Paycheck Protection Program – Treasury Provides New Guidance, Early Application Recommended (Updated 7/4/20)

Update: On July 4, 2020, President Trump signed a bill extending the Paycheck Protection Program for five weeks. Businesses now have until August 8 to apply for a loan.

Update: On Wednesday, June 3, the Paycheck Protection Program Flexibility Act of 2020 moved to President Trump’s desk for signature. Click here for the latest updates.

Update: The SBA has issued “interim final rules.” This article has been edited to reflect the available information.

As has been widely reported, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, providing much needed relief for individuals and businesses that have been affected by the COVID-19 pandemic.

Among the key provisions of the Act is a Paycheck Protection Program (PPP), and there have been many questions about the details for this program. On March 31, the U.S. Department of Treasury provided additional guidance, including that approved lenders may begin accepting loan applications beginning April 3rd. Independent contractors and self-employed individuals can apply beginning April 10th. You can find the details of the program, including a sample application form, on the SBA web site.

While the Treasury guidance allows approved lenders to begin accepting applications on April 3rd, it is unclear whether all lenders will have their systems in place by that date. That will likely vary from lender to lender. We recommend that you contact your bank ASAP to let them know of your interest in the program, and to ask questions about the application process and timing.

Following are a few additional thoughts to keep in mind if you are considering applying for the PPP. These recommendations will be updated as more information becomes available from the SBA, which is administering the program.

As of July 4, 2020, the program was extended to allow for applications to be made through August 8. However, the Treasury guidance advises, “we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.” We encourage you to heed this advice and apply promptly. While there has been speculation that Congress will provide for additional funding if the program cap is hit, there is no guarantee that will happen.
You don’t need to have your documentation together before you make your initial call to your bank. It is likely that current bank customers will be served before new customers who have not worked with the bank in the past, but that may vary from bank to bank.
While the guidance from March 31 was helpful, many lenders are still scrambling to develop their internal processes for administering this program. However, we understand that the intent is to create a process that will allow these loans to be funded as quickly as possible in order to support employers and the overall economy.
Talk with your banker about their capacity for processing applications. You may want to consider applying to more than one bank in case your bank of choice is unable to process your application in a timely fashion.
Make sure your bank is a qualified SBA lender or has affiliates that can service this program.
Start immediately to gather the documentation you will need to support your loan application, even if there are some specific questions about what is needed that have yet to be addressed by the SBA and individual lenders. New information is coming out daily, and you can always make changes later as more information comes out. (Note that the SBA issued “interim final rules” for the program on April 2^nd.)
Be sure to perform an initial high-level calculation comparing the benefit of the PPP vs. Employee Retention Credit since you cannot take advantage of both programs.
Once you receive the loan, you may want to deposit the funds into a separate account, and then pay only qualified expenses from this account for easy tracing.

The Treasury has put together a borrower’s fact sheet on their website here. Please contact us if you need help in assessing any impact on your particular situation.

This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.