Obtaining the Paycheck Protection Program Loan

Obtaining the Paycheck Protection Program Loan

As of April 3, 2020, only a few SBA-approved lenders have begun accepting online applications for loans under the Paycheck Protection Program (PPP). Most banks are awaiting further guidance from the government, and we anticipate that more lenders will begin participating during the week of April 6th. The program is part of the federal government’s most recent coronavirus relief initiative and is intended to cover payroll and operating expenses between February 15, 2020, and June 30, 2020, for businesses with 500 or fewer employees.

Loans will be based on the borrower’s payroll costs, with per-employee salaries capped at $100,000. Loans will be forgiven for firms that use at least 75 % of the funding to protect 2019 employment and wage levels. Certain retroactive provisions are designed to encourage the reinstatement of reduced wages and rehiring of employees who have already been furloughed.

First Steps

Apply as soon as your bank has its online application available. While applications will be accepted through June 30, 2020, overall funding is capped, and it’s anticipated that there will be great demand.

Collect the following information (more may be required):
  • 2019 IRS Quarterly 940, 941 or 944 payroll tax reports.
  • Last 12 months of payroll reports beginning with your last payroll date. Reports should include:
  1. gross wages for each employee, including officer(s) if paid W-2 wages,
  2. family medical leave pay for each employee,
  3. state and local taxes assessed on payroll, for example, SUI,
  4. health insurance premiums paid by the company owner(s) under a group health plan,
  5. retirement plan funding that was paid by the company owner(s) (do not include funding that came from employees out of their paycheck deferrals),
  6. 1099s for 2019 for independent contractors who would otherwise be employees of your business.

When to Apply

Applications will be accepted by a few SBA lenders beginning on:

  1. April 3, 2020, for small businesses and nonprofits.
  2. April 10, 2020, for sole proprietors, independent contractors and self-employed individuals.

While lenders will operate in accordance with SBA guidelines, they will use their own processes to approve and disburse funds.

Other regulated lenders will be available to participate upon being approved for the program.

Calculating the Loan

The maximum loan is the LESSER of $10,000,000 or the following:

  • 2.5 times the average payroll costs (up to a maximum of $100,000 per employee) for 12 months prior to the loan date. Payroll is defined as salary, wage, commissions and similar compensation. It also includes severance pay, health insurance premiums and other group healthcare benefits, retirement pay, and state and local tax on employee compensation. Do not include sick leave wages for which a tax credit is allowed under the Families First Coronavirus Response Act.

PLUS

  • the outstanding balance of an Emergency Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and the date of the PPP loan. Different dates apply for seasonal businesses.

What Lenders Will Be Looking For

Lenders will be seeking a “good faith certification” from applicants that:

  • the loan is needed to support ongoing operations, given the current economic uncertainty.
  • funds will be used to retain workers, maintain payroll, and cover mortgage, lease and utility expenses.
  • the borrower has neither applied for nor received a loan for the same amount and purpose as the PPP loan.

Terms of the Loan

Loan applications will be accepted through June 30, 2020. There is a limit of one loan per business entity and the following terms apply to all applicants:

  • Fully backed by SBA. No collateral or personal guarantees required.
  • No requirement to have previously applied for such funds from other sources.
  • No borrower or lender fees payable to SBA.
  • First payment deferred for 6 months.
  • Payback within 2 years, at fixed interest of 1%, with no prepayment penalty.
  • Forgiveness based on protection of 2019 employment and wage levels.
  • Forgiveness will be based on use of the funds during an 8-week period following the loan’s origination date. 75% percent of the loan must be used to cover payroll costs.

Borrowers must certify that they have not received loans that duplicate the purpose and amount of the PPP loan for which they are applying. However, there is an opportunity to fold emergency loans granted between January 31, 2020, and the start of PPP into a new loan.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. H V & Partners recommends that you consult professional tax, legal and accounting advisors before engaging in any tax, legal and accounting action or transaction.

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