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The CARES Act created a new SBA loan program to help businesses struggling to pay their employees and meet their debt obligations due to COVID-19: the 7(a) Paycheck Protection Program (“PPP”). This program allows businesses with 500 or fewer employees, sole-proprietorships, independent contractors, and self-employed individuals to apply for these loans, which can be up to 250% of the previous year’s average monthly payroll costs (capped at $10 million), and used for maintaining payroll, rent, mortgage interest, and utilities. If a business is able to maintain payroll levels during the 8-week period the loan covers of at least 75% of the earlier average, and keeps the employee headcount the same, they can have 100% of the loan forgiven. Employers who reduce headcount and/or payroll levels may still have some of the loan forgiven, but the amount phases out. Applications go directly to a qualified SBA-lender, and the program opens on April 3 for small businesses and sole-proprietorship and April 10 for independent contractors and self-employed individuals.
On April 2, the SBA released its interim final rule for the program, which provides much-needed clarity on a point relevant to many real estate brokerages and Realtors: how should a business account for independent contractors? The final rule explicitly states that since independent contractors can apply for their own loans (beginning April 10), they should not be counted toward another business’s employee headcount or its average monthly payroll costs.
As this is a brand new program which lenders have had little time to prepare for, many lenders are not yet accepting applications, despite it technically being available as of April 3. Eligible borrowers should reach out to their lenders and continue to check on when they are accepting applications.
To learn more about the program – who is eligible, how to apply, what borrowers need to provide to lenders, and other resources – please visit NAR’s SBA CARES Act FAQ.
SBA 7(a) Paycheck Protection Program Application