How to Apply for the Paycheck Protection Program

Stay-at-home orders have resulted in many small businesses slowing down. Owners are cutting costs, laying off employees, and needing revenue. Luckily, the Small Business Administration is offering small businesses a forgivable loan of up to $10 million.

Paycheck Protection Program or PPP is part of the $2 trillion stimulus package. Specifically the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Of that amount, $349 billion are specifically allocated for the PPP, as Congress is attempting to act as soon as April 9th.

The process is fast and smooth with less documentation required and restrictions.

Who Qualifies for the PPP Loan?

A small business with less than 500 employees is eligible. Included are sole proprietorship, C corporations, S corporations, LLCs, independent contractors, self-employed workers, non-profits, and even tribal and veteran nonprofits.

How Do I Apply?

Local banks began accepting PPP loan applications from sole proprietorship and small businesses starting April 3. Self-employed individuals, independent contractors, and freelancers can apply April 10th. The program ends June 30th, but borrowers are suggested to apply as soon as possible.

Applications must be done through an SBA-approved lender, which includes credit unions and participating commercial banks.

Waivers are provided that would normally apply to SBA loans. That includes waivers on fees charged to borrowers and lenders. No collateral or personal guarantees are necessary.

How Long Does the Application Take?

The SBA estimated that the application will take about two hours and ten minutes. That is assuming that you have all the required paperwork. It could take a few days to gather all the paperwork.

Loan applications are evaluated by the SBA on the same day they’re received.

Basic Information Required

·      Business TIN

·      Average monthly payroll (Note, average monthly payroll x 2.5 = loan request amount). Payroll costs include salaries, wages, commissions, vacation, sick pay, health insurance, and tips (capped at $100,000 on annualized basis for each employee). If your average monthly payrolls costs in the last 12 months is $25,000, you can borrow up to $50,000.

·      Employee benefits including costs for vacation, parental, family, medical, or sick leave.

·      State and local taxes assessed on compensation

·      For sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100k on an annualized basis for each employee.

·      Purpose of the loan

Allowable uses of funds from Feb 15 until June 30, 2020

·      Payroll costs

·      Health care benefits

·      Interest on mortgages (not principal)

·      Rent (including rent under a lease agreement)

·      Utilities

·      Interest on any other debt obligation incurred before the covered period (Feb 15)

Loan Forgiveness

Money will be owed back if you use the loan for anything other than payroll costs, mortgage interest, rent, and utilities over the 8 week period. Small Business Association says that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you don’t maintain your staff and payroll.

Loan forgiveness will be reduced if:

·      Full-time employee headcount is decreased

·      Salaries and wages are decreased by more than 25% for any employee that made less than $100,000 annualized in 2019.

Any part of the loan not forgiven will carry a 1% interest rate that is due back within two years. However, payments for the first six months can be deferred and there is no pre-payment penalty.

Rehiring

You have until June 30, 2020 to restore full-time employment and salary levels for any changes made between February 15th and April 26th. Small Business Association uses a sliding scale to reduce the amount of businesses eligible for forgiveness. It depends on how many employees are retained. As long as business rehire laid off workers by June 30th, there is no penalty.

How to request loan forgiveness

Submit a request to the lender servicing your loan. Make sure to include documents that verify the number of full-time employees and pay rates, as well as payments on eligible mortgage, lease, and utility obligations. Keep in mind that the lender has to decide on the forgiveness within 60 days.

Borrowers who already have disaster assistance loans can defer payments through December 31st. This deferment is automatic and borrowers don’t have to do anything specific to qualify for it.

Form 940 for 2019: Employer’s Annual Federal Unemployment Tax Return (FUTA)

This tax return is used to report and pay unemployment taxes to the IRS. Any business with employees must report and pay unemployment taxes.

The Paycheck Protection Program is a great opportunity for small business owners to maintain their employees during this health crisis. Given that employers don’t lay off employees or cut wages, the loan can be forgiven. That makes it essentially a grant and will help everyone weather the storm.