The Paycheck Protection Program (“PPP”) can be found in Section 1102 of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act). We know there is already a ton of information throughout the internet regarding the CARES act, so we decided to outline some frequently asked questions, feel free to reach out to us directly if you have any additional questions.
We've also realized that accessing the CARES ACT online can be confusing, so we went ahead and formatted Title 1 and Title 2 of the Act and put it into a google sheet, making it easier to navigate through. Feel free to access that here
1. What is the Paycheck Protection Program?
The purpose of the Paycheck Protection Program is to provide small businesses access to Small Business Administration (“SBA”) loans, while providing incentives to keep workers employed during the Coronavirus pandemic.
The CARES act is an amendment to Section 7(a) to the Small Business Act, which is titled “Business Loans.” It waives many of the usual requirements businesses needed previously in order to access an SBA loan.
Typically, SBA loans are available to borrowers that cannot find credit through other lenders, and they require collateral and a personal guarantee. The PPP waives those requirements, so you don’t have to put up any collateral or sign a personal guarantee (the federal government is guaranteeing these PPP loans for you!).
2. Who is eligible for a loan under the Paycheck Protection Program?
First: Lenders will not be determining eligibility by the borrows ability to repay the loan, instead the PPP states that Lenders much determine
If a business was operating as of February 14, 2020 and
If it was paying employees at that time.
“Employees” includes full-time and part-time workers, as well as 1099s.
Second: If the above is true and you fall into one of the following:
A business with no more than 500 employees (or if larger, the applicable size standard for the industry as provided by SBA)
An individual who operates under a sole proprietorship or as an independent contractor and eligible self-employed individuals
A business that employs not more than 500 employees per physical location and assigned a North American Industry Classification System code beginning with 72 (which is the Accommodation and Food Services Industry)
3. Does the Paycheck Protection Program cover sole proprietors and independent contractors?
Yes! Sole proprietors and independent contractors meet the definition of a small business under SBA size standards. Professionals in this category must also document their income and expenses.
You can document your income using bank statements and 1099s received from clients. Contractors may not receive 1099s for smaller payments. Expenses can be supported using bank statements and credit card documentation. Much of this information should be filed with your 2019 tax return.
4. When can I apply?
Small Businesses & Sole Proprietorships: Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Independent Contractors & Self-Employed Individuals: Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Although the program is open until June 30, 2020, the SBA encourages you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.
5. What do I need to apply?
You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.
You will need to provide your lender with payroll documentation.
6. Will I have to pay any fees to apply or receive the loan?
No, you don’t have to pay any fees to apply for the loan, and the SBA is making the application process seamless so you can do it yourself.
Borrowers will also not have to pay any origination fees to lenders, the SBA will be paying the lender’s origination fees.
7. How much can I borrow?
Small businesses can borrow up to $10 million, but there is a calculation to decide how much of that $10 million you can borrow.
Calculate your total payroll costs for the last 12 months (Note: Payroll costs will be capped at $100,000 annualized for each employee)
Divide that number by 12 (which gets you to your “average monthly payroll costs”).
Multiply your Average Monthly Payroll Costs by 2.5.
You will be able to borrow the lesser of $10 million or the result of the above calculation.
If your business has operated for less than a year, your loan will be based on employee payroll between January and February 2020.
8. What counts as payroll costs?
Payroll costs include:
Salary, wages, commissions, or 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 separation or dismissal;
Payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
State and local taxes assessed on compensation; 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
9. What is my interest rate and terms?
According to the SBA, PPP loans will have a fixed interest rate of 1.00% and be due in 2 years.
You can also prepay the loan off earlier with no prepayment penalties or fees.
10. When do I need to start paying interest on my loan?
All payments are deferred for 6 months; however, interest will continue to accrue over this period.
11. What can I pay for using Paycheck Protection Program funds?
The program is designed to help businesses keep employees on payroll, the primary use of Paycheck Protection Program funds should be used to cover payroll-related expenses. "Qualified Expenses" (for the purpose of qualifying for loan forgiveness) include:
Payroll costs, including benefits;
Interest on mortgage obligations, incurred before February 15, 2020;
Rent, under lease agreements in force before February 15, 2020; and
Utilities, for which service began before February 15, 2020.
If small business owners use the PPP funds to cover qualified expenses over eight weeks, they may be eligible for loan forgiveness.
12. How is a Paycheck Protection Program loan forgiven?
Loans may qualify for forgiveness under some circumstances:
The loan is only used to cover qualified expenses.
You pay 100% of payroll dollars to employees during the eight weeks after the loan is approved.
The amount of the loan eligible for forgiveness will be reduced if:
You reduce the number of full-time workers you employ over eight weeks.
You reduce payroll costs by 25% or more.
Forgiveness is determined by the banks that grant the loans. Banks will have 60 days to approve or deny a business’s loan forgiveness request.
13. If my loan is forgiven, Is the amount forgiven considered taxable business income?
Normally, when a bank approves loan forgiveness, the borrower is taxed on the dollar amount of the loan, as if the loan was business income.
The CARES Act does not tax the borrower when the loan is forgiven.
14. How much of the loan will be forgiven?
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.
It is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. That means if over 25% of the loan is used on other eligible costs, the amount forgiven on such eligible costs (other than payroll) may be capped at 25%.
You will also owe money if you do not maintain your staff and payroll.
Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
Level of Payroll: 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.
Re-Hiring: 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.
15. What do I need to certify for the application?
You need to certify in good faith that:
Current economic uncertainty makes the loan necessary to support your ongoing operations.
The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
You have not and will not receive another loan under this program.
You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS.
And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.
You will also be required to initial next to the box at the bottom of the application that states:
I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
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