This document was prepared based on information available on March 30, 2020 and was updated on April 2, 2020 from information available on the SBA website.
On March 27, the president signed into law the CARES Act to provide relief to taxpayers and businesses facing hardship due to COVID-19. This legislation includes the Paycheck Protection Program (PPP), which provides cash-flow assistance through federally guaranteed loans to employers who maintain their payroll during the coronavirus pandemic. A portion of eligible loans can also be forgiven and the loan can be deferred. Small businesses and other eligible entities will be able to apply if they were negatively impacted by COVID-19 between February 15 and June 30, 2020.
Aronson has compiled this FAQ document to help our clients and friends of the firm understand the PPP, as described in the CARES Act. As further details emerge, we will continue to update this document.
When can businesses apply for the PPP?
- The SBA has indicated that small businesses and sole proprietorships can begin applying on April 3, 2020.
- The SBA has indicated that independent contractors and self-employed individuals can apply starting April 10, 2020.
- Note, banks who decide to participate in the program will have their own application process.
- The last day to apply is June 30, 2020.
Do I apply for a loan under the PPP with the SBA or with a bank?
- The Treasury department released the application on April 2. It is available for download here.
- PPP loan applications will be submitted to lenders, not to the SBA.
- The SBA released this find eligible lenders web page late on 4/2 so businesses could find a lender in their area.
Who may be eligible?
- You might be eligible for this loan if you were in business as of February 15, 2020, were impacted negatively by COVID-19, and paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.
- You are also eligible for a PPP loan if you are an individual who operates under a sole proprietorship, or as an independent contractor, or are an eligible self-employed individual. You must have been in operation on February 15, 2020.
- You must have no more than 500 employees or comply with the SBA size standard for employees in the industry in which the borrow operates by NAICS Code.
- SBA NAICS Code listing
- Employee count exceptions are made for businesses with a NAICS code beginning with 72.
How much does it cost to apply for this loan?
- Fees will not be collected by the loan administrator between February 15, 2020 and ending on June 30, 2020.
What types of entities can apply?
- Small business concerns
- Nonprofit organizations
- A “nonprofit organization” is defined as an organization described in section 501(c)(3) of the Internal Revenue Code of 1986 and that is exempt from taxation under section 501(a) of such code.
- Veterans organization
- Individuals who operate as sole proprietors or independent contractors
- Eligible self-employed individuals
- Tribal small business
What documents should I prepare?
- SBA Form 2483 (Paycheck Protection Program Application Form)
- Evidence supporting the calculation of your average monthly payroll costs (e.g. Form 940, Form 941, Payroll Register)
- Evidence indicating that the company paid salaries and payroll taxes on or around February 15, 2020
- Form 1099-Misc or income and expenses from a sole proprietorship (for independent contractors/sole proprietorships)
Are there guarantees or collateral requirements?
- There are no personal guarantees or collateral required between February 15, 2020 and June 30, 2020.
How large of a loan do I qualify for?
- The maximum PPP loan amount is the lesser of (i) $10,000,000 or (ii) an amount determined using a payroll-based formula. The payroll-based formula is: (i) Average Monthly Payroll; times (ii) a factor of 2.5; plus (iii) an adjustment for existing EIDL balances.
- For purposes of the Average Monthly Payroll determination, payroll costs generally include compensation and certain benefits paid to employees over a 12-month period. Certain exclusions apply, including the “compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary.”
- Note: There is specific guidance for seasonal businesses or businesses not in business during the period beginning on February 15, 2020 and ending on June 30, 2020.
What costs can be included when determining payroll costs?
- Compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation
- Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for separation or dismissal
- Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement (employer portion)
- Payment of state and local taxes assessed on compensation of employees
- For an independent contractor or sole proprietor loan applicant: wage, commissions, income, or net earnings from self-employment or similar compensation
Which employee classes can be considered when determining payroll costs?
- Full-time and part-time employees are eligible to be included in the payroll costs.
What costs are not eligible payroll costs?
- The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period beginning on February 15, 2020 and ending on June 30, 2020.
- Taxes imposed or withheld under FICA (Social Security and Medicare), Railroad Retirement Act, and IRC Chapter 24 (income tax at source).
- Any compensation of an employee whose principal place of residence is outside the United States.
- Qualified sick leave or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.
What can I use the loan for?
- Payroll costs
- Costs related to the continuation of group health care benefits during periods
- Costs related to paid sick, medical, or family leave and insurance premiums
- Employee salaries, commission, or similar compensation
- Payments of interest on any mortgage obligation (excludes prepayment)
- Interest on any other debt obligation that were incurred before the period.
Are there other qualifiers required when applying for this loan?
- Yes. You will need to certify in good faith that (among other things):
- Current economic uncertainty makes the loan request necessary to support the ongoing operations.
- The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.
- A complete list of questions, authorizations, and certifications is contained on the Paycheck Protection Program Borrower Application Form. Borrowers should familiarize themselves with these questions, authorizations, and certifications before submitting their application.
I need help stretching my working capital. Am I able to defer payment on this debt facility?
- You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment.
I’ve heard the PPP forgives a portion of my debt if I am granted a loan under this program. Is that true?
- Recipients of loans under the Paycheck Protection Program are eligible for forgiveness of indebtedness on the loan.
How do I determine how much of my loan can be forgiven?
- The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan.
- Not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs.
- As of April 2, 2020 the SBA stated additional guidance on loan forgiveness will be issued.
What do I need to provide to my lender to be considered for loan forgiveness?
- Payroll documentation including:
- Evidence verifying the number of full time equivalent employees on payroll.
- Pay rates by employee including payroll tax filings reported to the IRS.
- State income, payroll, and unemployment insurance filings.
- Mortgage obligation, lease obligation, and utility payment evidence including:
- Documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments (documentation including cancelled checks, payment receipts, transcripts of accounts, or other)
- The following certifications need to be made by the entity:
- The documentation presented is true and correct.
- The amount for which forgiveness is requested was used to retain employees, make interest payments on a mortgage obligation, make payments on a rent obligation, or make utility payments.
- Any other documentation the administrator determines is necessary.
When will I know if my loan is forgiven?
- The lender will issue a decision on loan forgiveness within 60 days after receiving an application for loan forgiveness.
Can a forgiven loan be considered taxable?
- Any amount of loan forgiven as part of the PPP is excluded from gross income, and as such, is not taxable.
If I would like to make a prepayment on this loan, is there a penalty?
- Notwithstanding any other provision of law, there is no prepayment penalty for any payment made on a covered loan.
How much funding has been provided to this program?
What is the interest rate on this loan?
- The interest rate will be 100 basis points or one percent.
What is the maturity of the loan?
- Two years
Our team will continue to monitor this situation and keep you informed about any relevant updates regarding the Paycheck Protect Program (PPP). If you have additional questions or concerns, please contact Kyle McQuighan at 240.364.2644. For help guiding your business through the coronavirus outbreak, visit our COVID-19 resource hub.