Skip to main content

Paycheck Protection Program FAQ

Understanding the Paycheck Protection Program

What is the Paycheck Protection Program? 

The Paycheck Protection Program is a government program set up under the U.S. Small Business Administration (SBA) to aid small businesses and their employees through the COVID-19 crisis. It provides provisions for loans that under certain criteria may be forgiven. This means that a portion or all of the loan will be converted to a grant if the criteria is met.

Who can get these loans?

  • Federally guaranteed SBA loans are available to businesses with 500 or fewer employees (or less than the size standard for their primary NAICS code if that size standard is larger than 500), including corporations, independent contractors, partnerships, sole proprietorships, tribal businesses, veterans’ organizations, and certain nonprofit organizations.
  • Restaurant and hotel entities are eligible to apply the 500 or fewer employee test on the basis of each physical location. Special rules apply to hotel and restaurant businesses operating as franchises, and certain generally applicable affiliation rules are waived for hotel and restaurant franchises.
  • The size standards are tested on an affiliate basis—combined with all businesses under common control (50% ownership or contractual control)—counting on an aggregate basis toward the size test.
  • Faith-based organizations qualify on their own without church network, e.g., a single Catholic church, as well as independent churches.
  • Credit unions are excluded from applying for this loan.
  • The organization must have been in business as of February 15, 2020.

NOTE: In regard to the PPP, the size standard is based only on number of employees and not annual receipts.

What if I have more than 500 employees?

There are other programs in the works to help companies with more than 500 employees. Once there are more details released, we will make sure to keep you updated.

Can a cannabis-related business receive a loan?

While some states have legalized cannabis, the federal government does not recognize this legalization. Because of this, federal funds and relief programs (such as the PPP) are not available to businesses involved with cannabis.

Are 1099s considered employees?

1099s are included in the size count of 500 employees, but their payroll costs will not be included as a forgivable expense.

Do I have to prove that I have been negatively impacted to receive a loan? [updated 04/28/20]

​​​​​​​In good faith, you must attest that your business has been negatively affected by COVID-19 or that you foresee a noticeable negative impact in the next few months. You must make this certification taking into account your current business activity and your ability to access other sources of liquidity sufficient to support your ongoing operations in a manner that is not significantly detrimental to your business.

The SBA noted that a public company with substantial market value and access to capital markets is unlikely to be able to make the certification. The reasoning applies with equal force to private companies that also have substantial market value and access to capital.

If I use this program, am I excluded from using other government provided benefits?

If you decide to take a PPP loan, there are two important programs you will be excluded from.

  • The Employee Retention Credit. This is a credit that provides eligible employers with a refundable credit against payroll tax equal to 50% of the first $10,000 in wages per employee.  To qualify for this program, you must:
    • Have at least a partial suspension of operations due to government orders or a year-over-year reduction in gross receipts by at least 50%
    • If you have more than 100 full-time employees, only those who are not providing service are eligible.
  • The Employer Tax Deferral Program (SEC. 2202 of the CARES Act). In this program, you could postpone the due date for depositing your employer payroll taxes and certain self-employment taxes. Half would be due December 31. 2021, and the other half would be due December 31, 2022.

What are the terms for the loan?

  • No personal or collateral guarantee is required.
  • The eligible borrower does not have to certify that he or she is unable to obtain credit elsewhere.
  • Eligible borrowers must make a good faith certification of three conditions: (1) the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; (2) the funds will be used to retain workers and maintain payroll, lease, and utility payments; and (3) the business is not receiving duplicative funds for the same uses from another SBA program.
  • Maximum term of loan is 10 years.
  • Interest rate cannot exceed 4%, but interest payments are completely deferred for 1 year.
  • No prepayment penalty.
  • Under the CARES Act, the loan period for this program begins on February 15, 2020, and ends on December 31, 2020, during which time applications must be submitted. The program covers businesses with fewer than 500 employees (unless the covered industry’s SBA size standard allows more than 500 employees).

How do I get the loan forgiven?

Following a detailed application, the loan will be eligible for partial forgiveness in an amount (not to exceed the principal amount of the loan) equal to the sum of payroll costs; payroll support such as paid sick or medical leave, rent and utilities expenses; and interest payments on mortgages as long as any such lease, mortgage, or utility was in service prior to February 15, 2020 and, in each case, paid during the eight-week period commencing on the date of the loan.

Loans will be made by lenders that are participants in the SBA’s Section 7(a) program, and those lenders also will decide whether to accept a borrower’s application for forgiveness. Such a decision must be made within 60 days of receipt of the application for forgiveness. Not later than 90 days after the loan forgiveness amount has been agreed by the lender, the SBA is authorized to reimburse the lender directly for the principal amount of any forgiven debt plus interest accrued through the date of repayment.

