Loan Provisions

Paycheck protection program

The bill creates the Paycheck Protection Program (PPP), which expands the scope of the Small Business Administration (SBA) to service a wide variety of small businesses. These loans are fully backed by the federal government, have no origination fees, may be eligible for forgiveness (see below), and are tracked by the applying small business’s TIN. To qualify for PPP loan, your business must:

1. Have been in operation on or before February 15^th, 2020
2. Have employed full-time and part-time workers or independent contractors on or before February 15^th, 2020
3. Meet the definition of a small business under the bill or the SBA

• Small Business Administration:

-Employ 500 employees or less (includes both full & part-time employees), or

-Certain industry-specific standards expand this size

• The bill specifically includes

-Sole proprietors

-Independent contractors

-Nonprofits with 500 or fewer employees

-Hospitality and food service companies with 500 or fewer employees per location

Covered costs for these loans include:

1. Payroll (salaries, wages, commissions, required healthcare benefits, retirement benefits, state and local payroll taxes)
2. Interest incurred on current mortgages
3. Rent
4. Utilities
5. Interest on other debt incurred before February 15^th, 2020

Costs specifically excluded are:

1. Employee salaries and wages in excess of $100,000 (up to $100,000 of wages per employee may be covered, prorated for the covered period)
2. Payment of principal on existing loans
3. Prepayment of existing loans
4. Compensation of individuals outside the US
5. Benefits for which a credit is already provided under the Families First Coronavirus Response Act

The maximum loan available is the lesser of $10 million or 2.5 times an eligible recipient’s average covered monthly payroll costs, beginning twelve months before the date of the loan. As long as proceeds are used for covered purposes, the debt is nonrecourse.  Moreover, the eligible recipient is required to make a good faith certification that the loan is necessary and will be used for the approved purposes. If an eligible recipient is granted loan forgiveness, as described below, any remaining balance will remain nonrecourse with a maturity of 10 years or less and an interest rate not to exceed 4%. Under the bill, lenders are required to defer payments on covered loans for a minimum period of 6 months from the date of origination.

If you have a current SBA Section 7(b)(2) loan you may be eligible to refinance it under the PPP.

However, applying for and receiving a PPP loan will disqualify an employer from claiming the Employee Retention Credit against payroll taxes, as detailed later in the bill. Employers should calculate their expected loan amount and compare the benefits available under the Employee Retention Credit before finalizing a PPP loan. Saville can aid in this benefit analysis.

Loan forgiveness

The bill provides loan forgiveness to eligible recipients of covered loans guaranteed through the Paycheck Protection Program (PPP). The amount of forgiveness is equal to the sum of the following costs incurred and paid during the 8-week covered period beginning on the date of the origination of the covered loan:

1. Payroll costs (as defined by earlier provisions of this bill)
2. Payments of interest on covered mortgage obligations (mortgages incurred prior to February 15^th, 2020)
3. Payments on covered rent obligations (leasing agreement in force prior to February 15^th, 2020)
4. Payments of covered utility payments (service began prior to February 15^th, 2020

The amount of loan forgiveness may not exceed the principal of the covered loan. Moreover, there are limitations on the amount of loan forgiveness based on reductions in an eligible recipient’s workforce and employees’ salaries, as detailed below:

1. An eligible recipient’s workforce may be deemed “reduced” if said recipient has fewer average employees per month during the covered period in comparison to the average number of employees employed during the February 15th – June 30th 2019 or January 1st, 2020 – February 29th, 2020 periods. If your business is seasonal, an eligible recipient must calculate its business’s average workforce from February 15th, 2019 – June 30th, 2019.
2. An eligible recipient’s salaries and wages may be deemed “reduced” if any employee, who’s total annualized pay did not exceed $100,000 during any single pay period in 2019, has a total salary or wage reduction in excess of 25%.
3. This limitation can be avoided if an eligible recipient rehires or increases the employees’ pay by June 30, 2020.

Any eligible recipient seeking loan forgiveness must apply directly to the loan service provider. Additionally, loan forgiveness is unavailable without the eligible recipient providing the following information to the lender:

1. Documentation of full-time equivalent employees, including IRS payroll tax filings, and state income, payroll, and unemployment insurance filings
2. Documentation of cancelled checks, receipts, and other documents verifying payments on covered mortgage obligations, lease obligations, and utility payments
3. Certification by a company representative that provided documentation is true, correct, and the covered loan was utilized for its intended purpose  Further guidance and regulations will be issued within 30 days of the implementation of this section.

Emergency EIDL grants

The bill provides enhanced access to Economic Injury Disaster Loans (EIDL) and an advanced grant for applicants who need to pay certain costs immediately.

Generally, during the covered period beginning on January 31, 2020 and ending December 31, 2020, the SBA shall waive any rules related to the personal guarantee on advances and loans under $200,000, as well as the requirement for the applicant to have been in business for at least one year before the disaster; however, the business must have been in operation by January 31, 2020.

Under this provision, an “eligible entity” includes a business with not more than 500 employees, any individual who operates a sole proprietorship, a cooperative with not more than 500 employees, an ESOP, or a tribal small business.

During the covered period, the administrator may approve an applicant based solely on their credit score and shall not require the submission of their tax return.

