What you need to know about the Paycheck Protection Program

Shane Loper, April 3, 2020

Relief is on the way for businesses, nonprofits, veterans' organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors that are being financially impacted by the COVID-19 pandemic. The $2 trillion stimulus package recently passed by Congress includes almost $350 billion in government-backed loans for businesses through the Paycheck Protection Program (PPP). This program is in high demand, so we’ve outlined a summary below to help you understand options available to current Hancock Whitney clients. Unfortunately, we are not able to process applications from any businesses that do not already have an active primary checking account with Hancock Whitney.

 

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As of April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing Small Business Administration (SBA) lenders, including Hancock Whitney. Starting April 10, 2020, independent contractors and self-employed individuals can apply.

 

Please note that this information is being provided as a resource for our clients. All information is based on our current understanding of the terms and conditions applicable to the Paycheck Protection Program (PPP) as set out in the Congressional Act, and is subject to further interpretation and clarification as regulations and guidance are issued by various regulatory agencies, including the SBA. 

 

The CARES Act – Paycheck Protection Program

The Coronavirus Aid, Relief and Economic Security (CARES) Act will allow banks to lend directly to businesses through the PPP, with the loans being backed by the federal government through the Small Business Administration (SBA). Highlights of key points currently include: 

  • The loans will help pay for basic business expenses, and companies that meet certain conditions as set forth in the CARES Act may not be required to repay that portion of loan.
  • Loans can be for up to 2.5 times your average monthly payroll costs from the last year, subject to a $10 million cap.
  • If you are a seasonal or new business, you will use different applicable time periods for your calculation. Eligible payroll costs will be capped at $100,000 annualized for each employee. 
  • Unlike traditional SBA loans, business owners won't be required to use all their available assets - from real estate to equipment- as collateral and will not be required to provide personal guarantees.
  • Businesses may not have to repay loans covering up to eight weeks of payroll and other eligible expenses. The amount that may be forgiven is limited and subject to certain requirements; make sure you follow the final guidance.
  • Loans are capped at $10 million and are available to businesses with 500 employees or less.
  • Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries.
  • For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries; or (2) that are franchises in the SBA’s Franchise Directory; or (3) that receive financial assistance from small business investment companies licensed by the SBA.
  • Use of loan proceeds to cover salaries is subject to a $100,000 cap per salary. That portion of salary amounts that exceed the cap does not qualify for forgiveness. Other conditions to forgiveness also apply. 
  • There is ambiguity regarding whether certain types of activities make a business ineligible for these loans under SBA rules. We are seeking clarification. Until then, we may not be able to accept or process your application if your activities might render you ineligible for the loan.
  • Additional guidance may be released as appropriate.

 

We've put together more details about the program in this document and you can get additional information on the SBA website.

 

What you will need to apply

  • Payroll reports for 2019 and 2020 year to date showing the following by employees and/or officers:
    • Gross wages
    • Paid time off
    • Paid vacation
    • Pay for family medical leave
    • State and local taxes (form 940, 941, or 944)
    • 1099’s for independent contractors (if applicable)
  • Completed 2019 tax return OR 2019 year-end Profit and Loss Report and Balance Sheet Documentation showing:
    • Funds received in the form an Economic Injury loan since 1/31/20
    • Payments for group health care benefits including premiums paid in 2019 to 2020 year to date
    • Payment of any retirement benefits paid in 2019 and 2020 year to date

 

NOTE: ADDITIONAL DOCUMENTATION MAY BE REQUIRED when you apply for Loan Forgiveness.

 

Alternative to the Paycheck Protection Program that may fit your needs

If your business is not a heavy user of payroll, the SBA Economic Injury Disaster Loan Program may be a better fit than the PPP. This more traditional SBA loan offers up to $2 million in assistance and will be available once a disaster declaration is made within a state. The interest rate is 3.75% and 2.75% for nonprofits, and the loan features long-term repayments up to 30 years. These terms are determined on a case-by-case basis, based on each borrower’s ability to repay. Visit the SBA Coronavirus Disaster Assistance website to apply for this loan.

 

If you received an SBA Economic Injury Disaster Loan Program (EIDL) loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan as long as the EIDL loan was used for different purposes than the PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan.

 

Your Hancock Whitney banker can help

We understand that the pandemic has put many clients in a position of uncertainty, and we’re here to help. We’ve been your partner through good times and bad, and you can rest assured that we’ll work tirelessly to help you find financial solutions for your business amid this unprecedented event.

 

Please contact your Hancock Whitney banker to apply for the Paycheck Protection Program loan. Due to very high demand, at this time we are only able to process Paycheck Protection Program applications from current business clients with active deposit accounts.