The amount of any loan forgiveness will be reduced by any meaningful reductions in employee wages (in excess of 25% for any employee) or layoffs of employees during the covered period in accordance with the terms of the program.

Any loan amount not forgiven at the end of one year is carried forward as an ongoing loan with a maximum term of 10 years and a maximum interest rate of 4%.
Detailed accounting and complete and accurate recordkeeping will be vital to taking advantage of these provisions.

What expenses will be forgiven?

The borrower shall be eligible for loan forgiveness equal to the amount spent by the borrower during an eight-week period after the origination date (the date on which the loan is funded) on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. Rental payment under a lease in effect as of January 1, 2020, would be eligible for forgiveness while rental payment under a lease effective as of March 15, 2020, would not. Eligible payroll costs do not include compensation above $100,000.

There will be a separate application for forgiveness at the end of the eight-week period after the loan origination.

What can I use these loans for? 

You should use the proceeds from these loans on your:

  • Payroll costs, including benefits. This excludes 1099 employees.
  • Interest on mortgage obligations, incurred before February 15, 2020
  • Rent, under lease agreements in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020

NOTE:  Payroll must account for 75% of the loan. Only 25% can be spent on nonpayroll costs.  The other three categories are acceptable expenses but cannot total more than 25% of the loan.

What counts as payroll costs? 

Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee)
  • 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

How do I calculate my full-time equivalent employees?

This is still a gray area where we are waiting to receive guidance. The IRS may provide some insight. However, it is predicted that we will have more clarification on what constitutes a full-time employee by 4/26.

How do I apply for a loan?

  • It’s best to start with your current bank as long as it is approved to administer the program.

What documents should I have ready?

  • Payroll reports for 2019 and 2020 year to date showing the following by employee and/or officers:
    • Gross wages
    • Paid time off
    • Paid vacation
    • Pay for family medical leave
    • State and local taxes (form 940, 941, or 944)
    • 1099s for independent contractors (if applicable)
  • Completed 2019 tax return OR 2019 profit and loss report and balance sheet
  • Documentation Showing:
    • Funds received in the form of an economic injury loan since 1/31/20
    • Payments for group health care benefits, including premiums paid in 2019 and 2020 year to date
    • Payment of any retirement benefits paid in 2019 and 2020 year to date

Needed for verification of forgiveness amount:

    • Quarterly IRS forms 940, 941, or 944 for the following dates:
      • March 31, 2019, and June 30, 2019
      • March 31, 2020, and June 30, 2020
    • Documentation in the form of canceled checks, payment receipts, and bank statements showing payment of the following items from February 15, 2020, to June 30, 2020:;
      • Mortgage Interest
      • Rent payments
      • Utilities

Should I apply at more than one bank?

You can apply at more than one bank. However, once a bank approves the application, you must immediately cancel the others before anything is processed.

Caution: If every company did this, it would put a tremendous strain on the system and bog things down for everyone. It should be considered only for those companies that have a desperate need.

What if I don’t provide all the information needed and my application is incomplete?

If you do not complete your application by filling everything out, it likely will take much longer to process your loan. Automated intake forms will kick back incomplete applications. Once a processor has to step in by calling or contacting an applicant, the process will be delayed. So, be sure you have all your information ready.

What if I miscalculate my numbers?

Be sure to make your calculations before you submit your application, checking them for accuracy. Should you find a portion of the loan will not be forgiven, the cost amounts to a loan for a few years at a 1% interest rate, which is fairly low impact in the long run. To help in your calculations, please see our loan calculator.

NEW: Will SBA review individual PPP loan files? [Added 5/14/20]

Yes. In FAQ #31, the SBA reminded all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Additional guidance is below.

There will be a separate application for forgiveness at the end of the eight-week period after the loan origination.

A lot of concern remains regarding who in fact is eligible for PPP loans.  Some have thought about returning the money due to lack of clarity regarding eligibility. Regardless of the size of their PPP loan, we continue to recommend that clients document their circumstances and the impact of COVID-19 on their business and keep that documentation in their permanent record.  Also, it is still encouraged that they review their eligibility with their legal counsel.

The good news in Q #46:

  • PPP Loans less than $2 Million: A safe harbor is being instituted for all borrowers receiving less than $2 million. These companies “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”
  • PPP Loans $2 Million or more: No safe harbor, but during the loan review process, if its determined that the borrower was not eligible, the SBA will seek repayment of the loan and not grant forgiveness. If the loan is repaid, then the SBA will not pursue administrative enforcement or referral to other government agencies.

Related Posts

Close Menu