Emergency Grant: During the covered period, an eligible entity that applies for a loan under section 7(b)(2) of the Small Business Act, in response to COVID-19, may request an advance of not more than $10,000; the advance is to be received within three days after the administrator has received an application from the eligible entity. The funds must only be used on the following: paid sick leave to employees unable to work due to COVID-19, maintaining payroll to retain employees, meeting increased cost to obtain materials, making rent or mortgage payments, or repaying obligations which cannot be met due to revenue losses. Even if subsequently denied the loan, the eligible entity is not required to repay the advanced amount.

If the eligible entity, who receives an advance under section 7(b), is subsequently approved for the loan program under section 7(a) of the Small Business Act (the Paycheck Protection Program), the advanced amount shall reduce the loan forgiveness amount under section 7(a).

Subsidy for certain loan payments

The bill creates the possibility for taxpayers to receive subsidies to make certain loan payments on covered loans. For purposes of this section the term “covered loans” includes:

• Loans guaranteed under section 7(a) of the Small Business Act, excluding a loan made under section 7(a) as added under the Paycheck Protection Program, or, title V of the Small Business Investment Act of 1958.

• Made by an intermediary to a small business using loans or grants received under section 7(m) of the Small Business Act.

Generally, the administrator shall pay the principal, interest, and any associated fees that are owed on a covered loan

• Made before the date of enactment of this bill and not on deferment, for the 6-month period beginning with the next payment due;
• Made before the date of enactment of this bill and on deferment, for the 6-month period beginning with the next payment due after the deferment period
• Made during the period beginning on the date of enactment of this bill and ending on the date that is 6 months after such date of enactment, for the 6-month period beginning with the first payment due.

The payments made by the administrator shall be applied such that the borrower is relieved of the obligation to pay that amount. The administrator shall waive statutory limits on maximum loan maturities for any covered loans where the lender provides a deferral and extends the maturity during the 1-year period following the enactment of this bill.

Bankruptcy

The bill amends Chapters 7, 11, and 13 of the U.S. Code, which affects liquidation, reorganization, and payment plan bankruptcies, respectively. All amendments under this provision are effective starting March 28, 2020 and continue through March 28, 2021.

Furthermore, the eligible noncontingent liquidated debt limit was increased to $7,500,000 from $2,725,625 for Chapter 11 bankruptcies involving small businesses; limitations apply to issuers and corporations with reporting requirements under the Securities Exchange Act of 1934.

Chapters 7 and 13 bankruptcies involve the calculation of an individual’s monthly and disposable income. For purposes of this calculation, this provision disallows COVID-related federal payments to individuals from being included. Additionally, filers of Chapter 13 bankruptcy who have been materially impacted by COVID-19 may be eligible for an extension of their payment plan up to a maximum of seven years.

Credit protection during COVID-19. 

Generally, under the bill, if a credit furnisher makes an agreement with regards to one or more payments with a consumer, and the consumer complies with the agreement, then the furnisher shall report the account as current during the 120-day period starting on the date of enactment of this bill. If the account was delinquent before the enactment of this bill, then it will remain delinquent until the obligation is satisfied.

Foreclosure moratorium and consumer right to request forbearance. 

Generally, under the bill and during the covered period, a borrower with a federal-backed mortgage loan who is experiencing a financial hardship due to the COVID-19 virus may request forbearance on the loan; the borrower must submit the request to the loan servicer. The forbearance period shall last up to 180 days. During the forbearance period, no additional fees, penalties, or interest beyond the scheduled amounts shall accrue. The servicer must accept the request so long as the borrower has affirmed that the he or she has experienced a financial hardship during the COVID-19 virus.

Furthermore, during the 60-day period beginning on March 18, 2020, a servicer of a federally-backed mortgage loan may not initiate any foreclosure process, move for a foreclosure judgement or order of sale, or execute a foreclosure-related eviction or foreclosure sale.

Forbearance of residential mortgage loan payments for multifamily properties with federally backed loans. 

Generally, under the bill and during the covered period, a borrower with a federally-backed multifamily mortgage loan who is experiencing financial hardship due to the COVID-19 virus may request forbearance on the loan. The covered period begins on the date of enactment of this bill and ends the earlier of termination of the national emergency declared under the National Emergencies Act, or, December 31, 2020. Upon receipt of a request for forbearance, the servicer shall document the hardship and provide forbearance for up to 30 days. There is a possibility of two additional 30-day extensions, if requested at least 15 days in advance of the end of the forbearance. A multifamily borrower that receives a forbearance may not evict or initiate the eviction of a tenant, or charge any late fees or penalties to a tenant.

Temporary moratorium on eviction filings.

Generally, during the 120-day period beginning on the date of enactment of this bill, the lessor of a covered dwelling may not evict or initiate an eviction of a tenant for nonpayment of rent, or charge fees or penalties to a tenant for nonpayment of rent. The lessor may not require the tenant to vacate the covered dwelling unit without a 30-day notice, and such notice cannot be given prior to the end of the 120-day moratorium period. A covered dwelling includes a dwelling that is occupied by a tenant and is considered covered property. Covered property includes property that participated in a covered housing program, the rural housing voucher program, or has a federally-backed mortgage loan.