GUIDELINES FOR THE PAYROLL PROTECTION PROGRAM

By Tommy Greer

The Payroll Protection Program, or PPP, was rolled out as part of the CARES Act recently signed into law. There are $350 billion dollars in funds available. Read on to determine guidelines for your business.

IS MY BUSINESS ELIGIBLE?

Eligible recipients include small business concerns, nonprofit organizations (IRC 501(c)(3)), veterans organization (IRC 501(c)(19)) if they have:

• Not more than 500 employees; or (if greater)
• Meet the applicable size standard in number of employees established by the SBA

Individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible (these individuals will be required to submit documentation substantiating such classification such as payroll tax filings, 1099-MISC and other information)

Business concerns with more than 1 physical location that employs not more than 500 employees per physical location of the business concern and that is assigned an NAICS code beginning with 72 at the time of disbursal shall be eligible.

WHAT ARE THE BORROWER REQUIREMENTS?

An eligible recipient must make a good faith certification stating:

• The economic conditions make it necessary to obtain a loan to support ongoing operations.
• The business will use the funds to retain workers and maintain mortgage, lease and utility payments.
• You have not and will not receive another loan under this program.

HOW DO I APPLY FOR THE PAYCHECK PROTECTION PROGRAM?

You can apply for a PPP loan at any lending institution approved to participate in the program through the existing SBA 7(a) lending program, as well as at any additional lenders approved by the U.S. Department of the Treasury. This may be the bank or credit union you already use; thousands of institutions, including community banks and credit unions, already provide such SBA loans. Click here to download the application.

You do not have to visit any government institution to apply for the program. Instead, you can call your bank or credit union or find SBA-approved lenders in your area through SBA’s online Lender Match tool. You can also call your local Small Business Development Center or Women’s Business Center for free assistance to connect you with lenders.

WHAT IS THE MAXIMUM LOAN AMOUNT MY BUSINESS COULD QUALIFY FOR?

The maximum amount of the loan is the lesser of:

• Sum of average total monthly payments by the applicant for “payroll costs” defined below incurred during the 1-year period before the date on which the loan is made(although application states for most this is for the year 2019) multiplied by 2.5 plus any outstanding principal balance of any EIDL loan previous issued after January 1, 2020 and ending on the date on which covered loans are made available OR
• $10,000,000

Additional information regarding the average monthly payment calculation:

• Seasonal employers will utilize the payroll costs incurred for the 12-week period beginning February 15, 2019 or at the election of the eligible recipient, March 1, 2019 and ending June 30, 2019
• If the eligible recipient was not in business during the period of February 15, 2019 and June 30, 2019, the recipient would use the average total monthly payments for payroll costs incurred during the period January 1, 2020 through February 29, 2020

WHAT IS INCLUDED IN ‘PAYROLL COSTS’?

Payroll costs will include any compensation with respect to employees, as follows:

• Salary, wage commission or similar compensation
• Payment of cash tip or equivalent
• Payment for vacation, parental, family medical or sick leave
• Allowance for dismissal or separation
• Payment required for group health care benefits, including insurance premiums
• Payment for any retirement benefits
• Payment for state or local tax assessed on the compensation
• Payments of any compensation to or income of a sole proprietor or owner that is wage, commission, income, net earnings from self-employment or similar that is not more than $100,000 in 1 year, as prorated for the covered period

Not to include the following:

• Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period
• Federal employment taxes imposed or withheld between February 15,2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
• For employers – contract or 1099 payments. Because independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.
• Compensation of an individual whose principal place of residence is outside the USA
• Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (PL 116-127) (“FFCRA”)
• Qualified family leave wages for which a credit is allowed under section 7003 of the FFCRA

WHAT CAN I USE ALLOCATED LOAN DOLLARS FOR?

• “Payroll costs” as defined above
• Payments of interest on any mortgage obligation. However, the payment cannot be used for prepayment of or payments for principal.
• Rent
• Utilities
• Interest on any other debt obligations that were incurred before the covered period.

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.

WOULD I BE ELIGIBLE FOR LOAN DEFERMENT ON PAYMENTS?

Lenders are required to provide complete payment deferment relief of covered loans for a period of six months.

WHAT ARE THE LIMITATIONS ON LOAN FORGIVENESS?

Below are the provisions relating to loan forgiveness on loans under the Paycheck Protection Program. Please note that that any reference to ‘covered period’ in this section means the 8-week period beginning on the date of the origination of a covered loan:

Eligible recipient of a Payroll Protection Program loan will be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the following:

• Payroll costs as defined above
• Payment of interest on any covered mortgage obligation – defined as indebtedness incurred in the ordinary course of business that is a liability of the borrower, a mortgage on real/personal property and was incurred before February 15, 2020
• Payment on any covered rent obligation – defined as under a leasing agreement in force before February 15, 2020
• Covered utility payments – defined as electricity, gas, water, transportation, telephone or internet access starting February 15, 2020

Limits on Forgiveness:

• Forgiveness not to exceed loan principal
• Reduction based on reduction in number of employees – average number of full-time equivalents (FTEs) for this calculation is determined by calculating the average number of FTE employees for each pay period falling in a month
• Amount of loan forgiveness shall be reduced by the quotient obtained by dividing
• Average full-time equivalent employees (FTEs) per month employed by the recipient during the covered period BY
• Either (at the election of the borrower)-
• Average number of FTEs per month employed during the period of February 15, 2019 to June 30, 2019 OR
• Average number of FTEs per month employed during the period of January 1, 2020 to February 29, 2020
• Additional provisions exist for seasonal employers
• Reduction relating to salary and wages – amount of loan forgiveness shall be reduced by the amount of any reduction in total salary or wages of any employee described below during the covered period that is in excess of 25% of the total salary or wages of the employee during the most recent full quarter which the employee was employed before the covered period
• Employees to be considered for this calculation is ANY employee who did not receive, during a single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.
• Additional provisions exist that employers with tipped workers may receive forgiveness for additional wages paid to those employees
• Loan forgiveness calculation will be determined without regard to reduction in FTEs from February 15, 2020, to 30 days after the enactment of CARES Act if, by June 30, 2020, an eligible employer has eliminated the reduction in salary or wages of those employees
• Loan forgiveness shall be determined without regard to reductions above in the number of FTEs and a reduction in the salary of 1 or more employees during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, IF the employer rectifies these reductions not later than June 30, 2020

Eligible recipient seeking loan forgiveness will need to submit proof to lender supporting calculations for the forgiveness amount and certify amounts were spent on appropriate items



OTHER LOAN DETAILS:

1. Interest rate is 1% with loan paid over 2 years
2. Administration fees are waived;
3. There is no requirement that the small business concern demonstrate that it is unable to obtain credit elsewhere;
4. No personal guarantee required;
5. No prepayment penalty;
6. All payments are deferred for 6 months; however, interest will continue to accrue over this period;
7. Loan Forgiveness is Nontaxable

If you have questions regarding obtaining loans or grants through the Paycheck Protection Program or have any other concerns or issues related to the COVID-19 pandemic, please get in touch with your BCS contact today.