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Details on the Paycheck Protection Program (PPP)

Gregory Pfeuffer

April 06, 2020

As more clarification is continually being published, our team is working hard to keep you updated on the Paycheck Protection Program (PPP). Below is a summary of our April 3, 2020 webinar on this topic. Click here to access the replay and materials from this event.

PPP Loan Calculator – Non-seasonal & In business 2/15/19 – 6/30/19
This calculator will apply for most businesses that operated in 2019.

PPP Loan Calculator – Nonseasonal & NOT in business 2/15/19 – 6/30/19
This calculator will apply for new businesses.

PPP Loan Calculator – Seasonal business
This calculator will apply for clients that don’t operate year-round.

Sample PPP Application Provides a sample application so you’re prepared to apply.

Loan Information

  • The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.
  • SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
  • You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
  • Not all SBA 7A lenders are processing applications for PPP.
  • We suggest applying for the PPP loan with your current lending institution, if possible. Otherwise, you will have to establish your credit relationship with a new lender and most likely submit additional paperwork, thereby delaying the process.
  • Lenders may begin processing loan applications as soon as April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020.
  • $349 billion has been set aside for the PPP program.
  • Banks are expecting a significant volume and the funds are expected to be exhausted quickly.
  • The loans do not require personal guarantees or collateral.
  • This loan has a maturity of 2 years and an interest rate of 1%.

Who Can Apply for the PPP?

  • This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by coronavirus/COVID-19.
  • Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries. See SBA.gov for more information on size requirements.
  • Small businesses in the hospitality and food industry with more than one location could also be eligible if their individual locations employ less than 500 workers.
  • The employee count considers the number of employees and not full-time equivalents.
  • Affiliation rules for organizations with common ownership or control are applicable and should be evaluated for your particular circumstances as there are exceptions.

Loan Forgiveness

  • The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (at least 75% of the forgiven amount must have been used for payroll costs). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
  • Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

Loan Amount Calculation

Generally, the PPP loan amount is calculated, as follows:

  • Aggregate payroll costs for employees whose principal place of residence is the United States. In most instances, the aggregation period will be the 2019 calendar year or the last twelve completed months.
  • Subtract any compensation paid to an employee in excess of an annual salary of $100,000.
  • Calculate the average monthly payroll costs by dividing the aggregated payroll costs by twelve for employees whose principal place of residence is the United States limited to $100,000 per employee.
  • Multiple the calculated average monthly payroll costs by 2.5.
  • Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between 1/31/2020 and 4/3/2020, less the amount of any “advance” under an EIDL COVID-19 loan.

What are qualified payroll costs?

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

What is expressly excluded from the definition of payroll costs?

  • Any compensation of an employee whose principal place of residence is outside of the United States.
  • The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary.
  • Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees.
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

Do independent contractors count as employees for purposes of PPP loan calculations?

No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.

Can I apply for more than one PPP loan?

No. The Administrator, in consultation with the Secretary, determined that no eligible borrower may receive more than one PPP loan. This means that if you apply for a PPP loan you should consider applying for the maximum amount. While the Act does not expressly provide that each eligible borrower may only receive one PPP loan, the Administrator has determined, in consultation with the Secretary, that because all PPP loans must be made on or before June 30, 2020, a one loan per borrower limitation is necessary to help ensure that as many eligible borrowers as possible may obtain a PPP loan.

When will I have to begin paying principal and interest on my PPP loan?

You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment. The Act authorizes the Administrator to defer loan payments for up to one year. The Administrator determined, in consultation with the Secretary, that a six-month deferment period is appropriate in light of the modest interest rate (one percent) on PPP loans and the loan forgiveness provisions contained in the Act.

Can my PPP loan be forgiven in whole or in part?

Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all the loan proceeds for forgivable purposes described below and employee and compensation levels are maintained. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However, not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs. While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage interest, rent, and utilities, the Administrator has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll. The Administrator has determined in consultation with the Secretary that 75 percent is an appropriate percentage in light of the Act’s overarching focus on keeping workers paid and employed.

Do independent contractors count as employees for purposes of PPP loan forgiveness?

No, independent contractors have the ability to apply for a PPP loan on their own, so they do not count for purposes of a borrower’s PPP loan forgiveness.

How can PPP loans be used?

The proceeds of a PPP loan are to be used for:

  • Payroll costs (as defined previously)
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
  • Mortgage interest payments (but not mortgage prepayments or principal payments)
  • Rent payments
  • Utility payments
  • Interest payments on any other debt obligations that were incurred before February 15, 2020
  • Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.

If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan. However, at least 75 percent of the PPP loan proceeds shall be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.

What documentation is required for support?

  • Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan will be provided to the lender.
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. No more than 25 percent of the forgiven amount may be for non-payroll costs.
  • Without proper documentation you could miss out on loan forgiveness.
  • Most likely, additional reporting requirements published in the near term.

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