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The CARES Act’s Paycheck Protection Program for small businesses

By Peggy Kirk Hall, director of agricultural law, Ohio State University Agricultural and Resource Law Program

We love blogging about agricultural law, but sometimes we don’t feel the need to interpret a law that one of our colleagues has already explained perfectly. Such is the case with the new Paycheck Protection Program recently enacted by Congress in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Our colleague Kristine Tidgren at Iowa State’s Center for Agricultural Law and Taxation has written an excellent explanation of the new loan program.

A few questions about the Paycheck Protection Program that Kristine answers in detail in her blog post are:

  • Who’s eligible for the loans? Any small business concern, business concern, 501(c)(3) nonprofit, veterans’ organization or tribal business concern employing 500 or fewer employees and eligible self-employed individuals including independent contractors may apply for a loan. Farm businesses with less than 500 employees fit within these eligibility parameters.
  • How much are the loans? The program has a maximum loan amount of the lesser of either $10 million or 250% of the average monthly payroll costs in the one year prior to the loan plus refinanced Economic Injury Disaster loans received after 1/31/20.
  • What can the loans be used for? Certain payroll costs, as well as group health care benefits, salaries, commissions and similar compensation, mortgage interest, rent, utilities, and other previous debt obligations.
  • What are the terms? The loans have a maximum maturity of 10 years and the interest rate can’t exceed 4%. Lenders have to defer both interest and principal payments for at least the first 6 months. Note the forgiveness provisions below, however.
  • What about loan forgiveness? A borrower is eligible for loan forgiveness in an amount equal to the sum of certain payroll, mortgage interest, rent, and utility payments made during the 8-week period after the loan’s origination date. The loan forgiveness can’t exceed the principal amount and is subject to a number of reduction factors, which Kristine explains.
  • What considerations apply to loan approval? In reviewing loan applications, a lender must consider whether the borrower was in operation on Feb. 15, 2020 and had employees for whom the borrower paid salaries and payroll taxes. Applicants must also certify that the uncertainty of current economic conditions makes the loan request necessary to support ongoing operations; funds will be used to retain workers and pay eligible expenses; the applicant does not have an application pending for another loan for the same purpose; and that the applicant has not received amounts under the program for the same purpose for the period of February 15 to December 31, 2020.
  • How to apply? According to the Small Business Administration: “Businesses can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.” Consult with your local lender as to whether it is participating in the program. Visit sba.gov for a list of SBA lenders.
  • When to apply? Lenders may begin processing loan applications for most businesses as soon as April 3, 2020, and for independent contractors and self-employed individuals by April 10, 2020.
  • Where to learn more? The Treasury Department and the Small Business Administration have posted extensive information and the application the loan program on their websites.

 

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