What is the Paycheck Protection Program?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act established a program to help small businesses keep their workers employed in the midst of the coronavirus pandemic. This program titled, The Paycheck Protection Program, provides a direct incentive for small businesses to keep their workers on their payroll by providing 100% federally guaranteed loans to small businesses.
The loan may be 100% forgiven, if specific provisions are met. Meaning you won’t have to pay this loan back.
Paycheck Protection Program Additional Funding
President Donald Trump has signed a nearly $500 billion coronavirus bill on April 24 which includes an additional $320 billion for the Paycheck Protection Program to help small businesses.
Is there any money left in the Paycheck Protection Program?
The initial funds from the Paycheck Protection Program was exhausted in just 13 days. The funds for the second iteration is anticipated to be exhausted quickly. So follow up with a lender who is accepting applications for this program as soon as possible.
Who Got Approved for the first round of the Paycheck Protection Program?
According to the Small Business Administration 1.6 million applications were approved for $339 billion from the initial Paycheck Protection Program. That’s a loan average of $239,152. However some larger companies, such as Shake Shack and Ruth’s Chris Steakhouse, who received funding from this program have given the money back.
Is My Business Eligible for the Paycheck Protection Program?
Eligible small businesses include:
- Any small business with fewer than 500 employees without reference to gross revenues
- If your business is in an industry that has an employee-based size standard through SBA that is higher than 500 employees
- 501c3 and 501c19 non-profits with less than 500 employees
- Businesses in the Accommodation or Food Services industry on a per-location basis if the business does not have more than 50 employees at any single location
Your employee count is determined by the highest number of employees (full and part-time) at any period of time from February 15, 2020 until your funding date.
Other eligibility factors include:
- You have not applied for or currently receiving an SBA 7a loan
- Due to the uncertainty of the current economic conditions, the loan request is necessary to support your ongoing operations
How Much Can I Borrow?
The maximum loan amount is the lesser of 2.5 times your average monthly “payroll cost” for the past 12 months or $10 million.
Your payroll costs (which are capped at $100,000 for an individual employee) consist of the following:
- Salaries, wages, commissions, and similar compensation including medical or sick leave, vacation pay, and severance pay
- Group healthcare
- Retirement benefits
- State and local payroll taxes
- Compensation to a self-employed individual not exceeding $100k
Payroll costs DO NOT include the following:
- Federal payroll taxes
- Compensation of any employee whose primary residence is outside the U.S.
- Any qualified sick and family leave wages where a tax credit is allowed under the Families First Coronavirus Response Act
- Only the first $100k in compensation for an individual employee is included, any amount above the first $100k is not included. For example, compensation total of $100,000 in the past year would be calculated as:
$100,000/ 12 months = $8,333 per month x 2.5 times monthly average = $20,833 maximum eligibility for this sole employee.
How Can the Money be Used?
In order to qualify, the loan must be used for one or more of the following reasons:
- Payroll costs (as defined above)
- Leave payments (vacation, parental, family, medical, or sick leave) expect leave under the Families First Coronavirus Response Act where a payroll tax credit is received
- Utility payments such as electricity, gas, water, transportation, telephone, or internet
- Interest on mortgage, if property is owned by your business
- Interest on debt obligations which existed prior to February 15, 2020
Will the Loan be Forgiven?
If you are approved for the Paycheck Protection Program the eligible expenses covered by the loan may be 100 percent forgiven if your business maintains its payroll during the crisis or restore your payroll afterwards. And 75% of the loan amount must be used for payroll expenses.
Expenses eligible to be covered by the loan need to fall between an 8-week time period between Feb. 15, 2020 to June 30, 2020. The amount of the loan forgiveness will be calculated during this 8-week period following your loan funding date and can be equal to the amount spent on the following items:
- Payroll costs (as defined above)
- Mortgage interest, rent, utilities, provided that the services where in place prior to February 15, 2020
Your loan forgiveness cannot exceed the principal.
Will I need to pay back the loan?
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.
You will also owe money if you do not maintain your staff and payroll.
There are cases where you could receive partial forgiveness of your loan, if:
- You lay off employees, the forgiveness will be reduced by a percentage. This percentage is based on the number of employees laid off compared to the number of employees still on payroll.
- Your total payroll expenses on workers making less than $100,000 annually decreases by more than 25 percent, loan forgiveness will be reduced by the same amount.
- You have already laid off some employees, you can still be forgiven for the full amount of your payroll cost if you rehire those employees by June 30, 2020.
Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
Principal loan amounts not forgiven will turn into a 2-year loan at an interest rate of 1%. You will not have start making payments on your loan for 6 months, however interest will accrue during this time.
Loan Forgiveness Substantiation
During the 8-weeks following your loan funding date, you will need to maintain the following:
- Federal and State payroll tax filings
- Copies of detailed payroll reports for the 56-day period beginning on the loan funding date or through June 30, 2020, whichever is later, with data on employee hours, gross earnings, sick pay, vacation pay, and other paid time off
- Proof that health insurance premiums were paid under a group health plan, self-insured plan, or other plan
- Proof of contributions to a SIMPLE, SEP-IRA or Qualified Plan
- Proof that 75% of your PPP loan went to payroll expenses
How and when can I request loan forgiveness?
After your 8-week loan period or after June 30, 2020, whichever is sooner, you will submit a request to the lender servicing your loan.
The request will include documents that verifies the number of full-time equivalent employees (a full-time employee is considered 30 hours per week) and pay rates, payments on eligible mortgage, lease, and utility obligations. You will be asked to certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.
The lender is obligated to make a decision on the forgiveness within 60 days.
How Do I Apply for the Paycheck Protection Program?
You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.
SmallBusinessFunding.com is NOT accepting applications for the PPP.
Paycheck Protection Program Required Documentation
You will need to complete and submit the Paycheck Protection Program loan application along with the required documentation by June 30, 2020.
At minimum, the required documentation will be:
- Federal and state payroll tax filings for 2019 and the first quarter of 2020 (contact your payroll company as they may have this information readily available)
- Copies of detailed payroll reports for the past 12 months, containing data on employee gross earnings, sick pay, vacation pay and other paid time off
- Health insurance premiums paid by your company under a group health plan and payments made under a self-insured plan for the past 12 months
- Employer contributions to a SIMPLE, SEP-IRA or Qualified Plan for the previous 12 months
- Amounts paid to individual subcontractors, sole proprietors, and similar self-employed individuals for services performed during the previous 12 months.
Deadline to Apply
The deadline to apply for the Paycheck Protection Program is June 30, 2020. However, we encourage you to apply as soon as possible because there is a funding cap and lenders need time to process your loan.