What You Need to Know About the Paycheck Protection Program
Monday, April 6, 2020
The newly passed Paycheck Protection Program (PPP) is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The PPP is intended to provide small businesses with assistance for up to eight weeks cash flow via federally guaranteed loans.
There's a lot of information about the PPP out there, and we know it can also be confusing during this difficult time. To make things easier, we've pulled together some of the key information from the Treasury Department’s guidelines — the important things you need to know if you're considering the PPP. See the Treasury Department’s full guidelines (PDF).
Paycheck Protection Program
- Businesses with fewer than 500 employees can apply.
- Funds must be spent on mortgage interest payments, rent, utilities and employees to be forgivable under certain criteria.
- Loans are backed by the SBA, but you can apply through your own bank. Find a lender at LenderMatch.
- If you already have an SBA loan, up to six months of principal and interest may be delayed.
- Nonprofits and eligible independently owned franchises can also apply.
- Sole proprietors, self-employed people, independent contractors and gig workers are also eligible.
What Can I Use These Loans For?
You should use the proceeds from these loans on your:
- Payroll costs, including benefits
- Interest on mortgage obligations, incurred before February 15, 2020
- Rent, under lease agreements in force before February 15, 2020
- Utilities, for which service began before February 15, 2020
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
- 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
Payroll Tax Deferment
Eligible businesses can defer their payroll tax payments until 2021. They will still be due but there will be more time to recover financially before they must be paid.
How Much Can I Borrow?
The maximum you may borrow is 250% of average monthly payroll expenses, which is intended to cover 8 weeks of payroll expenses and may be used for making payments towards debt obligations.
What Does it Mean That the Loan is Forgiven?
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.
- Re-Hiring: 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.
What is the Interest Rate?
1.00% fixed rate.
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.
When is My Loan Due?
In 2 years.
What Other Documents Will I Need to Include in My Application?
Different lenders require different types of information, but a minimum, you will need to provide your lender with payroll documentation of your average monthly payroll for the past 12 months.
Can I Pay My Loan Earlier Than 2 years?
Yes. There are no prepayment penalties or fees.
What is the Application Deadline?
You have until June 30, 2020 to apply.