The Ins and Outs of the Paycheck Protection Program

Due to the coronavirus, many small businesses have been affected financially, with difficulties in continuing to pay their employees and stay above water. As of April 22, 2020, the Senate approved additional funding of $349 billion for small employers that were not able to receive the loan under the first relief funding.

The U.S. Small Business Administration’s (SBA) Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

Small businesses can apply through any existing SBA Lender or through any federally insured depository institution, federally insured credit union, or participating Farm Credit System institution. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Lenders began processing loan applications as soon as April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020.

Who Can Apply

The following entities affected by coronavirus (COVID-19) may be eligible:

  • Any small business concern that meets SBA’s size standards (either the industry-based sized standard or the alternative size standard).
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans’ organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
    • 500 employees, or
    • That meets the SBA industry size standard if more than 500.
  • Any business with a NAICS Code that begins with 72 (accommodations and food services) that has more than one physical location and employs fewer than 500 per location
  • Sole proprietors, independent contractors, and self-employed persons

Loan Details and Forgiveness

  • The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. 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.
  • 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.
  • This loan has a maturity of 2 years and an interest rate of 1 percent.

FREQUENTLY ASKED QUESTIONS

Question: Do PPP loans cover paid sick leave?

Answer: Yes. PPP loans cover payroll costs, including costs for employee vacation and parental, family, medical, and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

Question: My small business is a seasonal business whose activity increases from April to June. Considering activity from that period would be a more accurate reflection of my business’s operations. My small business was not fully ramped up on February 15, 2020. Am I still eligible?

Answer: In evaluating a borrower’s eligibility, a lender may consider whether a seasonal borrower was in operation on February 15, 2020, or for an eight-week period between February 15, 2019, and June 30, 2019.

Question: What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?

Answer: In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019.

An applicant that was not in business from February 15, 2019, to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020. Borrowers may use their average employment over the same time periods to determine their number of employees for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs?

Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.

We want to help you and your small business. ARC’s client relations advisors are equipped with the most up-to-date information regarding financial relief during the coronavirus pandemic. Contact us today for more information.

SOURCE: IRS.GOV – SBA AND PPE AS OF 4/18/2020

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