Borrowers will be required to make a good faith certification that the loan proceeds will be used for: 
 
● At least 75% of the loan size must be used on payroll costs

● Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums

● Employee compensation

● Business related mortgage interest payments (not principal), lease payments, utility payments

● Interest on any other business debt obligations that were incurred prior to February 15, 2020

 

How Much of the SBA PPP Loan Can be Forgiven? 
 
● Amounts spent during the 8 week period after the loan is disbursed on payroll costs, business mortgage interest, rent, and utilities

● Forgiveness will be reduced pro-rata for workforce reductions (this does not include employees who are re-hired)

● Forgiveness will be reduced if salaries/wages are reduced by more than 25% (excluding reductions for salary and wage amounts over $100,000)

● At least 75% of the forgiveness amount must be for payroll costs

● Forgiveness cannot exceed the original loan amount 
 
What If I Have Already Reduced My Workforce? 
 
The Paycheck Protection Program is retroactive to February 15, 2020 This means employers can use the funds to re-hire employees and still benefit from loan forgiveness

 

What Are Other Key Terms of the Loan? 
 
● Interest rate: 1% annually

● Loan term: 2 years

● No fees for borrowers

● All borrowers will receive at least 6 months of interest and principal payment deferment

● DOES NOT require companies to have been in operation for one year

● DOES NOT require a personal guarantee or collateral

● DOES NOT explicitly require companies to be profitable

 

What Is the Timing?

● Lenders were permitted to begin processing loans for small businesses and sole proprietorships on April 3, 2020. Lenders were permitted to begin processing loans for self-employed individuals and independent contractors on April 10, 2020

● Eligible lenders must participate within this timeframe

● Loans can be made until June 30, 2020

● See sample borrower application and borrower factsheet, both released by Treasury on March 31, 2020

 

Which Lenders Can Make SBA PPP Loans? 
 
● Eligible lenders currently include existing SBA 7(a) program lenders, federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions

● All institutions that are eligible may choose to not participate

● Additional lenders with sufficient qualifications are expected to be added on a rolling basis by SBA and the US Department of the Treasury

 

What are the Affiliate Restrictions? 
 
● In general, if a private equity or venture capital firm is deemed to “control” your business, you may not be eligible for PPP Loans

● If your business is deemed to be “controlled” by another firm, you must aggregate the number of employees of your business and the controlling firm, along with the employees of any other businesses affiliated with the controlling firm

● If the aggregate number of employees exceeds 500 (or such higher size standard the SBA has set for businesses in the relevant industry), your small business likely cannot take out a loan under the PPP unless an exemption applies

● For example: If you have 300 employees and a venture capital firm “controls” your business, and that venture capital firm controls another business with 300 employees, your aggregate employee count is 600. You would likely be ineligible for a PPP Loan without an exemption

 

What Businesses are Exempt from the Affiliate Rules? 
 
If your business qualifies as any of the below, you may be exempt, meaning you can apply for a loan under the PPP as a small business even if you have more than 500 employees when counted with your affiliate(s), including any controlling PE or VC firm Affiliate rule exemptions:

● U.S. businesses in the hospitality and restaurant industries that are assigned a North American Industry Classification System (NAICS) code beginning with 72

● U.S. businesses that are SBA recognized franchises

● Eligible franchises can be found through the ​SBA’s Franchise Directory

● U.S. businesses that receive financial assistance from an SBIC

● Faith-based organizations that are affiliated with another organization if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion ● Additional details regarding exemptions to the affiliate rules can be found in the Treasury Department’s ​Frequently Asked Questions regarding the PPP (last updated on April 13, 2020)

 

How is Control Determined?
 
Control is determined by four tests: 
 
1. Ownership, where an affiliate owns 50% of the voting equity

 2. Affiliation arising under stock options, convertible securities, and agreements to merge

 
 3. Management, where the CEO or President of the business also controls the management of one or more other concerns. Note, this can also apply where a single individual or entity that controls the Board of Directors or management of one business also controls the Board of Directors or management of one of more other businesses 
 
4. Identity of interest, where close relatives have identical or substantially identical business or economic interests 
 
Note on minority investors: Even if a minority investor has a right to vote against an action, this does not necessarily mean they are an affiliate. If the individual investor has the ability unilaterally to block the action, standing alone, that would constitute control and result in affiliation. However, the mere fact that a minority investor has the right to vote against an action should not result in control, and thus affiliation.

 

If my Business is Ineligible for PPP Due to the Affiliate Rules, What Other Options Do I Have? 
 
You may be eligible for an EIDL (details below) among other options that may be announced in the coming days and weeks. You should consult your attorney regarding controls analysis and other options