Paycheck Protection Program Loans

Written by Dennis

Does your small business require financial help because of coronavirus pandemic? If so, Payment Protection Program is one of the most extensive government programs for small businesses.

On March 27, 2020, the U.S. government signed the Coronavirus Aid Relief, and Economic Security Act (CARES Act) into law. The Act creates the Paycheck Protection Program to offer potentially forgivable small business loans to help employers maintain payroll and stability in the workforce during this COVID-19 pandemic.

Read on to learn about Paycheck Protection Program:

What Are Paycheck Protection Program Loans?

The Paycheck Protection Program loan is designed to offer a direct incentive for U.S. small businesses to maintain their workers on the payroll during this COVID-19 pandemic. If employers retain their payroll, the loans will be forgiven, which would assist employees in keeping their jobs. Besides that, affected small businesses and our economy would be able to rise again after the crisis.

The PPP loan is run by the Small Business Act (SBA). The CARES Act allocates $349 billion to the SBA to provide loan to small businesses to guarantee 8 weeks of payroll. Small businesses and other qualifying entities will be able to apply if COVID-19 has affected them between 15 February 2020 and 30 June 2020. This initiative is legally enforceable to February 15, 2020, to help employees who may have already been laid off back on payrolls. Loans are valid until 30 June 2020.

What Type of Businesses is Eligible for a PPP loan?

All businesses including nonprofit organization, veterans organization, sole proprietors, self-employed individuals, independent contractors and Tribal business concern that qualify as a small business concern under the Small Business Act, 15 U.S.C. 632. Additionally, an employer with fewer than five hundred contractors whose primary residence is the US qualify for relief, although some limitations and size exclusions apply.

Businesses in specific industries may hire more than 500 employees if they meet the applicable Small Business Administration workforce size requirements for those industries. Size is calculated on an “affiliate” basis and extended to all businesses under ordinary jurisdiction, except for hospitality and restaurant companies (NAICS code beginning with 72), franchises, and recipients of SBIC investment. Businesses must have been in service on Feb. 15, 2020, and paying workers’ wages and payroll taxes.

Changes to underwriting or decision-making guidelines

The CARES Act transfers lending authority to current financial institutions that participate in the SBA to approve loans based on eligibility. Besides that, it allows the Department of Treasury to grant authority to entities not currently authorised to provide SBA loans.


How much funding will I get?

The maximum loan size is $10 million. Therefore, the maximum amount you can receive is your monthly average payroll cost in 2019, multiplied by 2.5. For seasonal businesses, the monthly average price will be determined in another way. The applicant will use twelve weeks period starting either Feb. 15, 2019, or March 1, 2019, and ending June 30, 2019.

If your business didn’t exist before June 30, 2019, the applicant might use average monthly payroll costs for the period Jan. 1, 2020 through Feb. 29, 2020.

What costs are eligible for payroll?

The total payments of any compensation for employees include:

  • Salary, wage, commission, or similar compensation
  • Payment of money tips or similar
  • Payment for vacation, family, parental, medical leave.
  • Payment of retirement benefit
  • Dismissal or separation allowance
  • Payment needed for the provisions of group health care benefits
  • Payment of local or state payroll taxes.

What costs are not eligible for payroll?

  • Owner or employee compensation over $100,000.
  • Compensation of workers whose primary place of residence is outside of the U.S.
  • Owner assesses portion of taxes (under IRC Chapter 21, 22 and 24).
  • Eligible sick and family leave wages for which a credit is allowed under Section 7001 and 7003 of the Families First Coronavirus Response Act.
  • Rent
  • Utilities

What are allowable uses of loan proceeds?

The proceeds of a Paycheck Protection Program loan can be used for:

  1. Payroll costs
  2. Worker salaries, commissions, or equivalent compensations
  3. Costs related to the maintaining of group health care benefits
  4. During periods of paid sick, medical, or family leave


How is loan forgiveness determined?

Forgiven amounts are those that are used for covering costs during the 8 week period after the applicant originates the loan. If the applicant applies to the SBA for forgiveness, the principal balance will be forgiven, and only incurred interest will be paid.

The sum forgiven is can reduce if the average number of FTE workers’ adjust during the coverage period. Loan forgiveness is possible if the employee reinstates the level of FTEs and wages for adjustments made between Feb. 15, 2020 and April 26, 2020.

What are the loan term, interest rate, and fees?

The maximum term is 2 years

Interest rate is 1%

The first payment is deferred for six months

There is no prepayment penalties or fees.

No collateral is required

There is no personal guarantee requirement

100% guarantee by SBA

How do I apply for a PPP loan?

The SBA does not lend you the money itself; they just “back” the loan the lender offers. As of April 3, sole proprietorships may apply. Independent contractors and self-employed persons can apply as from April 10. You are advised to apply early because this initiative has a funding limit. You have to send an application by June 30.

You will be asked to verify:

  • Present economic uncertainty makes the loan important to assist your continuing activities.
  • The funds may be used to attract employees and manage salaries, or to make payments for mortgages, rents and services.
  • Throughout this program, you will not obtain another loan.
  • Documentation confirming the number of full-time equivalent workers on the payroll and payroll amounts, covered mortgage interest payments, covered rent payments, and covered services for the 8 weeks after acquiring the loan.
  • You agree that the lender determines the amount of the qualifying loan using the tax documents you sent. You confirm that the tax records are the same as those you sent to the IRS.


Financial Documentation that Accompanies the Application

Each applicant must collect and present appropriate financial supporting documentation in a format which clearly shows how the applicant determined the average monthly payroll costs sent. They include:

Borrowers that are using the 2019 average payroll need to provide:

  1. 2019 Form W-3
  2. 2019 Form W-2
  3. 2019 Schedule K-1
  4. 2019 Form 940
  5. Documentation of employee benefits for 2019.
  6. Documentation of state and local taxes for 2019.

Borrowers that are using the seasonal approach need to provide:

  1. 2019 Form 940
  2. 2019 Form W-3
  3. 2019 Form W-2
  4. 2019 Schedule K-1
  5. 2019 Form 941
  6. Documentation of employee benefits for Jan. 1, 2019 to June 30, 2019.
  7. Documentation of state and local taxes for Jan. 1, 2019 to June 30, 2019.

New businesses need to provide the following:

  1. Form 941 for Jan. 1, 2020 to March 31, 2020.
  2. Payroll register for Jan. 1, 2020 to Feb. 29, 2020.
  3. Documentation of employee benefits.
  4. Documentation of state and local taxes.


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