Feature Photo: The U.S. Small Business Administration headquarters in Wash. D.C. Image: Google Streets.
by Adolfo Pesquera
The small business lifeline in the COVID-19 relief bill passed by Congress last week is the SBA Paycheck Protection Program.
The construction industry was one of the workplace categories included in the Paycheck Protection Program, which itself was inserted into Title 1 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Read text of the U.S. House amended and final version of the CARES Act here.
The Paycheck Protection Program will be administered by the Small Business Administration and directs $349 billion toward job retention and business operating expenses.
Its purpose is to cover short-term operating expenses and to provide an incentive for employers to retain their staff.
The program covers the period beginning February 15, 2020 and ending on June 30. By “short term operating expenses,” the program refers to expenses during the eight-week period after the loan is originated.
The program targets organizations with 500 or fewer employees for federally insured, partially forgivable loans. Loans are capped at 250% of the employer’s average monthly payroll or $10 million, whichever is less.
Payroll costs are defined as wages, retirement contributions, healthcare benefits, paid time off, and other expenses.
Borrowers meeting certain conditions are eligible for loan forgiveness, effectively converting the loans to grants. Otherwise, the borrower can defer repayment by six months to one year. There are also fee waivers available and the application process is being streamlined.
A borrower will not be required to pledge any collateral or provide personal guarantees to secure or support a Paycheck Protection Loan, according to an analysis by Sheppard Mullin attorneys.
Sheppard Mullin also notes that while SBA will not charge any fees, participating lenders will be entitled to charge a fee, as a percentage of the original principal balance of the Paycheck Protection Loan, not to exceed the following amounts:
- For a loan with original principal balance of $350,000 or less, 5%;
- For a loan with original principal balance greater than $350,000 but less than $2 million, 3%; and
- For a loan with original principal balance of $2 million and above, 1%.
Covered expenses include payroll, rent, utilities, and mortgage interest.
It is most important to bear in mind that the central condition for qualifying for loan forgiveness is this: Employers must maintain their pre-crisis level of full time employees or face a reduction in forgiveness proportional to the reduction in staff.
Congress recognized that many businesses had already been forced to lay off staff due to revenue losses. The program allows them to qualify for loan forgiveness if they rehire to pre-crisis levels by June 30.
Borrowers need not demonstrate actual economic harm to qualify. Simply make a series of good faith certifications.
The SBA works with authorized lenders in the processing of these loans. Authorized Texas lenders can be located from this Top SBA Texas LENDER LIST.
Also, bear in mind that the Paycheck Protection Act is separate from the COVID-19 Economic Injury Disaster Loan being offered by the SBA on their website: https://covid19relief.sba.gov/#/
VBX has not ascertained whether companies may apply for both loans or must choose one or the other. Companies should clarify the repercussions with their individual lenders.
CAUTION: Economists estimate the cost of replacing lost revenue to the affected firms at $1.2 trillion for three months. The amount allocated may not be enough to meet demand, therefore, affected companies should make every effort to expedite their applications.