What is the Paycheck Protection Program (PPP)?
The Paycheck Protection Program makes loans of up to $10 million available to qualified small businesses. These loans are intended to be forgivable if the borrower maintains employees and otherwise complies with the CARES Act. At this time, Congress has appropriated $349 billion for this program with the possibility of additional funding at a later time. Loans are disbursed on a first-come-first-serve basis.
What types of businesses and entities are eligible for a PPP loan?
PPP loans are available to small businesses and entities that have been in operation since February 15, 2020 and have fewer than 500 employees. Loans are also available to non-profit organizations with fewer than 500 employees and individuals who operate as a sole proprietorship, an independent contractor or other eligible self-employed individual.
How is the loan size determined?
Loan size is calculated in different ways depending on the business’s situation, and all PPP loans are capped at $10 million.
For businesses that were in operation February 15, 2019 – June 30, 2019 the maximum loan amount is equal to 250 percent of the average monthly payroll costs during that time period. Businesses that employ seasonal workers can opt to choose March 1, 2019 as the time period start date.
For businesses that were not in operation between February 15, 2019 – June 30, 2019, the maximum loan amount is equal to 250 percent of the average monthly payroll costs between January 1, 2020 and February 29, 2020.
Are there restrictions on spending the funds of the PPP loan?
Yes. Businesses receiving PPP loans may only use the funds for the following costs:
What qualifies as payroll costs?
- Payroll costs
- 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
- 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 incurred before the covered period
Payroll costs consist of:
- Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for separation or dismissal
- Payment for the provision of employee health care coverage, including insurance premiums
- Payment of any retirement benefit
- Payment of State or local tax assessed on the compensation of employees
The CARES Act expressly excludes the following from the definition of payroll costs:
Do independent contractors count as employees for purposes of PPP loan calculations?
- Any compensation of an employee whose principal place of residence is outside the U.S.
- Compensation of an individual employee in excess of an annual salary of $100,000
- Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
- Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
No. Independent contractors have the ability to apply for a PPP loan on their own so they cannot be counted for purposes of an employer’s PPP loan calculation.
Are PPP loans forgiven in whole or in part?
Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest.
The amount of loan forgiveness depends, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the 8-week period following the date of the loan.
Does that mean I might have to pay back some or all of the loan amount plus interest?
You will owe money when your loan is due if you use the loan amount for anything other than qualifying payroll costs, mortgage interest, rent, and utilities payments over the 8-week period following the loan date.
Additionally, guidance from the Treasury Department suggests that spending more than 25 percent of the total loan amount on non-payroll costs will reduce the amount of forgiveness by the dollar amount spent over 25 percent.
You will also owe money if you do not maintain the required level of staff and payroll.
: Loan forgiveness will be reduced if the full-time employee headcount is reduced.
: Loan forgiveness will be reduced if salaries and wages are decreased by more than 25 percent for any employee that made less than $100,000 annualized in 2019.
: Businesses will have until June 30, 2020 to restore full-time employment and salary/wage levels for any changes made between February 15, 2020 and April 26, 2020.
How do I request forgiveness on my PPP loan?
You must apply through your lender for forgiveness on your loan. The request should include:
What happens after the forgiveness period?
- 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.
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.
Where can I find more information about PPP loans?
Few of us have ever lived through times as strange and challenging as what we face today. Fortunately, you don’t have to traverse these uncharted waters alone. Through a partnership with Achilles Group, you will have a team of HR experts ready and able to help you navigate your way to safe and profitable harbors.