COVID-19 Paycheck Protection Program for Small BusinessesJune 9, 2020 – Article
It goes without saying that the COVID-19 pandemic has uprooted the American way of life. In addition to its devastating impact on the public health, the virus has served as a gut-punch to our economy. Indeed, last month, the United States lost 20.5 million jobs, with the unemployment rate soaring to 14.7% — the highest since the Great Depression. Small and emerging businesses have been disproportionately affected by the weakened labor market.
In response to this bleak economic picture, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act, referred as the CARES Act. Of note, the measure included $310 billion in funding for the Paycheck Protection Program (“PPP”), which is designed to provide American small businesses (500 employees or less), including sole proprietors, with eight weeks of cash-flow assistance through 100% federally-guaranteed loans. The Small Business Administration (“SBA”) backs the loans.
Among other highlights, all small businesses are eligible for PPP relief. There are no loan payments for the first six months and no collateral or personal guarantees are required. Significantly, the SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, and/or utilities.
Initially, the PPP proved so popular that funding ran out in 14 days, prompting the federal government to enact additional legislation that replenished funding by approximately $320 billion. Approximately 70% of small businesses applied for the initial round of funding, but only about 20% were approved for SBA loans, leaving the majority in vulnerable and uncertain positions. As of this writing, funding is still available. Businesses can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.
Author: Mark K. Hsu (Partner, New York) Editor: S. Christopher Collier (Senior Partner, Atlanta)
Hawkins Parnell & Young's national litigation team is helping businesses across the United States navigate unprecedented legal challenges arising from the COVID-19 pandemic. Visit our COVID-19 Resource Center for the latest insights and guidance.