On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law after the legislation was passed with bipartisan support in the U.S. Senate and House of Representatives. The CARES Act includes substantial relief and stimulus benefits for individuals and businesses impacted by the Coronavirus (“COVID-19”) crisis. The following is a summary of the Paycheck Protection Program (“PPP”) aimed to assist small businesses with paying payroll and other qualifying business expenses:
The program provides cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during the COVID-19 crisis. If employers maintain their payroll, the loans will be forgiven, which will help workers remain employed, as well as help affected small businesses and our economy rebound quicker after the crisis. PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
What types of businesses and entities are eligible for a PPP loan?
- Businesses and entities must have been in operation on February 15, 2020.
- Small business concerns, as well as any business concern, a 501(c)(3) nonprofit organization*, a 501(c)(19) veterans organization*, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees, or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by SBA, if higher.
- Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
- Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a NAICS code beginning with 72, for which the affiliation rules are waived.
* In general, 501(c)(3) and 501(c)(19) non-profits with 500 employees or fewer as most non-profit SBA size standards are based on employee count, not revenue.
Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company. Affiliation rules become important when SBA is deciding whether a business’s affiliations preclude them from being considered “small.” Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses.
What are the PPP loan term, interest rate and fees?
For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4%, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge).
What conditions are applicable to PPP loans?
A business applying for a PPP loan must make a good faith certification that the loan is necessary because of economic uncertainty caused by COVID-19 and will be applied to maintain payroll and make other required payments. The applicant must also certify that they are not receiving assistance and duplicative funds for the same uses from another SBA program. No collateral or personal guarantee is required.
How is the PPP loan size determined?
The maximum loan size is $10 million dollars. Depending on your business situation, the loan size will be determined based on your “average monthly payroll costs” in the following ways:
- If you were in business February 15, 2019 – June 30, 2019 your max loan is equal to 250% of your average monthly payroll costs during the one-year period before the date on which the loan is made. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date
- If you were not in business between February 15, 2019 – June 30, 2019, your max loan is equal to 250% of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
- If you took out an SBA Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
What costs are eligible for determining payroll?
- Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment required for the provisions of group health care benefits, including insurance premiums
- Payment of any retirement benefit
- Payment of State or local tax assessed on the compensation of employees
The following costs are not eligible for determining payroll:
- Employee/owner compensation over $100,000
- Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
- Compensation of employees whose principal place of residence is outside of the U.S.
- Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
What are allowable uses of PPP loan proceeds?
- Payroll costs (see above)
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Employee salaries, commissions, or similar compensations (see exclusions above)
- Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
- Rent (including rent under a lease agreement)
- Interest on any other debt obligations that were entered into before the covered period
How is the forgiveness amount calculated?
Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000):
- Payroll costs plus
- any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus
- any payment on any covered rent obligation plus
- any covered utility payment
How do I get forgiveness on my PPP loan?
You must apply through your lender for forgiveness on your loan. In this application, you must include:
- Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.
- Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
- Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.
The amount of forgiveness shall not exceed the principal balance of the covered loan.
The purpose of the Paycheck Protection Program is to help you retain your employees, at their current base pay. If you keep all of your employees, the entirety of the loan will be forgiven. If you still lay off employees, the forgiveness will be reduced by the percent decrease in the number of employees. If your total payroll expenses on workers making less than $100,000 annually decreases by more than 25%, loan forgiveness will be reduced by the same amount. If you have already laid off some employees, you can still be forgiven for the full amount of your payroll cost if you rehire your employees by June 30, 2020.
What happens after the forgiveness period?
Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan. The clock does not start again.
Can I get more than one PPP loan?
No, an entity is limited to one PPP loan. Each loan will be registered under a Taxpayer Identification Number at SBA to prevent multiple loans to the same entity.
Where should I go to get a PPP loan from?
All current SBA 7(a) lenders are eligible lenders for PPP. The Department of Treasury will also be in charge of authorizing new lenders, including non-bank lenders, to help meet the needs of small business owners.
How does the PPP loan work with SBA’s other existing loan programs?
Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers. If you take advantage of an emergency EIDL grant award of up to $10,000, that amount would be subtracted from the amount forgiven under PPP. Click on the above links to see Tronconi Segarra & Associates posts on SBA Economic Injury Disaster Loans and Emergency Grants.
Please call or email your Tronconi Segarra & Associates advisor or email our Response Team at to discuss the provisions of the Paycheck Protection Program or other COVID-19 relief measures being implemented by Federal, State and Local authorities.