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The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress in late-March allocating over $2 trillion in funds to help both businesses and individuals cope with the economic effects of the COVID-19 pandemic. One of the key outcomes from that bill specifically for small businesses is called the Paycheck Protection Program, or PPP, which is a low-interest loan program to help companies meet payroll. Applications for the program open on Friday, April 3, and should be submitted to an approved lender. Though there may be initial delays as lenders and the federal government establish a cadence, we still encourage applying.
Below are frequently asked questions and answers provided by Baker Tilly, as well as a deck with even more information for those that would like a deeper dive. We are grateful to Baker Tilly for their expertise!
One common question that has not yet been fully answered is whether venture-backed startups are eligible for the PPP. We expect further clarification in the coming days, but a report by Axios indicated that startups with VC backing will be eligible for the program, while those controlled by private equity firms will not. At this time, we encourage startups to apply, but caution that there is some fluidity around how the bill may affect them.
Small Business Owner’s Guide to the CARES Act: Life Sciences Industry
Paycheck Protection Program Calculator
What types of businesses and entities are eligible for a PPP loan?
- Businesses and entities must have been in operation on February 15, 2020.
- Small business concerns, as well as any business concern, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees, or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by SBA, if higher.
- Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
- Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72, for which the affiliation rules are waived.
- Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company.
How is the loan size determined?
Depending on your business’s situation, the loan size will be calculated in different ways. The maximum loan size is always $10 million.
- Except for seasonal employers, your max loan is equal to 250 percent of your average monthly payroll costs incurred during the one-year period before the date on which the loan is made. For seasonal employers the max loan is equal to 250 percent of your average monthly payroll costs for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019.
- If you were not in business between February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
- If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
How does the PPP loan coordinate with SBA’s existing loans?
Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s).
For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers.
What are the loan term, interest rate, and fees?
For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4 percent, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge).
How is the forgiveness amount calculated?
Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8-week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000).
- Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus and any covered utility payment
About Baker Tilly
Baker Tilly Virchow Krause, LLP (Baker Tilly) is a leading advisory, tax and assurance firm whose specialized professionals guide clients through an ever-changing business world, helping them win now and anticipate tomorrow. Headquartered in Chicago, Baker Tilly, and its affiliated entities, have operations in North America, South America, Europe, Asia and Australia. Baker Tilly is an independent member of Baker Tilly International, a worldwide network of independent accounting and business advisory firms in 145 territories, with 34,000 professionals. The combined worldwide revenue of independent member firms is $3.6 billion.
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