New PPP provides forgivable loans to small businesses

The $2.2 trillion federal stimulus bill signed into law on March 27, 2020, set aside $349 billion for the Paycheck Protection Program (PPP) to provide relief for small businesses that have trouble covering payroll and other operating expenses because of the COVID-19 epidemic. Some of the key provisions of the PPP are summarized below.

Loan amount

The PPP provides an opportunity for small businesses to apply for zero-fee loans of up to $10 million to cover payroll and other operating expenses. Small businesses with 500 or fewer employees as well as sole proprietorships, self-employed individuals, and independent contractors are eligible for the loans. The loan program stands out from others because up to eight weeks of payroll, mortgage interest, rent, and utility costs can be forgiven.

The maximum loan size is 250% of the small business's average monthly covered payroll costs for the one-year period preceding the loan date, up to $10 million. No collateral or personal guarantees are required.

Use of loans

Small businesses can use the proceeds of the loan for covered "payroll costs." In addition, up to 25% of the funds may be used for any of the following:

• Interest on mortgage obligations incurred before February 15, 2020;
• Rent under lease agreements in force before February 15; and
• Utilities for which service began before February 15.

Covered payroll costs

Covered payroll costs for small business include: