Paycheck Protection Program (PPP) Loan Instructions and Tips
The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27 provides $349 billion in funding for the Small Business Administration (SBA) in an effort to provide assistance and relief to America’s small businesses struggling under the weight of COVID-19. The Act includes a paycheck protection provision for small businesses by providing additional funding to the SBA for specific areas of need and expanding the SBA’s 7(a) loan program.
Knowing what to expect before starting the loan process will help prevent unnecessary errors and rework. Completing the application process quickly and accurately will be key as there will be high demand and processing times will likely increase. We’ve put together the following summary of what business owners and individuals can expect when applying for the Paycheck Protection Program 7(a) loan.
Before you get started, you will want to:
Determine eligibility.
Those eligible for the paycheck protection program include small businesses, nonprofit organizations, veteran organizations, and tribal businesses with less than 500 total employees (including full-time, part-time, and any other status) in operation on February 15, 2020. For the hospitality and food industries where multiple locations may result in over 500 employees, an exception was made to allow for up to 500 employees per physical location. Sole proprietors, independent contractors, and eligible self-employed individuals are also covered under this provision. Limitations apply for those making more than $100,000.
Businesses: Gather your information. You will need:
Applying for your loan will require certain information. While each lender may have different information, below is a summary of some of the information you may be asked to provide.
1. Average monthly gross payroll. Many major payroll providers are providing reports. If you manage the payroll yourself, you will need to go through all of your payroll reports and calculate your monthly averages. You may use either the previous 12 months or calendar year 2019. Be sure to exclude compensation in excess of $100,000. For seasonal business, the applicant may average monthly payroll for the period between February 15, 2019 or March 1, 2019 and June 30, 2019. Any business that was not in business during that timeframe may use January 1, 2020 through February 29, 2020.
2. Average monthly employee headcount. You will use the same time periods referenced above.
3. Employer share of payroll taxes. These can often be found on your payroll reports and can also be found on your payroll tax returns.
4. Payments for group health care coverage for employees, including insurance premiums.
5. Employer contributions to defined benefit plans or defined contribution retirement plans.
6. Calculate your benefits to employees. This may include costs for employee vacation, parental, family, medical, and sick leave.
7. If you fall under the affiliation rules, be prepared to provide information related to your affiliated entities, including what is mentioned above and more. Under PPP, you may only receive one loan and your lender will likely ask for additional documentation on affiliated businesses regarding your eligibility.
Self-Employed: Gather Your Information
Applications are anticipated to open on April 10, 2020 for those who are self-employed. This includes sole proprietors without employees as well as independent contractors. While there hasn’t be a lot of information or guidance released for contractors and sole proprietors, below is information we anticipate you will want to have handy.
You will want to have your most recent (2019 ideally) tax return with a Schedule C. Your salary will most likely be determined by your net profit and this is reported through your schedule C. If you haven’t filed your tax return, you can also find your net profit on your Income Statement. If you don’t have current bookkeeping, contact us today and we can help you get caught up.
Your monthly average payroll expenses will be your annual net profit divided by 12. If your annual net profit is over $100,000, you may only claim up to $100,000.
Your lender will want proof of your income. Documentation that you may want to collect includes:
– Earning reports
– Pay stubs
– Invoices
– 1099s
Set Your Expectations.
– Application process and times vary by lender. While the program overall opened on April 3, 2020 not all banks were prepared to accept applications.
– Many lenders are requiring that you have a previous relationship with the lender in order to apply for the loan.
We are available to answer questions that will help you in your loan application process. Please contact our office for more information at (559) 431-5500.
CARES Act: Understanding the Paycheck Protection Provision (SBA 7a Loan) Program
The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27 provides $349 billion in funding for the Small Business Administration (SBA) in an effort to provide assistance and relief to America’s small businesses struggling under the weight of COVID-19. The Act included a paycheck protection provision for small businesses by providing additional funding to the SBA for specific areas of need and expanding the SBA’s 7(a) loan program.
What are the changes to the 7(a) Loan Program?
In an expansion of the SBA 7(a) loan program, the CARES Act allows the SBA to serve as temporary guarantor for 100% of 7(a) loans of up to $10 million for small businesses to maintain payrolls and pay off debts. Previously, the SBA could only serve as guarantor for 75% to 85% of 7(a) loans depending on the type of loan.
Who is eligible?
Those eligible for the paycheck protection program include small businesses, nonprofit organizations, veteran organizations, and tribal businesses with less than 500 total employees (including full-time, part-time, and any other status) in operation on February 15, 2020. For the hospitality and food industries where multiple locations may result in over 500 employees, an exception was made to allow for up to 500 employees per physical location.
Sole proprietors, independent contractors and eligible self-employed individuals are also covered under this provision. Limitations apply for those making more than $100,000.
How do I qualify?
Small businesses that qualify as a result of COVID-19 include those adversely affected by:
– Supply change disruptions
– Staffing challenges
– A decrease in gross receipts or customers
– Closure
Applicants must certify they have been adversely affected by COVID-19, that they intend to take out only one paycheck protection program loan, and that they will use it for the designated purposes.
How much can I receive?
Most eligible applicants should receive approximately two months-worth of payroll costs. Loans will be determined based on the average total monthly payments for payroll costs incurred in the 12 months preceding the date the loan is made and multiplied by 2.5. In the case of seasonal employers, the average will be based on the 12-week period beginning on February 15, 2019. For any employer who was not in business between February 19, 2019, and June 30, 2019, the calculations will be based on your average monthly payments for payroll between January 1, 2020, and February 29, 2020. The covered period for the loan is from February 15, 2020, ending June 30, 2020, and the maximum interest rate for these loans has been capped at 4%.
What can I use loan money for?
Eligible recipients may use the loans to cover payroll costs, costs related to the continuation of health care benefits, such as paid sick, medical and family leave, employee salaries and commissions, rent, utilities, interest, or other debt obligations.
Am I required to provide a personal guarantee?
No, a personal guarantee will not be required, and no collateral shall be required for the loan.
Do I need to pay the loan back?
As outlined in the CARES Act, loans will be forgiven if the business or organization maintains the same number of average employees and as long as wages are not reduced by more than 25% during the covered period, which is the eight-week period beginning with the origination of the loan. The amount forgiven cannot exceed the principal amount of the loan.
Should there be any reduction in loan forgiveness, the recipient will be required to pay back the loan and may owe interest as outlined in their agreement.
Am I eligible if I rehire employees?
Yes. If a business or organization has laid off or furloughed employees and rehires them, they may still be eligible for the loan depending on the timing. If the timing of rehire falls outside of the covered periods, the amount of loan forgiveness may be adjusted.
How do I apply?
To apply for the 7(a) loan program, you must contact a bank, not the SBA. The SBA lists their most active 7(a) lenders on their website. If you have a current relationship with one of these lenders, start there. The loan will be issued at the bank’s discretion.
Loan application details will be forthcoming, and applications will be available through the lending institutions.
Planning for and beginning the application process for the paycheck protection program through the SBA 7(a) loans has begun. The SBA has released an application that can be found here. For more current information on applications, check with your local lender or the SBA website.
For any questions on this loan program, please contact our office at (559) 431-5500.