Corporate Law

The Small Business Administration (the “SBA”) has released a sample application form for the Paycheck Protection Program (the “PPP”) created last week under the CARES Act.  This application is available here.

An applicant should complete and submit the application form to its SBA participating lender, who will then make a determination regarding the applicant’s eligibility for financial assistance under the PPP.  In order to complete the form, an applicant will need, among other things, the following information:

• Average monthly payroll costs, which is generally calculated using the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee
• The number of jobs to which the applicant’s payroll costs relate
• A list of persons with more than 20% ownership of the applicant, including such persons’ titles, ownership percentages, taxpayer identification numbers and addresses
• List of the applicant’s affiliates
• Information about prior participation in SBA programs

The applicant and each person owning 20% or more of the applicant’s equity must certify in good faith to statements regarding economic uncertainty, use of funds, loan forgiveness and the accuracy of submitted information.

There are several important differences between the program requirements spelled out in the CARES Act and the requirements indicated on the application form and instructions:

• One of the certifications appears to impose a new requirement for loan forgiveness that at least 75% of the loan must be used for payroll costs.
• While the text of the CARES Act was unclear as to whether the $100,000 limit per employee applied to just salary or all payroll costs, the instructions imply that all payroll costs, not just salary, are capped at $100,000 per employee for purposes of calculating average monthly payroll and determining how much of the loan may be forgiven.
• The instructions also indicate that the loan amount will be based on average monthly payroll for 2019, and not for the trailing 12-month period before the loan is issued.
• Loans under the PPP will have two-year terms, with the first payment deferred for six months, and an interest rate of 0.5%.  There will also be no penalties for prepayment. 

The instructions on the application may be viewed as administrative guidance in interpreting the CARES Act, as the Small Business Administration has authority under the Act to issue such guidance.

Businesses that find the 75% payroll costs requirement difficult to meet may wish to consider taking out an economic injury disaster loan (“EIDL”) instead of a PPP loan.  While an EIDL is not subject to forgiveness (other than a $10,000 emergency grant), the repayment term is substantially longer – up to 30 years.  More information about this program is available in our prior alert.

Alternatively, New Jersey-based businesses with 25 or fewer employees and under $5 million in annual revenues may be eligible for support from the New Jersey Economic Development Authority (“NJ EDA”).  Businesses may explore their eligibility for such support by clicking here. 

If you have any questions about the PPP application or program requirements, or about the EIDL program or NJ EDA’s offerings, please contact Jason Navarino, Rich Lomuscio, or any member of Riker Danzig’s Corporate and Tax Departments.