Publish Date

Apr 02, 2020

On the Eve of “Application Day” Lenders and Applicants Scramble to Navigate the Murky Waters of the Paycheck Protection Program

Special Tax Alert

[This article now includes relevant updates based on the SBA’s release of the Interim Final Rule on Thursday evening, April 2, 2020.]

During the last week of March, the U.S. Senate blurred party lines and made a unified, bipartisan push to approve the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, or the “Act”) with a 96-0 unanimous vote, which was subsequently approved by the House and then, without hesitation, signed into law by President Trump. The diversified financial, tax, and health stimulus package covers $2 trillion in relief across an 880-page Act, capturing the immediate attention of both business owners and operators of all shapes and sizes. For sake of comparison, the 2017 Tax Cuts and Jobs Act was estimated to cost $1.5 trillion over 10 years.

While the Act introduces a litany of payroll and income tax provisions, many of these pro-taxpayer measures may take weeks, if not months, to provide material liquidity to employers; many of which are already on “economic-life-support” after revenue streams have come to a complete standstill.

Enter the “Paycheck Protection Program” (herein, the “Program” or “PPP”), certain to be the hallmark of the Act for certain business owners. The opening performance of this Act has immediately caught the eye of many employers, with an unprecedented forgivable loan program; offering $349 billion of federally guaranteed loans earmarked for certain “small businesses and organizations.”  The Act also includes certain “sweeteners” to lenders as inducements to lend and to lend quickly.

Within less than a week after the passage of the Act, the U.S. Treasury issued a 4-page “Fact Sheet” summarizing some key provisions of the program, clarifying some details on timing and administration of the program. Similarly the Small Business Administration released a very brief overview of the program on their webpage containing some very important details, in particular, the interest rate (.5%) [UPDATE: 1%] and term (2-years) of the loans.  The SBA has also released a sample application form which lenders have leveraged to develop their own versions of the loan application.

[UPDATE: On Thursday evening, April 2, 2020, SBA released an Interim Final Rule (the “IRF”) which constitutes the much anticipated “Regulations” called for in the Act for to provide guidance on implementation of the PPP.   While the IRF is considered “interim” and requests public comments over a 30-day period, it is anticipated that lenders will move forward in accepting applications in reliance of the new interim guidance.]

Per the Fact Sheet, businesses may begin to apply for the loans on April 3, 2020, just three days after the release of the initial guidance.  At the time this article is written, we sit on the eve of “application day” for which for many banks and lending institutions is certain to be a stress-test unlike no other experienced before.  Note A&M Tax has heard from several experts in the lending community that many banks and non-bank lenders will not be ready to take the applications on April 3, and others are reluctant to participate in the program due to many uncertainties that still exists today on how and when the loans will ultimately move off their books.  Notwithstanding, some are expecting the $349 billion in funding to dry up in as few as 1-2 days.  The bottom line is both business and lenders are filled with uncertainty on how the administration of the PPP will ultimately shake out…