and utilities.
- Your company’s annual revenue.
- 2019 financials, including P&L and balance sheet.
- Your most recent IRS Form 941 – Employer’s Quarterly Federal Income Tax Return.
- Lenders applications will be available online.
- US Bank’s inquiry form can be found here:
- US Bank’s inquiry form can be found here:
- While the PPP application process will be almost entirely self-reported (less verification than is typical for SBA loans is expected), do note that there are criminal penalties of up to $1 million for submitting fraudulent information to a federally-insured lender.
More About Loan Forgiveness
SBA will issue additional guidance on loan forgiveness by April 26, 2020.
For now, we know that the loan amounts will be forgiven so long as:
- 75% or more of the loan amounts are used to cover payroll, mortgage interest, rent and utilities during the first 8 weeks after the loan is made.
- Employee payroll and compensation is maintained.
Borrowers who reduce the number of full-time employees or salary levels between February 15, 2020 and April 26, 2020, face a reduction in loan forgiveness unless they restore the number of full time employees and salary levels by June 30, 2020.
Loans covering payroll above $100,000 per person will not be forgiven. It is unclear if this is inclusive or exclusive of benefits.
All indications are that this emergency program will be heavily subscribed, and applications will no longer be accepted once all funding is awarded, so apply early.
By Michelle Ein, J.D.
Michelle Ein, J.D., has represented community associations since 2002. She is the owner of Law Offices of Michelle A. Ein, PLLC in Seattle. Michelle is devoted to helping her association clients solve their legal matters and keep the peace. By listening, diffusing conflict, and finding common ground, Michelle enjoys helping people find reasonable resolutions to tough problems. While she mostly appreciates single family home ownership, she is considering “condominiumizing” her yard, and designating sole and exclusive authority over its maintenance to her husband.
By Ken Harer, CCAL
Ken Harer, CCAL, is Condo Law’s managing partner. He’s an experienced attorney and has been working with community associations for more than twenty years. His practice, formed in 2000, provides assistance on all types of legal matters for condominium and homeowners associations. He offers legal assistance with contracts, construction disputes, and warranties related to the Washington Condominium Act and general legal advice on interpretation, enforcement, and modification of governing documents. An active WSCAI volunteer, Ken is a frequent speaker at industry events and homeowner association seminars, and contributes regularly to industry periodicals.