Small businesses and franchise companies affected by the Coronavirus (“COVID-19”) global health pandemic can apply for loans under the federal Paycheck Protection Program (PPP) beginning Friday, April 3rd. The PPP authorizes up to $349 billion in forgivable loans to small businesses to pay their employees and other expenses, including rent and utilities, during the COVID-19 crisis.

The PPP application and details for borrowers are now available to review on the Department of Treasury website.

Calculating Average Monthly Payroll

As discussed in our firm’s prior article “CARES Act: What Small Business and Franchise Owners Need to Know,” the CARES Act provides for a forgivable loan in the maximum amount of 2.5 times the Average Monthly Payroll of your small business or franchise company.

The instructions to determine Average Monthly Payroll are included in the PPP application as follows:

For purposes of calculating “Average Monthly Payroll”, most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. For seasonal businesses, the Applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee.

For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding
costs over $100,000 on an annualized basis for each employee.

How To Apply for the PPP 

Beginning on April 3, 2020, small businesses and franchise companies can apply for and receive loans through their existing SBA lenders or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.

Visit www.sba.gov for a list of SBA lenders.

What is Needed to Apply for PPP Loan

Small businesses and franchise companies will need to complete the PPP loan application and submit the application with the required documentation to an approved SBA lender that is available to process your application by June 30, 2020. You will need to provide your lender with payroll documentation.

Apply for the PPP Loan Quickly

Although the program is open until June 30, 2020, the federal government is encouraging small businesses and franchise companies to apply as quickly as you can because there is a funding cap and lenders need time to process your loans.

Approved Uses for the PPP Loan

You may use the proceeds from the PPP loans for your small business or franchise:

• Payroll costs, inclusive of salary, wages, commissions, benefits and/or tips (capped at $100,000 on an annualized basis for each
  employee);
• Interest on mortgage obligations, incurred before February 15, 2020;
• Rent, under lease agreements in force before February 15, 2020; and
• Utilities, for which service began before February 15, 2020.

What Portion of the Loan is Forgiven

You will owe money when your loan is due if you use the PPP loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, the government anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

You will also owe money if you do not maintain your staff and payroll.  Specifically, your loan forgiveness will be reduced if you (1) decrease your full-time employee headcount; or (2) decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.

You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made to your company’s payroll between February 15, 2020 and April 26, 2020.

How to Request Forgiveness

You must submit a request to your SBA lender servicing the loan for loan forgiveness which must include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.

The lender must make a decision on the forgiveness within 60 days.

Applicant Certifications

When applying for the PPP loan, you will need to make the following certifications:

• Current economic uncertainty makes this loan request necessary to support the ongoing operations of your business or franchise company;
• The funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments and you understand that if the funds are used for unauthorized purposes, the federal government may pursue criminal fraud charges;
• Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight week period following this loan will be provided to the lender;
• Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments,
  and covered utilities. Due to likely high subscription, it is anticipated that not more than twenty-five percent (25%) of the forgiven
  amount may be for non-payroll costs;
• During the period beginning on February 15, 2020 and ending on December 31, 2020, you have not and will not receive another
  loan under this program;
• All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
• You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Importantly, a small business or franchise company that receives a loan under the PPP is not eligible to also claim an employee retention credit under the CARES Act. The employee retention credit gives eligible employers whose business operations are fully or partially suspended due to the COVID-19 pandemic a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.

PPP: No-Brainer Loan Program for Small Businesses 

Our firm’s client base is you.  We represent hundreds of small businesses, sole proprietors, startups, franchisees, and startup and emerging franchisors in a variety of industries including retail, restaurants, gyms, fast casual establishments, fast food, wellness, pet services, pizza, third party delivery, smoothies, med-spas, day spas, etc. The CARES Act will hopefully be a benefit to you during this difficult and uncertain time.

This is a “no-brainer” loan program for small businesses and franchise companies. The interest rate of the loan amount not forgiven is 0.5%. All payments are deferred for 6 months with interest accruing and the loan being due in 2 years. There are no prepayment penalties or fees. No collateral is required. No personal guarantee required.

Apply on April 3rd or as soon as possible through your SBA lender. You may contact Adam G. Wasch at awasch@waschraines.com if you have any questions about your PPP application and the CARES Act. Our firm is fully operational during the pandemic, and our business and franchise attorneys are here to service all of our clients’ legal needs.

About Wasch Raines LLP

Wasch Raines LLP is a franchise and business law firm providing a comprehensive range of services to emerging and established businesses and franchise companies in a variety of industries. Through its unique business model, the firm offers its clients the benefits of having a cost-efficient in-house general counsel and a full service litigation team.

Wasch Raines LLP has has provided this article for general informational purposes only. It is not intended as professional counsel and should not be used as such. You should contact your attorney to obtain advice with respect to any particular issue or problem.