Information on the Recently Passed CARES Act Paycheck Protection Program.
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While there is much, much more contained in the CARES Act (Coronavirus, Relief and Economic Security Act), here is a brief summary rundown of one part – the Payroll Protection Program (PPP). The PPP is a modification of the SBA’s 7(a) program, in which the SBA partially guarantees loans made by banks to qualifying small businesses. The 7(a) program is modified in four ways: (1) to expand the businesses that are eligible for loans, (2) the loan terms to exclude the guarantee and collateral requirements, (3) allowing a portion of the loan to be forgiven if the borrower maintains payroll, (4) modifying the provision to incentivize banks to make the loan process more efficient and faster.
Who is Eligible?
Businesses and 501(c)(3) non-profits that:
Employ not more than
500 employees (full time, part time, or other basis) or
if applicable, the SBA size standard based on NAICS code
Other self-employed individuals
Financial Businesses, passive businesses, foreign businesses, gambling businesses and private clubs are NOT eligible for PPP loans
Who can make these loans?
Any lenders with delegated authority from the Small Business Administration (SBA). The lender will evaluate the eligibility of the borrower under the PPP through:
Businesses were in operation as of February 15, 2020 and
Had employees for whom the borrower paid salaries and payroll taxes OR paid independent contractors, as reported on Form 1099-Misc
How soon will the loans be available?
Currently, SBA is re-working their website to be able to take these loan applications. There’s obviously a lot of pressure on them to make a timely, simple, streamlined online process. Since the government is expecting to forgive most of the loans, there is much less underwriting needed. Thus, we believe the SBA and banks will have something in place a couple of weeks from the March 27, 2020 date when this became law.
When can I apply for the loan?
The law reads that you may apply for the loan now through June 30, 2020. Based on the above, we recommend you gather the following documents and have them ready:
2019 List of payroll paid by employee.
Proof that you were in business on 2/15/20.
There will be more but this information is not out yet.
For our payroll service clients, we have shifted two full-time staff accountants over to payroll services in order to expedite first quarter payroll tax returns. These can serve as proof in business as of February with employees. The other payroll calculations and information will be based on the date of the loan application.
How much can I borrow?
The maximum loan amount under the PPP is the lesser of:
The average total month payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made multiplied by 2.5*
PLUS, any outstanding amounts of any Emergency Injury Disaster Loan obtained on or after January 31, 2020, which is to be refinanced under this loan,
Payroll costs include the sum of payments of any compensation with respect to employees that is:
Salaries, wages, commissions, similar compensation but limited to $100K per employee.
Cash tips or equivalent
Paid leave for vacation, parental, family, medical or sick leave
Allowance for dismissal or separation
Payments for group health benefits including insurance premiums
Payment of retirement benefits
State/local tax assessed on employee compensation
Some payments to independent contractors
Payroll costs DO NOT include:
Compensation of an individual employee’s in excess of $100,000 as prorated from February 15, 2020 to June 30, 2020
Taxes withheld from employees and contractors
Compensation of an employee who resides outside the U.S.
Qualified sick leave of family leave wages under the recently passed Families First Act
What can the proceeds be used for?
Between February 15, 2020 and June 30, 2020, the business can use the proceeds for the following:
Payroll Costs as defined
Continuation of group health care benefits during periods of paid sick, medical, family leave, and insurance premiums
Interest on a mortgage obligation
Interest on debts incurred before February 15, 2020
Are there any fees, collateral, or guarantee requirements?
There are no fees, collateral, or personal guarantee requirements with PPP loans. The loan is non-recourse.
How is the loan forgiven?
After 60 days from the date of the loan, any repayment of the loan proceeds will be forgiven for the actual costs incurred of defined expenses during the 60-day period. As part of the forgiveness eligibility, a business cannot:
If loan proceeds are not used for defined expenses during the period, or a business reduces its workforce, loan proceeds will be partially forgiven. Employers are encouraged to rehire any employees who have already been laid off. Businesses that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the 60-day period and the payroll costs of such employees are eligible for forgiveness.
Documentation will have to be provided to the lender, and certifications will have to be made to establish any loan forgiveness. If this is not done timely, none of the proceeds will be forgiven.
Any loan amounts forgiven will not be considered taxable income to the recipient.
What happens if there is only partial loan forgiveness?
The SBA is providing complete payment deferment relief for borrowers between 6 months and 1 year. Thereafter, the balance of the loan not forgiven will be amortized over a 10-year period, with fixed interest and principal payments, with an interest rate not to exceed 4%
PAYCHECK PROTECTION PROGRAM (PPP) INFORMATION SHEET:
The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.
The loan amounts will be forgiven as long as:
The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and Employee and compensation levels are maintained.
Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
Loan payments will be deferred for 6 months
When can I apply?
Starting April 3, 2020, 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, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
Where can I apply? 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. 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. Visit www.sba.gov for a list of SBA lenders.
Who can apply?
All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional detail).
For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries (click HERE for NAICS code 72 to confirm); or (2) that are franchises in the SBA’s Franchise Directory (click HERE to check); or (3) that receive financial assistance from small business investment companies licensed by the SBA. Additional guidance may be released as appropriate.
What do I need to apply?
You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.
What other documents will I need to include in my application? You will need to provide your lender with payroll documentation.
Do I need to first look for other funds before applying to this program? No. We are waiving 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).
How long will this program last? Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.
How many loans can I take out under this program? Only one.
What can I use these loans for? You should use the proceeds from these loans on your:
Payroll costs, including benefits;
Interest on mortgage obligations, incurred before February 15, 2020;
Rent, under lease agreements in force before February 15, 2020; and
Utilities, for which service began before February 15, 2020.
What counts as payroll costs? Payroll costs include:
Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
State and local taxes assessed on compensation; and
For a sole proprietor or independent contractor: wages, commissions, income, or net
earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
How large can my loan be? Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.
How much of my loan will 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.
How can I request loan forgiveness? You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must 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 must make a decision on the forgiveness within 60 days.
Other Frequently Asked Questions
When is my loan due? In 2 years.
Can I pay my loan earlier than 2 years? Yes. There are no prepayment penalties or fees.
Do I need to pledge any collateral for these loans? No. No collateral is required.
Do I need to personally guarantee this loan? No. There is no personal guarantee requirement.***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***
What do I need to certify? As part of your application, you need to certify in good faith that:
Current economic uncertainty makes the loan necessary to support your ongoing operations.
The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
You have not and will not receive another loan under this program.
You will provide to the lender documentation that verifies the number of full-time
equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.
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