Paycheck Protection Program

Help for small businesses

Small businesses have been hit exceptionally hard by the pandemic due to mandatory closures, supply-chain disruptions, and extra safety precautions required to reduce the spread of the coronavirus. The CARES Act allocated billions in relief efforts aimed at helping small businesses, including the creation of the Paycheck Protection Program (PPP) and expansions to the SBA’s Economic Injury Disaster Loan Program (EIDLP). All small businesses can visit the SBA website to learn more about PPP loan eligibility and for a directory of approved lenders.

The PPP Flexibility Act provides a boost to PPP borrowers

The act has amended the PPP to give borrowers more time to spend loan funds and still obtain 100% loan forgiveness.

Looser spending and forgiveness guidelines

The time to spend loan proceeds has been extended from 8 weeks to 24 weeks, or by December 31, 2020 should that occur first
Payroll costs may now make up just 60% or more of your approved loan amount, with the remaining 40% for non-payroll expenses. Originally, these figures were set at 75% and 25% respectively
New exceptions may allow borrowers to obtain full forgiveness even without fully restoring their workforce

Additional support measures

For loans approved on or after June 5, 2020, the loan repayment period has been extended from 2 years to 5 years for businesses that do not qualify for loan forgiveness
For loans approved prior to June 5, 2020, the maturity period remains 2 years, but may be extended by mutual agreement of the lender and the borrower
Borrowers may now opt to delay paying payroll taxes

Forgiveness for Paycheck Protection Program loans

Businesses that meet certain requirements will be eligible for 100% loan forgiveness.

All loan proceeds must be used exclusively for business-related purposes, including payroll maintenance, mortgage interest or lease payments, covered rent payments and covered utilities for the 24-week period after the loan is received.

Payroll costs must make up 60% or more of your approved loan amount; only 40% of the forgiven amount can be used for non-payroll expenses.

Keep documentation of the number of full-time equivalent employees on your payroll, as well as the dollar amounts of payroll costs, mortgage, rent and utility payments, and utilities. Employment records should include payroll dollars paid and the employment status of all full-time equivalent employees, as well as any individuals who had limited employment during the 24-week period after you received your funds.

In order to obtain loan forgiveness, you must submit a completed Paycheck Protection Program Loan Forgiveness Application from the U.S. Small Business Administration. The form and its instructions are designed to help guide you through a simplified process of proving your qualifications for loan forgiveness. Since Congress is periodically modifying forgiveness criteria, we strongly encourage you to visit the SBA site for the most up-to-date guidance.

A decision on loan forgiveness will be submitted to the SBA within 60 days of the receipt of your completed application.

Keep in mind: If your business lays off workers and doesn’t rehire them, reduces wages by more than 40% during the time it uses the loan, or uses the loan for expenses not defined in the bill, a portion of the loan will not be forgiven and will be expected to be repaid at a 1% interest rate over a 5-year period for all loans approved on or after June 5, 2020 (for loans approved earlier, the maturity period remains 2 years unless lender and borrower extend by mutual agreement).

Support from the SBA

Visit the SBA website for timely information and resources on PPP loan eligibility and forgiveness.

Answers to your questions

You should apply as soon as possible. There is a significant need and demand for these loans, which are available on a first-come, first-served basis only. The initial round of PPP funds was exhausted in just two weeks.

You’ll need payroll processor records or tax filings (IRS Form 941) covering the last 12 months, Form 1099-MISC for independent contractors, or income and expenses for a sole proprietorship. If none of the above are available, your documentation should demonstrate the qualifying payroll amount covering the last 12 months (e.g. bank records).

Employee payroll costs as defined by the PPP, include salary, wages, commissions and tips—up to $100,000 per employee. Also included are costs for vacation, parental, family, medical or sick leave, allowance for separation or dismissal; payments provided for provisions of group health care benefits, and payment of any retirement benefit. State and local taxes on compensation are included as well.

If you’re a sole proprietor or independent contractor, payroll costs include wages, commissions, income, or net earnings from self-employment—up to $100,000 on annualized basis for each employee.

Seasonal businesses are eligible for their average monthly payroll between February 15 and June 30, 2020—up to $100,000 per employee. New businesses are eligible for their average monthly payroll from January 1 to February 29, 2020.

Your loan will need to be repaid within two years, at a fixed interest rate of 1.00%. All payments will be deferred for 6 months, but interest will continue to accrue over that time period.

Another relief option: The Economic Injury Disaster Loan Program

The new funding measure also includes an additional $10 billion for the Economic Injury Disaster Loan (EIDL) program, which provides relief to small businesses and nonprofits in the form of emergency loans and grants.

Learn more about the program

Information to keep in mind

All loans are subject to other requirements and availability of funds under the SBA program. Funds are limited.
Program terms and conditions are subject to change by the Small Business Association (SBA) without notice. Published as of 6/10/2020.