Paycheck Protection Program Loans

On Friday, June 5, 2020, updates to the PPP loan program were passed into law through the Paycheck Protection Flexibility Act of 2020. This update gives borrowers more freedom in how and when loan funds are spent while retaining the possibility of full forgiveness. Here are some highlights of the changes:

• Funds previously had to be spent within 8 weeks to potentially qualify for forgiveness. This has changed to a more flexible 24-week period. (Borrowers who have already received PPP loans retain the option to use an eight-week covered period.)
• Previous requirements that 75 percent of funds be used for payroll were lowered to 60 percent of funds. If a borrower uses less than 60 percent of the loan amount for payroll during the forgiveness covered period (24 weeks for new loans), the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
• The changes provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
• The changes provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
• Increase to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.
• Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

Paycheck Protection Program loans were created to help small businesses pay employees and other expenses during the COVID-19 pandemic. The program has been updated several times since it was initially available.

Eligibility

If you are a small business or a 501(c)(3) with fewer than 500 employees, an individual who operates as a sole proprietor or independent contractor, or if you otherwise meet the SBA’s small business size standard, you are eligible. Businesses with more than 500 employees in high-risk segments, such as hospitality or restaurant, may also qualify based on site-level employment counts.

Requirements

You will be required to provide good faith certification that the uncertainty of current economic conditions makes the loan necessary to support ongoing operations, and that you will use the loan to maintain payroll, or make mortgage, lease, or utility payments.

For more information about eligibility and requirements, please visit the SBA PPP information page.

• PPP loans have a fixed rate of 1.00%.
• Loan is due in 2 years, but can be paid early with no prepayment penalties or fees. Update: The PPP Flexibility Act lengthens the loan term to 5 years for loans originated on or after June 5, 2020.
• All payments are deferred for 6 months; however, interest will continue to accrue over this period. Update: The deferral period for borrower payments of principal, interest, and fees on PPP loans has been extended to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
• You may be eligible for loan forgiveness based on how the funds are spent during the 8-week period after receiving the funds. Update: The PPP Flexibility Act gives the option to lengthen the spending period to 24 weeks.

For the purposes of estimation only, most businesses can borrow about 2.5 months of their average monthly payroll. Please refer to the official How To Calculate Maximum Loan Amounts – By Business Type (effective 04/24/2020) document for full details on calculating your maximum loan amount.

Royal Credit Union will process your application as quickly as possible. The SBA requires us to perform a full review of your application and then enter your application into the SBA system. We will send you an email when we successfully submit your application to the SBA.

Likewise, we fund all applications as soon as possible. After your application has been successfully submitted to SBA, we follow their instructions to start the process to fund your loan request. We will reach out to you for anything else we need to prepare your PPP loan. Then, we will send an email request to electronically sign the loan documents and fund your loan. We appreciate your patience through this process.

To learn more, please review the US Treasury CARES website and the SBA Paycheck Protection Program webpage. Borrowers have access to the same information that lenders do.