On March 27, 2020, the Coronavirus Aid, Relief, and Economic Stability Act, known as the CARES Act, became law. It is the third piece of federal legislation related to the 2020 coronavirus pandemic and provides approximately $2 trillion in sweeping emergency measures to mitigate the resulting public health and economic crisis facing individuals, families, and businesses. The cornerstone of the CARES Act’s relief package for small businesses is the Paycheck Protection Program (PPP), under which the Small Business Administration (SBA) will guarantee up to $349 billion in small business loans. The following questions and answers describe the major features of the PPP as we know them at the current time.
What Is the PPP?
The SBA provides financial assistance to small businesses primarily through its flagship lending program - known as the Section 7(a) program. Under this program, the SBA connects small businesses and SBA-approved private lenders and then typically guarantees a large portion of the small business loan. The PPP is a new Section 7(a) program designed to help small businesses keep their workers employed by providing financial support for payroll and certain other expenses through June 30, 2020.
The PPP significantly expands the SBA’s Section 7(a) lending activities to include, among things, a 100% guarantee of PPP loans, a waiver of certain collateral and personal guarantee requirements, short-term forbearance, and the possibility of loan forgiveness.
Who Can Borrow under the PPP?
These small businesses (that were operational as of February 15, 2020) are eligible for PPP loans:
- a small business with fewer than 500 employees, regardless of revenue
- a small business that otherwise meets the SBA’s size requirements
- sole proprietors, independent contractors, and self‑employed individuals who regularly carry on any trade or business, including those in the “gig economy”
- a hospitality or food service business (those with an NAICS code beginning with 72) if it has fewer than 500 employees per physical location
- a non-profit entity under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (Internal Revenue Code), so long as that entity has fewer than 500 employees
- a veterans organization under Section 501(c)(19) of the Internal Revenue Code that meets the SBA’s size requirements
- a tribal business entity that meets the SBA’s size requirements