Read this if your financial institution is providing funding under the PPP. This information is current as of April 6, 2020.
The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
The Treasury Department is encouraging people to apply ASAP because there is a funding cap.
When to accept applications?
Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply.
What underwriting is required?
In evaluating the eligibility of a borrower for a covered loan, a lender shall consider whether the borrower:
- was in operation on February 15, 2020.
- had employees for whom the borrower paid salaries and payroll taxes.
- paid independent contractors, as reported on a Form 1099-MISC.
Lenders are also required to follow applicable Bank Secrecy Act requirements. Refer to the SBA’s Paycheck Protection Program Information Sheet for Lenders and recent FAQs issued by the Treasury on April 6, 2020.
Loan provisions
The Treasury Department issued guidance on March 31, 2020, that alters some of the assumptions around PPP:
- At least 75% of the forgiven amount should be used for payroll (changed due to anticipated high demand for program)
- Repayment of non-forgiven amounts are now repaid over 2 years at 0.5% interest (not 10 years and 4% as in the CARES Act)
Although the “covered period” is February 15, 2020 to June 30, 2020, forgiveness of the loan is based on expenses (primarily payroll) during the eight-week period after the loan is received.
Regulatory capital requirements
With respect to the appropriate Federal banking agencies or the National Credit Union Administration Board applying capital requirements under their respective risk-based capital requirements, a covered loan shall receive a risk weight of zero percent.
Borrower certification
An eligible recipient applying for a covered loan shall make a good faith certification:
- that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
- acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
- that the eligible recipient does not have an application pending for a PPP loan for the same purpose and duplicative of amounts applied for or received under a covered loan; and
- during the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under the PPP for the same purpose and duplicative of amounts applied for or received under a covered loan.
What are considered payroll costs?
Payments of any compensation with respect to employees that is:
- Salary, wage, commission, or similar compensation
- Payment for vacation, parental, family, medical, or sick leave
- Payment required for the provisions of group health care benefits, including insurance premiums
- Payment of any retirement benefit
- Other qualified payroll costs under Sec. 1102 of the CARES Act
Payroll costs are limited to $100,000 per employee, as prorated for the covered period, and exclude qualified sick leave wages and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Important to note:
- Questions around 500 employees
We don’t know for certain how the 500 employees are counted. Other SBA programs use average headcount over the prior 12-month periods. Some companies are proceeding on that assumption. We are awaiting additional guidance from the SBA for confirmation. Certain industries have an expanded headcount. The list can be found on SBA websites and BerryDunn has a lookup tool to help. If you don’t know, please reach out to us. We’re here to help.
- The CARES Act states that loans taken from January 31, 2020, until “covered loans are made available may be refinanced as part of a covered loan.”
- Participation in PPP (Section 1102 and 1106 of the CARES Act) precludes participation in the Employee Retention Credit (Section 2301) Payment of Employer Payroll Taxes (Section 2302)
Fully forgiven
Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Must keep employees on the payroll—or rehire quickly
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
All small businesses eligible
Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors— are eligible. Businesses with more than 500 employees are eligible in certain industries.
The Paycheck Protection Program is implemented by the Small Business Administration with support from the Department of the Treasury. Lenders should also visit sba.gov or coronavirus.gov for more information.
Economic Injury Disaster Loans (EIDL)
EIDLs are available through the SBA and were expanded under section 1110 of the CARES Act. Eligible are businesses with 500 or fewer employees, including ESOPs, cooperatives, and others. Terms: Up to $2 million per loan. Up to 30 years to repay. Comes with an emergency advance (available within 3 days) of $10,000 that does not have to be repaid – even if the loan application is turned down. This $10,000 does not impact participation in other programs/sections of the CARES Act. Some portion of the EIDL may reduce loan forgiveness under PPP, but receiving an EIDL does not preclude the borrower from participating in the PPP.
BerryDunn COVID-19 resources
We’re here to help. If you have questions about the PPP, contact a BerryDunn professional.