PAYCHECK PROTECTION PROGRAM (PPP) LOANS

The Paycheck Protection Program, part of the CARES Act, now has a final rule available.

Starting April 3 small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

Starting April 10 independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

As a part of this final rule, interest rate on these loans has been established at 1.0% for a term of 2 years.

The program would provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis. PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.

What types of businesses and entities are eligible for a PPP loan?

Answer:  

• Businesses and entities must have been in operation on February 15, 2020.

• Small business concerns, as well as any business concern, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees, or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by SBA, if higher.  

• Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.

• Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72, for which the affiliation rules are waived.

• Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company. 
 

QUESTION: What types of non-profits are eligible?

Answer: In general, 501(c)(3) and 501(c)(19) non-profits with 500 employees or fewer as most nonprofit SBA size standards are based on revenue, not employee number. 

 
QUESTION: How is the loan size determined?

Answer: Depending on your business’s situation, the loan size will be calculated in different ways (see below). The maximum loan size is always $10 million.   
 
• If you were in business February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date.  

• If you were not in business between February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.

• If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum. 


QUESTION: What costs are eligible for payroll?

Answer:

• Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)

• Payment for vacation, parental, family, medical, or sick leave

• Allowance for dismissal or separation

• Payment required for the provisions of group health care benefits, including insurance premiums

• Payment of any retirement benefit

• Payment of State or local tax assessed on the compensation of employees

 

QUESTION: What costs are not eligible for payroll?

Answer:

• Employee/owner compensation over $100,000

 • Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code

• Compensation of employees whose principal place of residence is outside of the U.S.

• Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act

 

QUESTION: What are allowable uses of loan proceeds?

Answer:

• Payroll costs (as noted above)

• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums

• Employee salaries, commissions, or similar compensations (see exclusions above)

• Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)

• Rent (including rent under a lease agreement)

• Utilities

• Interest on any other debt obligations that were incurred before the covered period  
 
QUESTION: What are the loan term, interest rate, and fees?  

Answer: For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4 percent, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge). 
 
QUESTION: How is the forgiveness amount calculated?

Answer: Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000):  
• Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus and any covered utility payment.  
 
QUESTION: How do I get forgiveness on my PPP loan?


 
QUESTION: What happens after the forgiveness period?

Answer: Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan. The clock does not start again.

 

QUESTION: Can I get more than one PPP loan?

Answer: No, an entity is limited to one PPP loan. Each loan will be registered under a Taxpayer Identification Number at SBA to prevent multiple loans to the same entity.  
 
QUESTION: Where should I go to get a PPP loan from?

Answer: All current SBA 7(a) lenders (see more about 7(a) here) are eligible lenders for PPP. The Department of Treasury will also be in charge of authorizing new lenders, including nonbank lenders, to help meet the needs of small business owners. 
 
QUESTION: How does the PPP loan coordinate with SBA’s existing loans?

Answer: Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers. QUESTION: How does the PPP loan work with the temporary Emergency Economic Injury Grants and the Small Business Debt Relief program? Answer: Emergency Economic Injury Grant and Economic Injury Disaster Loan (EIDL) recipients and those who receive loan payment relief through the Small Business Debt Relief Program may apply for and take out a PPP loan as long as there is no duplication in the uses of funds. 

Note:  These applications must be processed by approved lenders.  Please contact your financial institution; however, by understanding what information is needed, you can expedite the processes and make it easier on the lenders for the completion.

For additional help or to understand if you qualify, contact your attorney or accountant.

  2020 by Stacie Schmidt in Response To COVID-19