Read this if your company is seeking assistance under the PPP.
With additional funding for the PPP pending, we’re updating this blog post with more recent information.
This information is current as of April 21, 2020.
The Treasury Department has issued guidance and answers to Frequently Asked Questions that alters some of the original 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 1.0% interest (not 2 years and 0.5% as previously stated or 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. Loan amounts should be disbursed within 10 calendar days of being approved.
Important to note:
- Questions around size:
- 500 employees. The SBA has clarified that it measures employees consistent with the existing 7(a) loan program guidance. See CFR Section 121.106 for details.
- The SBA has also clarified that if a business meets both tests in the “alternative size standard”, it qualifies to participate in the program
- Maximum tangible net worth of the business is not more than $15 million.
- Average net income after Federal income taxes for the two full fiscal years before the date of application is not more than $5 million.
- If the existing SBA definition of a small business for your industry (found on SBA websites) has over 500 employees, your business may qualify if you meet that expanded definition.
- 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.”
- People may want to tap into available credit now. If they are granted a covered loan (PPP loan), they can refinance. Given anticipated demand, it may take time to get the PPP loan processed.
- Participation in PPP (Section 1102 and 1106 of the CARES Act) precludes participation in the Employee Retention Credit (Section 2301).
- The IRS clarified that companies may still defer Payment of Employer Payroll Taxes (Section 2302) even if participating in PPP until a decision on forgiveness is reached by your lender. This is a change from our prior understanding.
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. 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 your 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 your loan forgiveness under PPP, but receiving an EIDL does not preclude you from participating in the PPP.
From the Treasury: Small business PPP
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. More details at treasury.gov.
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.
When to apply
Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply.
How to apply
You can apply through any existing SBA 7(a) lender or any federally insured depository institution, federally insured credit union, or Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. All loans will have the same terms regardless of lender or borrower. Find a list of participating lenders and additional information and full terms at sba.gov.
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.
BerryDunn COVID-19 resources
We’re here to help. If you have questions about the PPP, contact a BerryDunn professional.