Paycheck Protection Program – A Provision of the CARES Act

Federally Backed Emergency Lending is Available to Protect Employers and Employees in the Wake of the Corona Virus and COVID-19 Pandemic

Paycheck Protection Program – Stimulus Loans to Protect American Jobs

The Coronavirus Aid, Relief, and Economic Security Act known as the CARES Act has been signed into law, including its Paycheck Protection Program (PPP). Under the program small businesses may be eligible for stimulus financial aid that could help protect jobs and reduce the flood of bankruptcy filings as a result of the COVID-19 pandemic. Certain PPP loans under the CARES Act will be “forgivable” (meaning that they will not need to be repaid). But it’s critical to look closely at the terms of program since not all loans may not be eligible for forgiveness.

The Paycheck Protection Program is part of the Keeping American Workers Paid and Employed Act. Under the program, if your company has fewer than 500 employees, it may be eligible to receive stimulus funds equal to 2.5 times your average monthly payroll up to $10 million, as a result of business interruption from COVID-19. Although in the form of an unsecured, no-fee loan, loan forgiveness may be available if your company uses the loan proceeds to fund certain eligible expenses, including payroll, mortgage obligations, rent, utilities; and your company maintains its payroll during the crisis period or restores their payrolls afterward, as required by the law.

Frequently Asked Questions (FAQ) Regarding the CARES Act and the Payment Protection Program Stimulus

What Loans are Covered by the Paycheck Protection Program?

The PPP extends only to loans during the period of February 15, 2020 through June 30, 2020, that are made pursuant to the Paycheck Protection Program. Importantly, Congress amended the existing Small Business Act to provide the mechanism for issuance of PPP loans. 15 U.S.C. § 636(a)(36)

Which Lenders are Authorized to Issue Loans Under the Paycheck Protection Program?

All lenders authorized to issue SBA loans under the Small Business Act also should be empowered to issue PPP stimulus loans. In the new authorizes the Secretary of the Treasury and the Administrator of the SBA to extend lending authorization to non-SBA lenders if they find that those lenders are sufficiently qualified.

Is There a Limit to the Amount a Company May Borrow Through a PPP Loan?

Yes, in most cases the amount of any PPP loan will be limited to a maximum loan amount equal to two and a half times the company’s 2019 average annual payroll cost, or $10 million.

If My Company Did Not Exist in 2019, Can It Be Eligible for a PPP Loan?

Companies that were not in business in 2019 may calculate their average payroll costs by reference to the payroll expense incurred from January 1, 2020 through February 29, 2020. As with most other companies, the maximum amount of a stimulus loan under the Paycheck Protection Program is limited to an amount equal to two and a half times the company’s average annual payroll cost, or $10 million.

What Information Should I Have for the PPP Loan Application?

Prospective borrowers under the Paycheck Protection Program should be prepared with the following information:
(i) compensation, including salary, wage, and commissions;
(ii) payment of state or local tax assessed on employee compensation;
(iii) payment of cash tips, or the equivalent;
(iv) payments for leave, including vacation, parental, family, medical or sick;
(v) allowance for dismissal, termination or similar separation;
(vi) payment of health care or medical insurance premiums; and
(vii) payments for retirement benefits.

What Representations Must Borrowers Make to Be Eligible for PPP Loans?

Prospective borrowers of a PPP loan must represent, among other things, that:
(i) the current economic uncertainty has made the loan request necessary;
(ii) they understand the limitation on the use of PPP loan proceeds for use to maintain payroll and certain other items such as rent, mortgage interest and utilities; and
(iii) they have no other loans or pending applications for loans for the same purpose.

We recommend that you discuss these matters with experienced, qualified attorneys before taking any action. As a general matter, we will address some frequently asked questions asked about the Paycheck Protection Program. If you need assistance navigating this application or any other issues related to the continued operation or liquidation of your business, please don’t hesitate to contact our law firm.

Saving Your Home With Chapter 13 Bankruptcy

Chapter 13 bankruptcy puts a stop to foreclosureConsumer Reorganization Through Chapter 13

If you are behind on your mortgage payments, filing a chapter 13 bankruptcy may help you avoid foreclosure.  If you are behind on payments to the point where a foreclosure complaint has already been filed by your lender, filing a bankruptcy case will immediately halt it.  The moment a bankruptcy case is filed, something called the automatic stay is put into effect.  The automatic stay is a powerful provision of the Bankruptcy Code which prevents any creditor or party-in-interest from continuing litigation against you or depriving you of your property.

Chapter 13 bankruptcy also helps you repay your past due mortgage payments.  Often, once you are several months behind on mortgage payments, you lender may refuse to accept any payment less than the total amount of the arrearages plus penalties and interest as payment, and consider the payment of a single mortgage payment a partial payment.  This perpetuates the vicious cycle.  A chapter 13 bankruptcy case allows you to pay off any arrearages over a three or five year time period – making catching up far more manageable.  Often times, chapter 13 bankruptcy is the only practical option for those substantially behind on their mortgage payments.

There are other solutions for debtors with no other problematic and significant debt beyond mortgage arrearages.  Mortgage modification, an arrangement to mitigate the lender’s loss and lower your monthly mortgage payments, can serve as a solution as well.  Modification is a negotiation and loan restructuring process which back loads your mortgage arrearages and sometimes (though not always) lowers your monthly mortgage payment.  This process often extends the term of your loan allowing your even greater advantages than might otherwise be available in a chapter 13 case limited to five years.

If you are behind on your mortgage payments and have mortgage arrearages  in excess of what you can pay back, give us a call for a free consultation to discuss a solution based on your individual goals and problems with debt.