PAYROLL PROTECTION PROGRAM

Source: SBA – U.S. Small Business Administration

The CARES Act includes $350 billion for federally guaranteed loans for small businesses, sole proprietors, self-employed individuals and independent contractors affected by the COVID-19 crisis. These loans can be forgiven if the proceeds are spent on payroll, benefits, mortgage interest, rent and utilities. According to the latest guidance from the Treasury Department, 75% of the loan proceeds should be spent on payroll costs, as defined below.  

Who’s eligible?

• Small employers with 500 employees or fewer
• Other business concerns that meet the current Small Business Administration (SBA) size standards; 
• Sole proprietors, self-employed individuals and contractors; 
• Certain nonprofits, including 501(c)(3) organizations and 501(c)(19) veteran organizations, and tribal businesses with under 500 employees.
• Businesses in the accommodation and food service industries can apply on a per location basis if they have 500 employees or fewer per location. 

Who is making these loans? 

The SBA is guaranteeing the loans, but the loans will be made by SBA-approved lenders who participate in SBA’s 7(a) program. You can find local SBA-approved lenders through your local SBA district office. You should also contact your current financial institution; many banks and credit unions are approved SBA lenders. 

In addition, we partner with nonprofit lenders that also are offering these loans, including: 

• Community Reinvestment Fund: https://crfusa.com/sba-paycheck-protection-program-loans-from-crf/#pppform
• Lendistry: https://lendistry.com/

Some other financial technology companies specialize in SBA lending, including SmartBiz Loans

How can I qualify?

Lenders will ask you to certify that: 

• You will use the loan to retain workers and maintain payroll or make mortgage, lease, and utility payments
• You do not have a pending loan application that would be used for the same purposes, or that you don’t receive a duplicative loan from Feb. 15, 2020 through Dec. 31, 2020
• The current economic uncertainty makes the loan necessary to sustain operations and pay employees

SBA is waiving some requirements typical for 7(a) loans:

• No personal guarantee or collateral will be required.
• You will not need to certify that you tried and failed to obtain capital elsewhere.

When can I apply?

• For businesses with employees and sole proprietors: April 3
• For self-employed individuals and independent contractors: April 10

How much can I borrow?

There are a few different calculations, depending on how long you’ve had your business, whether your business is seasonal and a couple of other factors. The maximum loan size regardless is $10 million. The amount is tied to your payroll costs, which are defined in the following two questions:

• If you were in business in 2019: Your maximum loan is equal to 250 percent of your average monthly payroll costs in that year. For instance, if your average monthly payroll costs in 2019 were $100,000, your maximum loan amount is $250,000. 
• If your business employs seasonal workers: You can calculate your average monthly payroll from the period of Feb. 15, 2019-June 30, 2019 or March 1, 2019 to June 30, 2019. 
• If you were not in business in 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020. 
• For self-employed individuals and contractors: The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation, and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.

What payroll costs are factored into determining the loan amount?

• 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 for group health care benefits, including insurance premiums
• Payment for any retirement benefit
• Payment of state or local tax assessed on employees’ compensation 

What payroll costs are excluded from determining the loan amount?

• Employee/owner compensation over $100,000 (compensation up to $100,000 will be included in the calculation for high-income earners) 
• 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

What can I use the loan for?

• Approved payroll costs (as described 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 (not including any prepayment of or payment of principal on a mortgage obligation)
• Rent (including rent under a lease agreement)  
• Utilities 

How much of the loan can 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. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. 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. 

What are the terms of the loan?

For any amounts not forgiven: 

• Term: 2 years
• Interest rate: .5 percent
• Zero loan fees
• Zero prepayment fee 
• Payments deferred for first six months

What do I need to apply? 

Each lender will have its own application process. The SBA has provided a sample application here, but your lender may require additional information.

What if I am self-employed or an independent contractor?

You will need to submit documents to prove your income, including payroll tax filings,1099 forms, and income and expenses. 

Can I apply for an Economic Injury Disaster Loan and a Payroll Protection Program loan? 

Yes, you can apply to both programs. If you accept an EIDL, you can still receive assistance from the Payroll Protection Program. 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. The allowance/grant from the EIDL would be reduced from the forgivable portion of the PPP loan. Inform your PPP lender if you do accept an EIDL loan and advance.