Due to COVID-19, small and medium-sized businesses are facing a liquidity problem as cash reserves dry up. With no cash, due in part to government-mandated closures, businesses face bankruptcy. To keep these businesses afloat during this unprecedented time, the Senate proposed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES Act aims to, among other things, provide working capital loans to small and medium-sized businesses through expanding the Small Business Administration’s (the SBA’s) loan eligibility requirements. The loan program is called the Paycheck Protection Program (PPP).
All PPP loans must be made on or before June 30, 2020.
To be eligible, a borrower needs to fit into one of the following three categories:
- The borrower employs not more than the greater of (i) 500 employees; or (ii) the “size standard in number of employees established by the [SBA]” for the industry in which the business operates.
- The borrower (i) is a sole proprietor, independent contractor, or eligible self-employed individual; and (ii) provides necessary documentation, as determined by the Administration, such as (a) payroll tax filings reported to the IRS, (b) Form 1099-MISC, and (c) income and expenses from the sole proprietorship.
- If the borrower has more than one physical location, the borrower (i) does not employ more than 500 employees per physical location, and (ii) is assigned a North American Industry Classification System (NAICS) code beginning with 72 (Accommodation and Food Services).