The Paycheck Protection Program (PPP) loan can help many businesses, but what are the loan details? Check out the specifics below.
What is the interest rate on a Paycheck Protection Program (PPP) loan?
The interest rate will be 100 basis points or one percent. The Administrator, in consultation with the Secretary, determined that a one percent interest rate is appropriate. First, it provides low cost funds to borrowers to meet eligible payroll costs and other eligible expenses during this temporary period of economic dislocation caused by the Coronavirus. Second, for lenders, the 100 basis points offers an attractive interest rate relative to the cost of funding for comparable maturities. Third, the interest rate is higher than the yield on Treasury securities of comparable maturity. For example, the yield on the Treasury two-year note is approximately 23 basis points. This higher yield combined with the fact that the loans are 100 percent guaranteed by the SBA and the fact that lenders will receive a substantial processing fee from the SBA provide ample inducement for lenders to participate in the Paycheck Protection Program (PPP).
What will be the maturity date on a Paycheck Protection Program (PPP) loan?
The maturity is two years. While the Act provides that a loan will have a maximum maturity of up to ten years from the date the borrower applies for loan forgiveness (described below), the Administrator, in consultation with the Secretary, determined that a two year loan term is sufficient in light of the temporary economic dislocations caused by the Coronavirus. Specifically, the considerable economic disruption caused by the Coronavirus is expected to abate well before the two year maturity date such that borrowers will be able to recommence business operations and pay off any outstanding balances on their Paycheck Protection Program (PPP) loans.
Can I apply for more than one Paycheck Protection Program (PPP) loan?
No. The Administrator, in consultation with the Secretary, determined that no eligible borrower may receive more than one PPP loan. This means that if you apply for a PPP loan you should consider applying for the maximum amount. While the Act does not expressly provide that each eligible borrower may only receive one PPP loan, the Administrator has determined, in consultation with the Secretary, that because all PPP loans must be made on or before June 30, 2020, a one loan per borrower limitation is necessary to help ensure that as many eligible borrowers as possible may obtain a PPP loan. This limitation will also help advance Congress’ goal of keeping workers paid and employed across the United States.
Can I use e-signatures or e-consents if a borrower has multiple owners?
Yes, e-signature or e-consents can be used regardless of the number of owners.
Is the Paycheck Protection Program (PPP) “first-come, first-served?”
Yes. Because this is on a first-come, first served basis, we encourage you to apply early if your intend to apply.
When will I have to begin paying principal and interest on my Paycheck Protection Program (PPP) loan?
You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on Paycheck Protection Program (PPP) loans during this six-month deferment. The Act authorizes the Administrator to defer loan payments for up to one year. The Administrator determined, in consultation with the Secretary, that a six-month deferment period is appropriate in light of the modest interest rate (one percent) on PPP loans and the loan forgiveness provisions contained in the Act.
Can my Paycheck Protection Program (PPP) loan be forgiven in whole or in part?
Yes. The amount of Paycheck Protection Program (PPP) loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgiveable purposes described in the Act and employee and compensation levels levels are maintained. The actual amount of Paycheck Protection Program (PPP) loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan.
How much of the loan can be spent on non-payroll costs?
Not more than 25 percent of the loan forgiveness amount may be counted to non-payroll costs. While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage interest, rent, and utilities, the Administrator has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll. The Administrator has determined in consultation with the Secretary that 75 percent is an appropriate percentage in light of the Act’s overarching focus on keeping workers paid and employed. Further, the Administrator and the Secretary believe that applying this threshold to loan forgiveness is consistent with the structure of the Act, which provides a loan amount, 75 percent of which is equivalent to eight weeks of payroll (8 weeks / 2.5 months = 56 days / 76 days = 74 percent rounded up to 75 percent). Limiting non-payroll costs to 25 percent of the forgiveness amount will align these elements of the program, and will also help to ensure that the finite appropriations available for Paycheck Protection Program (PPP) loan forgiveness are directed toward payroll protection.
We expect the SBA to issue additional guidance on loan forgiveness.
Other Paycheck Protection Program (PPP) Resources
For more information on payroll costs, click here.
For a top line overview of the program, click here.
If you’re a borrower, more information can be found here.
The application for borrowers can be found here.
If the Paycheck Protection Program (PPP) isn’t something you can take advantage of, check out the SBA Economic Injury Disaster Loan (EIDL) here.