Compass East has just received the initial Paycheck Protection Program application from Treasury. All applications will be processed through SBA approved lenders. You cannot apply for a loan yet, as lenders are still receiving guidance from the SBA. However, we are working with our clients to get documentation in order prior to applications officially opening. After a review of the brief application, we had a few quick takeaways and caveats to look out for.
Application: Borrower Paycheck Protection Program Application (v1)
Quick Reaction and Takeaways:
- Average Monthly Payroll Cost Calculation – Instructions say to use average monthly payroll for 2019. If you are a seasonal or new business, there are additional instructions. New businesses will calculate based on 2020 January and February’s average wages. Employees are capped at $100k, so costs for that employee over that threshold are excluded. The application itself does not mention the exclusions and true-up to payroll that occurs when determining loan forgiveness. This is an important part of the equation.
- Common business ownership. Applicants with multiple businesses/separate legal entities with common ownership, are required to disclose the relationship by attaching Addendum A.
- “America First” Provision – There is a certification that states, “To the extent feasible, I will purchase only American-made equipment and products.” This “America First” provision is also in the standard SBA 7a loan. This may be relevant to some businesses that have equipment or products and are set up to conduct international business. With the speed at which these applications are likely to be submitted, this certification may be overlooked or come as a surprise.
- Use of Funds Certification – It is important for businesses to stick to what is an allowable expense under the legislation (i.e. payroll, rent/mortgage interest, utilities). This is not the time to get creative as “the Federal government may pursue criminal fraud charges”.
- Documentation – The supporting documentation for loan forgiveness will be payroll records, rent payments, mortgage interest, and covered utilities for the 8 week period following loan origination and all will be provided to the lender. There is an “other” section, but unless it is specifically mentioned in the law, we would not recommend adding additional expenses.
- Loan Forgiveness – “Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs”. This is an important caveat and something not directly written into the legislation. The emphasis here is making sure that the majority of these forgivable loans (grants) are used to save jobs.
- Related Businesses, Multiple Loans – During the period 2/15/20 – 12/31/20 – “The applicant has not and will not receive another loan under this program”. One piece that is unclear is how this will work for the related businesses that are listed in Addendum A.
Overall this is one of the shortest Government applications we’ve seen at Compass East. Further guidance is still being relayed by the SBA as we speak. Feedback on the timeline is still mixed as we still could be a few weeks out until applications are fully live.
Compass East is building a custom tool in order to guide clients through how the CARES Act and the Paycheck Protection Program impacts their business.