What is the Paycheck Protection Program?

The Paycheck Protection Program (PPP) is a key section within the recently passed Coronavirus Aid, Relief and Economic Security Act (CARES) Act that allocates $349 billion for small businesses (< 500 employees) loans to support payroll and certain other expenses. Loans are available for up to 2.5 times of your average monthly payroll during the year preceding the application, with a maximum loan of $10 million. If employers maintain their payroll and use loan funds for allowed expenses like payroll, rent, and utilities for the first 8 weeks after the loan is issued, the loan amount is forgiven. The PPP is retroactive to February 15, 2020.

Is my business eligible?

The following small businesses that were operational as of February 15, 2020, are eligible for PPP loans:

• a small business with fewer than 500 employees, regardless of revenue
• a small business that otherwise meets the SBA’s size requirements
• sole proprietors, independent contractors, and self-employed individuals who regularly carry on any trade or business, including those in the “gig economy”
• a hospitality or food service business (those with a NAICS code beginning with 72) if it has fewer than 500 employees per physical location
• a non-profit entity under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (Internal Revenue Code), so long as that entity has fewer than 500 employees
• a veterans organization under Section 501(c)(19) of the Internal Revenue Code that meets the SBA’s size requirements
• a tribal business entity that meets the SBA’s size requirements

• a hospitality or food service business classified under a NAICS code beginning with 72
• a business operating as a franchise that is an SBA assigned franchise identifier code
• any entity that receives financial assistance from a company licensed under Section 301 of the Small Business Investment Act of 1958, as amended

How much funding can I access?

The maximum loan you can access is 250% of your average monthly payroll during the year preceding the application, up to $10 million. Seasonal business expenses will be measured using a 12-week period beginning February 15, 2019, or March 1, 2019, whichever the seasonal employer chooses.

How can I use a PPP loan?

You can use the loan to fund payroll costs, employee salaries, costs related to the continuation of group healthcare benefits during paid leave (sick, family or medical), insurance premiums, mortgage interest payments, rent, utilities and interest on any other debt obligation incurred before February 15, 2020.

When can I apply?

• Starting April 3, 2020, small businesses and sole proprietorships can apply for 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.

What information do I need to provide to apply?

Most applicants will need:

• Borrower certification required by the SBA
• Any payroll filings and Form 1099-MISC reported to the IRS, and state income, payroll, and unemployment insurance filings
• Borrower loan application
• Good Faith Certification stating that the loan is necessary to support ongoing operations; funds will be used toward eligible expenses, and you’ve only applied for one loan under the program As the program evolves, additional documents may be requested.

Do I need to pledge any collateral for these loans?

No collateral is required.

Do I need to personally guarantee this loan?

No, there is no personal guarantee requirement. However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.

Do I need to first look for other funds before applying to this program?

No, the SBA is waiving the requirement that you try to obtain some or all of the loan funds from other sources (i.e., Credit Elsewhere requirement).

Can I get a PPP loan if I have other SBA loans?

Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers.

Can I also apply for an Economic Injury Disaster Loan (EIDL) under the act?

Yes. The act likewise expands access to SBA’s economic injury disaster loans (EIDL) program to businesses with fewer than 500 employees. The same affiliation issues described above apply. Eligible businesses that suffer substantial economic injury as a result of a disaster or emergency, which now includes COVID-19, can apply for a loan under this program between January 31, 2020, and December 31, 2020. No personal guarantee is required for EIDLs under $200,000, and the loan can be made solely upon the applicant’s credit score. Initial advances of up to $10,000 can be issued within three days and need not be repaid. The loan will bear a low rate of interest; however, unlike PPP 7(a) loans, the act does not provide for forgiveness for EIDLs. Businesses may receive both PPP loans and EIDLs, so long as both loans are not used for the same purpose or otherwise duplicative.

Can I get more than one PPP loan?

Each Taxpayer Identification Number is only eligible for one PPP loan.

How long will this program last?

Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a limited amount of funds available, and the program is first-come-first-served.

Will my PPP loan be forgiven?

Yes, the loan amounts will be forgiven as long as:

• The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
• Employee and compensation levels are maintained.

How much of my PPP can be forgiven?

The amount of your loan that is forgiven is equal to the amount you spend during the 8 weeks following loan origination toward eligible expenses, including:

• Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
• Interest on the mortgage obligation incurred in the ordinary course of business
• Rent on a leasing agreement
• Payments on utilities, including electricity, gas, water, transportation, telephone and Internet access for service that began before February 15, 2020
• Additional wages paid to tipped employees

Can the amount forgiven be reduced?

The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of more than 25% in wages paid to employees. Reductions in the number of employees or compensation occurring between February 15, 2020, and April 26, 2020, will generally be ignored if the action (layoff or salary reduction) is reversed by June 30, 2020.

How can I request loan forgiveness?

You can submit a request to the lender that is servicing the loan by providing:

• Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and state income, payroll and unemployment insurance filings
• Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities
• Certification that the amount that is being forgiven was used in accordance with the program’s guidelines for use

If my loan amount covers 2.5x my monthly payroll and other costs, but only eight weeks of those expenses are forgivable, will I owe the remainder back to the lender?

Yes, the act allows for maximum forgiveness of 8 weeks of approved costs. The remainder will be treated as a loan. Remember that the approved costs subject to forgiveness are broader than just payroll, and also include mortgage interest, rent, and utilities.

What is my interest rate?

Loans through PPP have a fixed interest rate of 1%.

When do I need to start paying interest on my loan?

All payments (principal, interest, and fees) are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due?

The loan is due in 2 years, but you can repay early without any prepayment penalties or fees.

What interest expenses are considered eligible?

Any business-related interest payments on a mortgage or other debt obligation (excluding any prepayment or principal obligation) that was incurred before February 15, 2020.

What rent expenses are considered eligible?

Payments for business-related rent under a leasing agreement that was in force before February 15, 2020.

What utility expenses are considered eligible?

Payments for business-related utilities (for the distribution of electricity, gas, water, transportation, telephone, or internet access) for which service began before February 15, 2020.

What counts as payroll costs?

Payroll costs include:

• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee) for employees whose principal place of residence is in the U.S.
• Employee benefits including costs for vacation, parental, family, medical, or sick leave allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit
• State and local taxes assessed on compensation
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

Are any payroll costs excluded?

Yes, the following payroll costs are excluded:

• Any compensation of an employee whose principal place of residence is outside of the United States
• The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary
• 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
• Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

Do independent contractors count as employees for purposes of PPP loan calculations?

No, 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.

What is the maximum recoverable salary for each employee?

For any employee whose salary is $100,000 or more, only $8,333 per month can be included in the calculation of average monthly payroll costs, in addition to that employee’s cost of health and retirement benefits and state and local taxes prorated for the covered period.

How can PPP loans be used?

In addition to the approved uses for a Section 7(a) loan made in the ordinary course, a PPP loan may, for the period from February 15, 2020, to June 30, 2020, be used for the following:

• payroll costs;
• insurance benefits;
• employee salaries, commissions, or similar compensations;
• mortgage payments
• rent payments;
• utilities;
• interest on existing debt; and
• as noted above, to repay or refinance an EIDL incurred by the borrower between January 31, 2020, and the date on which PPP loans become available.