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Paycheck Protection Program (“PPP”) Loans

Paycheck Protection Program (“PPP”) Loans

The U.S. Small Business Administration has announced that Paycheck Protection Program (“PPP”) general funding has been exhausted, and that its PPP application portal has stopped accepting applications submitted by most lenders (other than those designated as “community financial institutions”, defined as minority depository institutions and community development financial institutions.)  Therefore, First Keystone Community Bank can no longer accept new PPP loan applications.  Please be assured that the SBA will continue funding outstanding already-approved PPP applications, and that this decision does not impact the ability of existing PPP borrowers to apply for forgiveness.  Please visit the SBA website at https://www.sba.gov for additional information.

PPP Background Information

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 created a new loan program, called the Paycheck Protection Program, to provide economic relief to small businesses nationwide that have been adversely impacted by the COVID-19 pandemic.  This loan program, administered through the U.S. Small Business Administration (SBA), is designed to provide a direct incentive for small businesses to keep their workers on payroll.

Loans issued under the Paycheck Protection Program (PPP) are 100% guaranteed by the SBA, and the full principal amount of such loans may qualify for loan forgiveness if all employee retention criteria are met, and the funds are used for eligible expenses.

You may be eligible for a PPP loan if you are:

  • A small business concern under applicable revenue-based size standards established by the SBA;
  • An independent contractor, eligible self-employed individual, or sole proprietor;
  • A tax-exempt nonprofit organization under section 501 c (3) of the Internal Revenue Code (IRC), a tax-exempt veterans organization described in section 501 c (19) of the IRC, or a tribal organization, employing no more than 500 employees;
  • A housing cooperative, an eligible section 501 c (6) organization, or an eligible destination marketing organization, that employs no more than 300 employees;

However, you must have been in operation on February 15, 2020, and either had employees for whom you paid salaries and payroll taxes, or have been an eligible self-employed individual, independent contractor, or sole proprietor with no employees.

On December 27, 2020, the Economic Aid Act was enacted, which reauthorizes lending under the PPP through March 31, 2021, modifies certain requirements and forgiveness provisions, and authorizes second draw PPP loans for borrowers who previously received a PPP loan.

First Draw PPP Loans can be used to help fund payroll costs, including benefits, and may also be used to pay for mortgage interest, rent, utilities, other debt service, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.  Under the PPP, the maximum loan amount for First Draw PPP Loans is the lesser of $10 million or an amount calculated using a payroll-based formula as outlined in the application instructions.

  • PPP loans have an interest rate of 1%.
  • No collateral or personal guarantees are required.
  • Neither the government nor lenders will charge small businesses any fees.
  • Loans issued prior to June 5, 2020 have a maturity of two years. Loans issued after June 5, 2020 have a maturity of five years.
  • Loan payments will be deferred for borrowers who apply for loan forgiveness, until SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).

Second Draw PPP Loans generally are guaranteed by SBA under the same terms, conditions, and processes as First Draw PPP Loans.  For most borrowers, the maximum loan amount for a Second Draw PPP Loan is 2.5 times average monthly 2019 or 2020 payroll costs, up to $2 million.  [For borrowers in the Accommodation and Food Services sector, the maximum loan amount for a Second Draw PPP loan is 3.5 times average monthly 2019 or 2020 payroll costs, up to $2 million.]

A borrower generally is eligible for a Second Draw PPP Loan if the borrower:

  • Previously received a First Draw PPP Loan and has used, or will use, the full amount for authorized purposes on or before the expected date on which the Second Draw PPP Loan is disbursed; and
  • Has no more than 300 employees; and
  • Has experienced and can demonstrate at least a 25% reduction in gross revenue between comparable calendar quarters from 2019 to 2020. [A borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it had a decrease in annual receipts of 25% or greater in 2020 as a whole compared to 2019, and if the borrower submits copies of its annual tax return forms to substantiate the revenue decline.]

If you’re interested in learning more about the Paycheck Protection Program, we encourage you to visit https://www.sba.gov/ppp where you can review the program parameters in greater detail.

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