Here are some notes on the Payroll Protection Program (PPP);
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.
Lenders may begin processing loan applications as soon as April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020. While the program is open until June 30, 2020, the government is advising borrowers to appl as soon as possible given the loan cap on the program ($350 billion).
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. Remember: The 500-employee threshold includes all employees: full-time, part-time, and any other status.
Loan Details and Forgiveness
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). 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.
This loan has a maturity of 2 years and an interest rate of 1%.
If you wish to begin preparing your application, you can download a sample form to see the information that will be requested from you.
Borrowers will need to complete the Paycheck Protection Loan Application and payroll documentation.
Lenders will also ask you for a good faith certification that:
- The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
- The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
- Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
- From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)
Here is the calculation that the US Chamber of Commerce has published on their website.
Loans can be up to 2.5 times the borrower’s average monthly payroll costs, not to exceed $10 Million.
Maximum loan = 2.5 x Average total monthly payroll costs incurred during the year prior to the loan date.
- Payments deferred for six months
- 0.50% fixed interest rate
- Loan is due in two years
Prepared by the U.S. CHAMBER OF COMMERCE sum of INCLUDED payroll costs sum of EXCLUDED payroll costs PAYROLL COSTS
INCLUDED Payroll Cost:
- For Employers: The sum of payments of any compensation with respect to employees that is a:
- 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 the employee
EXCLUDED Payroll Cost:
- Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020
- Payroll taxes, railroad retirement taxes, and income taxes
- Any compensation of an employee whose principal place of residence is outside of the United States 4. Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act
Borrowers are eligible to have their loans forgiven.
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 (using the same definition of payroll costs used to determine loan eligibility)
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
- For borrowers with tipped employees, additional wages paid to those employees
NOTE: The government is now advising that because of high participation, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. The loan forgiveness cannot exceed the principal. How could the forgiveness be reduced? The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees
How could the forgiveness be reduced? The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Specifically:
Reduction based on reduction of number of employees and Reduction based on reduction in salaries
See link to US Chamber
Small Business Guide and Checklist
There is also a calculation on the website showing how the potential debt forgiveness can be reduced as well.
My contact information is below as well:
Michael D. Donahue, CPA
Donahue & Associates, LLC