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What is a PPP loan?

On Friday, March 27, 2020, the President signed the CARES Act into law. The bill provides for $2.2 trillion in emergency aid to ease the financial impact of the COVID-19 crisis, including $349 billion for new partially forgivable small business loans to cover, among other things, certain payroll costs, mortgage interests, rents and utilities payments. The Paycheck Protection Loans, which we call PPP loans, will charge interest at no more than 4% and will be administered by the Small Business Administration (SBA). Payment of interest, principal and fees will be deferred for at least six months but not more than 1 year. As the program’s name implies, PPP loans are designed to provide cash to small businesses like franchisees to keep people employed during the economic downturn caused by the Coronavirus.

Who is eligible for a PPP loan?

Each franchisee that was existing and paying payroll and payroll taxes on or before February 15, 2020, with no more than 500 employees per location, can apply for the new PPP loans. The 500 employee threshold is determined on a per-location basis only for businesses in the accommodation and food services sector.

What is the maximum loan amount under the PPP?

The size of the loan available to a franchisee depends on the size of a franchisee’s payroll. Each loan is subject to a payroll-based cap of 2.5 times historic average monthly payroll costs (plus any existing SBA loans), not to exceed $10 million. “Payroll costs” include salaries, wages, leave payments, severance payments, payments of group health benefits and retirement benefits, and payments of compensation-related taxes, but exclude, among other items, (i) compensation in excess of $100,000 for any individual employee (on an annual basis), (ii) Social Security, Medicare and income withholding taxes and (iii) compensation paid to residents of foreign countries.

What are the conditions applicable to PPP Loans? 

A franchisee applying for a PPP Loan must certify in good faith that (i) the PPP Loan is necessary to support the ongoing operations of the franchisee due to the uncertainty of current economic conditions; (ii) funds will be used to retain workers, maintain payroll or make mortgage payments; lease payments and utility payments, (iii) the franchisee does not have a pending application for a duplicative loan under Section 7(a) of the Small Business Act; and (iv) for the period from February 15, 2020 through December 31, 2020, the franchisee has not received any such duplicative loans under Section 7(a) of the Small Business Act.

Are PPP Loans eligible for loan forgiveness?

Importantly, a portion of the PPP Loans may be forgiven, meaning if forgiven you will not have to pay back a portion of the PPP Loan. A franchisee’s PPP Loan may be forgiven up to the principal amount by application to the lender, together with certain supporting documentation. The amount of the PPP Loan eligible for forgiveness is the amount expended by the franchisee during the eight-week period after the start date of the PPP Loan on (i) payroll costs and (ii) to the extent the arrangements were in place prior to February 15, 2020, mortgage interest payments, lease payments and utility payments. The amount eligible for forgiveness is subject to reduction if during the eight-week period the franchisee (x) employs fewer full-time employees per month on average than it did during specified earlier periods or (y) reduces salary or wages by more than 25% for any employee earning less than $100,000 annually compared to their compensation in the most recent full quarter unless such reduction is eliminated no later than June 30, 2020. Any remaining PPP Loan balance is subject to a maximum maturity of 10 years from the date of application for forgiveness.

How long will PPP Loans be available?

The program expires on June 30, 2020.

Where does one apply for a PPP loan?

Eligible borrowers should contact a registered SBA lender to start the application. The list of the most active SBA lenders (by lending volume through December 31, 2019) can be accessed through SBA’s website here.

 

Please view 'The CARES Act’s Paycheck Protection Loan Program for Smaller and Specially Qualified Businesses'
Please view 'FAQs on the Paycheck Protection Program (PPP) under the CARES Act for Small Business, Friends and Neighbors'

 

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