Note: The Treasury Department, Small Business Administration and lenders continue to update and refine their procedures and administrative requirements. The information in this article is current to the best of our knowledge as of April 7th, 2020. However, details may change between the time this piece was written and the time you read this. We encourage all readers to visit the Small Business Association website at www.sba.gov to get the latest, most up-to-date information.
The Paycheck Protection Program (PPP) is an unprecedented Small Business Administration lending program designed to prevent or mitigate the effects of massive numbers of layoffs. It’s a forgivable loan of up to 2.5 times your average monthly payroll, and an interest rate of 1%. Amounts used to keep employees on the payroll or to pay rent, utilities and mortgage interest will be forgiven. So for most borrowers, some or all of that loan is going to turn into a grant.
If you’ve been deterred from applying for SBA assistance in the past, because of the long delays and endless paperwork required, don’t be deterred from the Payroll Protection Program. This one is different. If you’ve been affected by the coronavirus crisis, and you’re having trouble making payroll or even if you’ve already had to furlough or lay off workers, or you need to make a rent payment just to stay alive, you need to take a look at this program.
Use the proceeds primarily to make sure your employees are getting paid and keep the lights on at your business location (rent and utilities). If you use the money for these purposes, up to 100% of the loan can be forgiven.
Unlike almost every other federal program ever implemented, the Paycheck Protection Program is designed to be quick and dirty. You’ve heard of JFDI Accountants; This is JFDI lending. There’s no collateral or personal guarantee required. The application is just one page long, plus a signature page and an instructions page. You can fill it out in five minutes. Do that, round up your payroll documentation, and turn it in to any participating lender.
Note: The SBA itself does not lend money directly in the Paycheck Protection Program. To apply, you must go to an authorized Small Business Association lender.
Paycheck Protection Program loans are forgivable under the following circumstances:
To qualify for forgiveness, the rent or mortgage interest must have been incurred prior to February 15th, 2020.
Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. So you can’t throw your employees overboard and expect to get to keep a bunch of free money. It doesn’t work like that. It’s designed to incentivize businesses to pay employees, so they can survive while they’re staying home.
The good news is, of course, those employees will be there for you when you ramp operations back up.
If you’ve already let employees go or reduced their compensation, it’s not too late to qualify for a Payroll Protection Program Loan, and you can still qualify for forgiveness for payroll expenses. To qualify, you must:
Your eligibility for loan forgiveness will be reduced or eliminated if:
Loan forgiveness isn’t automatic. You must request it from your lender. Be prepared to submit documentation for your payroll and other qualifying expenses. See the section below on how to apply.
Submit your request to your lender or loan servicer. You must include the following information:
You must certify that these documents are true, and that you used the forgiveness amount requested to make payroll and make your eligible interest, rent and utility payments.
The lender must make a decision within 60 days of receiving your application.
Independent contractors and self-employed individuals can start applying for the Paycheck Protection Program on April 10th, 2020.
Qualifying payroll costs for these individuals may include:
Limitations apply for those earning $100k or more. Email us at WeCare@JDFIAccountants.com for details.
The Paycheck Protection Program is optimized for speed and simplicity. Underwriting is highly streamlined:
Generally, you can borrow a maximum of 2.5 times your average monthly payroll costs (including tips, benefits, taxes, etc.) Most businesses should use their average monthly payroll over the last 12 months. For new businesses, you should base your application on your average payroll for January and February 2020.
You should include all employees in your application, whether full-time, part-time, seasonal, on-call, temporary or per diem.
Loans under the Paycheck Protection Program are capped at $10 million.
The SBA will use your 2019 tax records and payroll documents (most recent 12 months) to calculate your payroll costs, which drives the overall loan amount.
There are some special calculations that apply to seasonal businesses, and businesses that were not in operation between February 15th and June 30th, 2019.
To calculate the amount your business is eligible to receive under the PPP, use one of these calculators:
Unlike the Economic Impact Disaster Loan Program, which is administered directly by the Small Business Administration, the Payroll Protection Program is administered by a network of SBA-approved banks and other lenders throughout the country. You can apply via any participating SBA-approved lender you choose.
Be prepared to submit the following documents in support of your Payroll Protection Plan application:
Availability: You can apply through June 30th, 2020. However, funding for the Payroll Protection Program is capped. The sooner you apply, the more likely it is that you will be able to get funded.
You cannot ‘double dip,’ using an Economic Injury Disaster Loan (EIDL) and a Payroll Protection Program loan for the same thing. You can use them both to fund payroll expenses, but they must be used to pay employees for different periods, for example.
If you took out an Economic Injury Disaster Loan (EIDL) between Feb. 15 and June 30, 2020, and used the proceeds for payroll, you are required to use any funds received to refinance that loan into a Payroll Protection Plan loan.
If you receive an emergency grant of $10,000 under the EIDL program, that amount will be subtracted from any PPP loan forgiveness.
JFDI Accountants is ready to help you navigate the requirements of applying for Small Business Administration relief.
You can email us at WeCare@JFDIAccountants.com for more information.