SBA Paycheck Protection Program

On March 27th President Trump signed in to law the CARES Act also known as the Paycheck Protection Program. This bill includes $367B that will be added to the SBA lending authority in the wake of the COVID-19 pandemic to support small businesses who have been affected by the virus. Fountainhead is one of only 14 nonbank lenders licensed to make SBA 7(a) loans, so we will be actively making the SBA 7(a) relief loans.

We have paused all PPP application submissions until further notice

SBA 7(a) Paycheck Protection Program Loan

The following are the aspects of the Paycheck Protection Plan as we have interpreted in the CARES Act. These are subject to change upon guidance from the SBA and the U.S. government.

Who Is Eligible? Each of the following as of 2/15/2020
  • All businesses, nonprofit entities, veteran’s organization, and Tribal business concerns, so long as the borrowing entity does not have more than 500 employees (or the applicable size standard for the industry as provided by SBA).
  • Sole-proprietors, independent contractors, and other self-employed individuals.
  • Businesses with more than one physical location, so long as total combined employees are 500 employees or less. (Businesses with a NAICS code beginning with 72, Accommodation and Food services, are eligible as long as each location does not exceed 500 employees.)
  • Waives affiliation rules for businesses with 1) assigned a NAICS code beginning with 72 and do not have more than 500 employees, 2) SBA-approved franchises, and 3) small businesses that receive financing through the Small Business Investment Company (SBIC) program.
  • Applies current SBA affiliation rules to eligible nonprofits.
  • Neither the business or owner can be presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy.
  • The borrower, any of its owners, or any business owned or controlled by any of them, cannot ever have obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted in the last 7 years and caused a loss to the government
  • Any 20%+ owners cannot presently be subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges have been brought in any jurisdiction, or presently incarcerated, on probation, or parole.
  • Within the last seven years, no 20%+ owner can have any felony or misdemeanor for a crime against a minor whereby the individual has 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment).
  • All 20%+ owners must be a US Citizen or lawful permanent resident.
  • The business and each 20%+ owner must complete the SBA application form including a certification that current economic uncertainty makes the loan request necessary to support the ongoing operations of the Application; the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; and that if funds are used for unauthorized purposes, the federal government may pursue criminal fraud charges.
What is needed to determine Eligibility?

• Business must be operational as of February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor. The dollar amount of the average monthly payroll costs will have to be verified by Fountainhead.

How do you calculate the total loan amount?
  • For businesses operating between February 15, 2019 and June 30, 2019, the average eligible monthly payroll costs* incurred during the 1-year period before the date on which the loan is made multiplied by 2.5 (represents months) – plus – the balance of any SBA disaster loan closed between January 31, 2020 and when this loan will be made, if applicable – OR – $10 million whichever is less.
  • For a business not operating between February 15, 2019 and June 30, 2019, the average eligible monthly payroll costs* incurred during the period between January 1, 2020 and February 29, 2020 multiplied by 2.5 (represents months) – plus – the balance of any SBA disaster loan closed between January 31, 2020 and when this loan will be made, if applicable – OR – $10 million whichever is less.
  • In the case of an eligible seasonal employer, the average number of full-time employees per month employed during the period beginning on February 15, 2019 and ending on June 30, 2019. The average eligible monthly payroll cost* multiplied by 2.5 (represents months) – plus – the balance of any SBA disaster loan closed between January 31, 2020 and when this loan will be made, if applicable – OR – $10 million whichever is less

*Payroll costs are defined as:

– salaries/wages/commissions, or cash tips (capped at $100,000 on an annualized basis for each employee)

– employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for dismissal or separation; payments required for the provision of group health care benefits including insurance premiums; and payment of any retirement benefits

– state/local taxes assessed on compensation of employees, and

– for a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

What is the allowable use of proceeds?
  • Eligible payroll costs, including benefits
  • Interest on mortgage obligations that were in place as of February 15, 2020 (excludes any prepayment of or payment of principal)
  • Rent under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.
What is the interest rate and term?
  • The interest rate will be 1%.
  • The loan term will be two years.
What collateral is required?

The loan will be unsecured.

Other Conditions and Requirements
  • If a borrower has an EIDL Loan unrelated to COVID-19, borrower is still eligible.
  • The emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.
  • Eligible borrowers will be required to make a good faith certification that:
    • The loan is necessary due to the uncertainty of current economic conditions caused by COVID-19
    • They will use the funds to retain workers and maintain payroll and/or make mortgage, lease, and utility payments; and
    • Are not applying for or receiving duplicative funds for the same uses from another SBA program.
Is it true I won’t have to pay back my loan?
  • The borrower is eligible for loan forgiveness so long as the loan proceeds are used to cover payroll costs (as defined above), and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made (up until 6/30/2020); and employee and compensation levels are maintained.
  • Payroll costs are capped at $100,000 on an annualized basis for each employee.
  • Not more than 25% of the forgiveness amount may be for non-payroll costs.
  • Amounts forgiven may not exceed the principal amount of the loan.
  • Borrowers will verify these payments through documentation required by lenders, such as (but not limited to) IRS Payroll Expense Forms 940 and 941, mortgage statements, lease statements and utility statements.
  • Note: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
    • Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
    • You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
  • Any loan amounts not forgiven at the end of one year are carried forward as an ongoing loan, due in full 2 years from the note date. The 100% loan guarantee remains intact.
Can I get both a disaster loan (EIDL) and a Paycheck Protection Plan (PPP) loan?
  • The law does allow borrowers to get both an SBA disaster loan (EIDL) and a PPP loan. However, they cannot be obtained for the same purpose. If an EIDL loan was obtained between January 31, 2020 and March 27, 2020 (date of the signing of the CARES Act), this loan may be refinanced into the PPP loan request.
What will be the Required Application Document Checklist?

Here is a list of what we believe we’ll need to process your relief loan:

  • Completed SBA Paycheck Protection Program Application Form (SBA Form 2483)
  • All owners’ Driver’s Licenses (front and back)
  • IRS Form 940 and 941 (as of 12/31/19 and 3/31/20, respectively)
  • Payroll Report for February 15, 2020 (or closest date).
  • Annual Payroll Report for 2019 (calendar year through December 31, 2019)
  • If an SBA EIDL loan was made between 1/31/2020 and 4/3/2020, a copy of the note

SBA EIDL LOAN VS. SBA PPP LOAN

If you have questions about the differences between the SBA EIDL loans and the SBA 7(a) Relief loans, read more about them here: