Visit our COVID-19 Resource Center for information on the latest developments with the Paycheck Protection Program and other relief measures.
Last night, the U.S. Department of the Treasury released new and updated information on the Paycheck Protection Program (“PPP”), which is a significant part of the CARES Act, signed into law by President Trump on Friday, March 27, 2020. The PPP provides small businesses and other eligible entities with funds to pay up to 8-weeks of payroll costs including benefits. Funds can also be used to pay rent, utilities and interest on mortgage obligations incurred before February 15, 2020. This information can be accessed on the U.S. Treasury Department’s website here. The information provided on the website includes an overview of the program, information for lenders and borrowers, and an application form for prospective borrowers.
The guidance available with respect to this program has been very fluid and constantly developing since Friday, and there continues to be a considerable number of questions regarding the PPP that lenders and borrowers are waiting for additional guidance from the U.S. Small Business Administration to release and answer.
The following is a summary of the pertinent information provided last night in the documents released by the U.S. Treasury Department:
What can I use these loans for?
- Payroll costs, including benefits;
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020
Based on this guidance, it appears that interest on other debt obligations is no longer a qualified use of the PPP funds, as originally indicated in the original guidance released on this program. Payroll costs are capped at $100,000 on an annualized basis for each employee.
What counts as payroll costs?
Payroll costs include:
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation; and
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
How large can my loan be?
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.
For purposes of calculating “Average Monthly Payroll”, most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. For seasonal businesses, the Applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.
How much of my loan will be forgiven?
The loan amounts will be forgiven as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
- Employee and compensation levels are maintained.
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
You will also owe money if you do not maintain your staff and payroll.
- Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
In the guidance originally released about this program, there was no caveat indicating that at least 75% of the forgiven amount must have been used for payroll costs. This could impact forgiveness for businesses that pay high rent costs or utilize a considerable amount of utilities in their business. Please check for future updates on how this will be treated by lenders when determining forgiveness.
How can I request loan forgiveness?
You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
What is my interest rate?
0.5% fixed rate. Previously indicated that the maximum interest rate would be up to 4%
When is my loan due?
2 years. There are no prepayment penalties or fees. Previously indicated a maximum term of 10 years
When do I need to start paying interest on my loan?
All payments are deferred for 6 months; however interest will continue to accrue over this period. Previously indicated deferral on payments for first 6 months to 1-year
Do I need to pledge any collateral for these loans?
No collateral is required.
Do I need to personally guarantee this loan?
There is no personal guarantee requirement.
***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***
Who can apply?
All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietors, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click here for additional detail).
For this program, the SBA’s affiliation standards are waived for the following small businesses:
- in the hotel and food services industries (click here for NAIC code 72 to confirm); or
- that are franchises in the SBA’s Franchise Directory (click here to check); or
- that receive financial assistance from small business investment companies licensed by the SBA. Additional guidance may be released as appropriate.
When can I apply?
- Starting April 3, 2020, small businesses and sole proprietors can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
What do I need to apply?
You will need to complete the loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.
What other documents will I need to include in my application?
You will need to provide your lender with payroll documentation.
According to several lenders we have contacted, this can include IRS Form 941, Employer’s Quarterly Federal Tax Return for the most recent quarter, payroll costs from January 1, 2019 though February 29, 2020 as well as complete 2019 financial statements.
Where can I apply?
We recommend that you contact your current bank or financial institution to determine if they are accepting loan applications and what payroll documentation and financial information needs to be provided as part of the application process. You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union and 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. Visit www.sba.gov for a list of SBA lenders.
What do I need to certify?
As part of your application, you need to certify in good faith that:
- Current economic uncertainty makes the loan necessary to support your ongoing operations.
- The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
- You have not and will not receive another loan under this program.
- You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
- Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
- All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
- You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.
For additional information on the Paycheck Protection Program and other Federal, state and local relief measures, please visit our COVID-19 Resource Center at https://www.tsacpa.com/coronavirus-covid-19-resource-center/ and refer to the “Small Business Loans” section featured under our CARES Act section of the website. If you have any questions, please contact your Tronconi Segarra & Associates advisor or a member of our response team at