The U.S. Treasury has now issued an Interim Final Rule (“IFR”) on the implementation of the Paycheck Protection Program (“PPP”) created by the CARES Act at section 1102. The IFR is effective immediately, with comments to be solicited from the public in the near future.
The Interim Final Rule (“IFR”) provides some notable guidance on PPP loans:
Reduced Loan Forgiveness
Although the legislation provides that the forgivable portion of a PPP loan may be used for interest on mortgage payments, rent obligations and utility payments, in addition to payroll costs during the covered period, the IFR provides that non-payroll cost should be limited to not more than twenty-five percent (25%) of the total loan forgiveness to ensure program resources, and to effectuate the spirit of the law. Thus, at least 75% of the forgiven amount of the PPP loan must be for payroll. More guidance on loan forgiveness will likely be issued by the SBA.
Interest Rate And Term
The interest rate on PPP Loans will be one percent (1%), and the term of the PPP Loans will be for two (2) years. This is somewhat of a departure from the legislation, which provides for the PPP loans to have up to maximum interest of four percent (4%) and a maximum maturity of ten (10) years.
Amount Which Can Be Borrowed
The IFR confirms that the maximum amount which can be borrowed is up to 2.5 times the average monthly payroll cost and provides the following method of calculation:
Aggregate Payroll Costs (from last 12 months) minus Excess Compensation (any compensation paid to an employee, independent contractor or sole proprietor in excess of an annual salary of $100,000) / 12 months x 2.5
Notes:
- If a prior EIDL Loan was taken out, the PPP loan must be used to refinance the EIDL Loan, and proceeds from any requested advanced on the EIDL Loan (which could be up to $10,000) will be deducted from any loan forgiveness of the PPP Loan.
- Household employers (such as individuals who employee nannies or housekeepers) are ineligible.
Please check back for more information on these and other topics. The Bankruptcy and Creditors’ Rights attorneys at Burns White are closely monitoring the situation, and will provide updates periodically. Our attorneys remain available and accessible to handle any immediate and future needs.