The U.S. Department of Treasury and SBA released the application and guidelines for the Paycheck Protection Program (PPP loan) in the evening of March 31, 2020. As we mentioned in an earlier blog, the Paycheck Protection Program is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and is designed for small businesses with 500 or fewer employees. The program has set aside $350 billion to fund federally guaranteed loans with the unique feature of being partially or fully forgiven, provided certain parameters are met.
The PPP is funding forgivable loans to small businesses to pay their employees during the COVID-19 crisis. We recommend contacting your lender and begin the application process immediately as there is a funding cap and lenders need time to process your loan. The PPP application form can be found here.
In addition, you may find The Department of Treasury's information sheet helpful, which can be found here.
With information changing daily, we are doing the best we can at answering your questions. So stay tuned. Following are some frequently asked questions regarding the Paycheck Protection Program.
On April 3rd, small businesses and sole proprietors can apply for and receive loans to cover their payroll and certain other expenses through existing SBA qualified lenders. On April 10th, Self-Employed and Independent Contractors can apply through existing SBA qualified lenders to cover these same expenses. There are other regulated lenders that will need to be approved and enrolled in the SBA program before they will be able to accept applications.
Applying for payroll support generally requires 12 months of prior payroll records. This may differ by bank. Some banks will request for company W2’s, 941’s or State Unemployment filings in order to see the employee level detail and establish your average monthly payroll. They will also analyze the employee wage level cap for individuals earning more than $100,000 on annualized basis. If there are seasonal impacts to your business or it is a new business, a different period or method may be used to establish the "average monthly payroll".
Loans amounts can be as large as 2.5 times your average monthly payroll costs from the last year. “Payroll costs” are capped at $100,000 of salary, wages, tips and commissions for each employee, but also include employee benefit costs, and state and local taxes assessed on compensation. The loan amount is subject to a $10 Million cap.
The loan can be used to cover payroll wages ($100,000 per employee cap), benefits, interest on mortgage obligations, rent and utilities. Rent, utilities and mortgage interest are for loan amounts and services established before February 15, 2020. In order to qualify for loan forgiveness, 75% of loan funds should be used for payroll costs (which includes benefits).
Forgiveness is applied for through your lender after the 8 weeks following disbursement of loan funds. Documents will be requested to verify number of full-time equivalent employees and pay rates, as well as payments made on other eligible expenses. Forgiveness will be reduced if you use more than 25% of the funds on payments other than payroll costs, if you decrease your full-time employee headcount or salaries and wages decrease by more than 25%. You have until June 30, 2020 to restore your full time employment and salary levels if any changes were made before April 26, 2020.
Loan portions that are not forgiven are given a 1% fixed interest rate. Payments are deferred for 6 months, though interest will accrue during this period. Loans are due in two years from date of disbursement. There are no prepayment penalties or fees.
You will only qualify for the Paycheck Protection Program and accompanying loan forgiveness once. If you received a SBA Economic Injury Disaster Loan (EIDL) in connection with COVID-19 it can be refinanced into the PPP Loan. If a you receive the EIDL $10,000 grant that has been added to the EIDL loan, both will be refinanced into the PPP Loan and the grant will be factored into the total amount forgiven. EIDL and PPP Funds cannot be used to cover the same expenses in the same period.
We understand that during these times there can be information overload, especially when the world is changing around us on a seemingly daily basis. MRPR stands ready to help you with tax planning, tax filing and obtaining sources of capital or financing.