Stories / Guides and Tips, Impact

Get the Low-Down on Emergency Federal Loans

Maggie Borden

May 26, 2020


Plating doughnuts at the Beard House photo Clay Williams

This spring, we've been hosting webinars as part of our Industry Support learning series. Topics have covered all facets of the current crisis, from deciphering government relief options, staying motivated in the face of stress, exploring re-opening restaurants across the globe, and more. Earlier this month, attorneys from Arnold & Porter shared their expert insights into the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans, providing updates on forgiveness options, terms, and more.

As always, this should be taken as general info—not legal or business advice. Always consult an attorney or business manager before making any decisions related to your business.

Note: This post was updated June 11, 2020 following the updates to the PPP as outlined in the Paycheck Protection Program Flexibility Act (PPPFA), signed into law on June 5, 2020. Read the full bill text here.

Paycheck Protection Program

1. PPP loan amounts = the average monthly payroll cost (over 2019 or the prior 12 months) x 2.5 percent. The loan can cover:

  • Salary wages, tips, bonuses, and anything else listed on a W2 as a taxable wage
  • Vacation pay, family leave, and sick pay
  • Contributions to healthcare plans, group healthcare plans, and payments of retirement benefits
  • Allowances for dismissal or separation of employees
  • State and local tax payments

2. PPP loans cannot cover annual salaries in excess of $100,000, and the employer's portion of the Federal Insurance Contributions Act (FICA) tax.

3. At least 75 percent of PPP loan proceeds must go towards payroll costs, regardless of whether you're applying for loan forgiveness. Update: The PPPFA reduced the percentage of loan proceeds required to go towards payroll to qualify for forgiveness to 60% (instead of 75%), meaning 40% may be spent on specific non-payroll expenses such as rent, mortgage payments, utilities, and interest on loans, and still qualify for loan forgiveness.

4. The term of a PPP loan is two years, with a 1 percent interest rate if you are not seeking forgiveness. Update: For any amount of the loan that is not forgiven, businesses now have 5 years to make that repayment at 1% interest (up from 2 years).

5. Loan forgiveness applies to certain specific expenses during an eight-week period, which begins the day you receive the loan. Permitted expenses are: payroll costs; interest on mortgages; rent payments; and utilities. Update: PPPFA extends the time a business has to spend the loans from 8 weeks to 24 weeks (essentially until the end of 2020).

6. The attorneys at Arnold & Porter recommend putting PPP loan proceeds in a separate bank account to ensure the funds are easy to trace.

Additional updates:

7. December 31 Rehire Deadline: Businesses now have until December 31, 2020 to rehire workers in order for their salaries to count as payroll towards loan forgiveness. This did not change how salaries should be calculated.

8. Change in Rehiring Requirements: Originally, in order to obtain loan forgiveness a business had to rehire the same number of full-time (FT) or full-time equivalent (FTE) employees. The PPPFA now includes “exemption based on employee availability”. Essentially, you won’t be penalized if you aren’t able to rehire everyone as long as you make a “documented”, “good faith” effort to rehire past employees or fill the positions with similarly qualified candidates by December 31, 2020.

Economic Injury Disaster Loans

1. EIDL are working capital loans of up to $2 million that are available for small business owners. The term for an EIDL is no longer than 30 years at 3.75 percent interest for businesses, and 2.75 percent for nonprofits.

2. Who is eligible for EIDL?

  • Small businesses located in declared disaster areas (currently the entire United States).
  • Co-ops, tribal businesses, and agricultural businesses of fewer than 500 employees. This includes private nonprofits, sole proprietorships, independent contractors, and small agricultural cooperatives.

3. While EIDL does not have a loan forgiveness program, applicants can receive emergency grants of $10,000, and if the business does not end up using the EIDL, they do not have to repay it.

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