What the SBA Paycheck Protection Program Means for Natural Resources

On March 27, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act), a $2 trillion stimulus package intended to help mitigate the economic impact felt by businesses and individuals from the novel coronavirus (COVID-19).

The stimulus is good news for natural resources companies, many of which have been struggling with low oil prices, which the pandemic has further exacerbated. The legislation’s Small Business Administration (SBA) Paycheck Protection Program (PPP), which provides loans to small businesses and organizations to assist in retaining employees, make mortgage and/or lease payments and utility payments, could be particularly useful to the industry.

Under the program, $350 billion has been set aside for small businesses, to be administered by SBA-approved lenders. President Trump is currently seeking an additional $250 billion for this program.  Loan amounts for this provision may only be primarily payroll cost including health insurance and other related costs but can also be used on a limited basis for rent, utility payments, and mortgage interest. To qualify for a loan under this program, your company must employ 500 employees  or fewer (both full-time and part-time), or it must meet the industry size standard set forth by the SBA . Many natural resources companies are larger than 500 employees but meet the industry size standard set forth by the SBA. The SBA’s size standard for crude petroleum extraction companies, for example, is 1,250 employees. 
The maximum amount for these loans is 2.5 times the average total monthly payroll costs for the year prior to applying for the loan, or up to $10 million. The interest rate may not exceed 1%. Businesses can also defer payment of the principal, interest and fees for between six months to two years.
One of the biggest appeals of the SBA Paycheck Protection Program is that the loans are forgivable, assuming certain conditions are met. If the borrower retains its employees and salary up to a certain level, the SBA can grant forgiveness for payments made during the 8-week period after the loan is taken out for:

  • Payroll costs

  • Mortgage interest

  • Rent payments

  • Utility payments

The Treasury Department anticipates that no more than 25% of the forgiven amount may be for the non-payroll costs.

For organizations that do not maintain payroll because employees were let go, loan forgiveness is prorated—but the CARES Act provides an exemption to the reduction if the eligible entity re-hires employees and/or eliminates the reduction in salaries by June 30, 2020.

Additionally, organizations do not need to report forgiven amounts as taxable income.

To complete the application, available through the Treasury Department’s website or banks that are lending- qualifying organizations will need to complete the PPP loan application with payroll information included and submit it to an approved lender by June 30, 2020.

Small businesses, nonprofits and sole proprietorships were able to apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders starting April 3, 2020. Independent contractors and self-employed individuals can apply as of April 10, 2020.