On Friday, March 27, Congress approved the CARES Act which includes the very important Paycheck Protection Program. This program will directly help small businesses (<500 employees) by providing cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loan amount is forgiven, as long as the loan funds are only used for permitted purposes (payroll costs, mortgage payments, lease obligations, interest on prior indebtedness, certain utilities, additional wages paid to tipped employees). The goal is to 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:
In general, eligible recipients are eligible to borrow the lesser of 2.5x Average Monthly Payroll Costs from 2019 or $10 million. Payroll costs are defined as:
Ineligible payroll costs can be defined as:
Please note that the covered period is defined as beginning on February 15,2020 and ending on June 30, 2020.
Loan proceeds can be utilized to pay payroll (including salaries and commissions or similar payments), group health payments, interest on a related mortgage, rent or lease payments, utilities, and interest on any debt incurred before February 15, 2020.
Any business-related interest payments on a mortgage or other debt obligation (excluding any prepayment or principal obligation) that was incurred before February 15, 2020.
Payments for business-related rent under a leasing agreement that was in force before February 15, 2020.
Payments for business related utilities (for the distribution of electricity, gas, water, transportation, telephone, or internet access) for which service began before February 15, 2020.
Applicants are expected to provide the following items to be considered for a loan under the Paycheck Protection Program:
Copies of payroll taxes reports filed with the IRS including quarterly 940, 941, 944, W-3, state income and unemployment tax filing reports for 2019 and the first quarter of 2020 (if applicable). See note above about eligible and ineligible payroll costs.
Payroll reports for the preceding 12-month period (ending with your most recent payroll date). Such reports can/should include:
Gross wages for each employee
Paid time off for each employee
Vacation pay for each employee
Family medical leave pay for each employee
State and local taxes assessed on compensation of employees
List of employees that had salaries in excess of $100,000 in 2019 and their corresponding salary
Documentation showing total of all health insurance premiums paid by the company for the immediately preceding 12-month period under the group health care plan.
Document the sum of all retirement plan funding that was paid by the company-do not include funding that came from the employees from their paycheck deferrals.
Include all employees and company owners
Include 401k plans, Simple IRAs, SEP IRAs
For non-existing customers, we fill need the standard legal entity documentation:
If the ownership structure is complex, an org chart would be most appreciated. We will most likely need entity docs at the next holding company level up as well. Please note that as this new program evolves, additional documents may be requested, if needed.
PPP lenders will be required to consider whether an applicant was in operation on February 15, 2020, and either had employees for whom it paid salaries and payroll taxes. Applicants will not be required to demonstrate repayment ability.
Applicants are expected to complete the following items to be considered for the Paycheck Protection Program:
Questions 5-7 of the application, the Certifications and the application are to be completed, initialed/signed and dated by each applicant who is an Individual as well as each 20% or greater owner of an Applicant Business. All parties below are considered owners of the Applicant Business as defined in 13 CFR 120.10, as well as “principals.”
Loans under the Paycheck Protection Program require no collateral or personal guarantee. Additionally, recipients of the Paycheck Protection Program are eligible for loan forgiveness of the indebtedness if they comply with the loan forgiveness requirements. Furthermore, the amount of loan forgiveness under the Paycheck Protection Program is non-taxable.
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
Payroll costs, including benefits (using the same definition of payroll costs used to determine loan eligibility)
Interest on the mortgage obligation incurred in the ordinary course of business incurred before February 15, 2020
Rent on a lease agreement in force before February 15, 2020 Payments on utilities, including electricity, gas, water, transportation, telephone and Internet access for service that began before February 15, 2020; and
One important addition in the Interim Final Rule is that forgiveness will only be allowed if you spend 75% or more of the loan funds on payroll costs. This means that only 25% of the loan funds can be used for rent, utilities, and mortgage interest.
Forgiven amounts will not be considered cancellation of indebtedness income for federal tax purposes.
The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees (i.e., failure to maintain the average number of full-time equivalent employees versus the period from either February 15, 2019, through June 30, 2019, or January 1, 2020, through February 29, 2020, as selected by the borrower) or a reduction of greater than 25% in wages paid to employees.
Specifically, the amount forgiven is reduced to the extent that compensation for any individual making less than $100,000 per year is reduced by more than 25 percent measured against the most recent full quarter. Reductions in the number of full-time employees or compensation occurring between February 15, 2020, and April 26, 2020 will be ignored if the action (layoff or salary reduction) is reversed by June 30, 2020.
Any amount not forgiven as described above will bear interest rate of one percent and mature no later than 2 years after the amount of forgiveness is applied. Payments on PPP loans will be deferred for 6 months.
Once the eight-week period from the date of your loan has ended, you can apply for forgiveness on your loan. In this application, you must include:
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.
All 501(c)(3) non-profits with 500 employees or fewer, or more if SBA’s size standards for the non-profit allows. Please visit https://www.sba.gov/size-standards/ to find out your non- profit’s SBA size standards by number of employees. For example, churches and museums with fewer than 500 employees are eligible. You will need the 6-digit North American Industry Classification Code for your business.
Yes, an entity is can have both a PPP and EIDL loan however, the proceeds from the EIDL loans cannot be used for covering payrolls costs.
Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with term of 2 years, at 1.0% interest. Principal and interest will continue to be deferred, for a total of 6 months after the initial disbursement of the loan. The clock does not start again.
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):
The lender must decide on the forgiveness request within sixty (60) days of submission.
Taxes imposed or withheld under chapters 21, 22, and 24 of the Internal Revenue Code of 1986 are to be excluded from payroll costs. These taxes are more commonly identified as FICA, Railroad Retirement Taxes, and Federal Income Taxes.
1.0% fixed rate.
All payments are deferred for 6 months; however, interest will continue to accrue over this period.
In 2 years
Yes. There are no prepayments penalties or fees.
No. We are waiving all the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (I.e., we are waiving the Credit Elsewhere requirement).
No. Collateral is not required for loans funded under the PPP.
No. There is no personal guarantee requirement for loans funded under the PPP. However, if loan proceeds are used for fraudulent purposes, the U.S. Government will pursue criminal charges against you.
Copies of payroll taxes reports filed with the IRS including quarterly 940, 941, 944, state income and unemployment tax filing reports for 2019 and the first quarter 2020 (if applicable).
We're committed to helping businesses navigate the many challenges of the coronavirus outbreak.