April 28, 2020

Paycheck Protection Program for Small Businesses FAQs

Paycheck Protection Program for Small Businesses Updated: 04.26.2020 The SBA and Treasury Department published updates to their Payroll Protection Program on 4-26-2020. The following is a sampling of FAQs that serve as a supplement to the Paycheck Protection Program (PPP) Loan. Below are their most recent updates and links to further information.

FAQ # 1 Question: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?
Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:
· employer contributions to defined-benefit or defined-contribution retirement plans;
· payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
· payment of state and local taxes assessed on compensation of employees.

FAQ # 2 Question: Do PPP loans cover paid sick leave?
Answer: Yes. PPP loans covers payroll costs, including costs for employee vacation, 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).

FAQ # 3 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).

FAQ # 4 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.

FAQ # 5 Question: The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin?
Answer: The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.

FAQ # 6 Question: To determine borrower eligibility under the 500-employee or other applicable threshold established by the CARES Act, must a borrower count all employees or only full-time equivalent employees?
Answer: For purposes of loan eligibility, the CARES Act defines the term employee to include “individuals employed on a full-time, part-time, or other basis.” A borrower must therefore calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees.

By contrast, for purposes of loan forgiveness, the CARES Act uses the standard of “fulltime equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.

Additional guidance is expected.

Paycheck Protection Program Loans (PPP) Frequently Asked Questions – updated April 26, 2020:
https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

Paycheck Protection Program information sheet (Borrowers):
https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf

Original Post – as of 4/1/2020

As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Paycheck Protection Program (PPP) provides $349 billion of loan funds to support small businesses and other eligible entities impacted by COVID-19 to pay workers, interest on mortgage obligations, rent, insurance, paid sick or medical leave, utilities, and payroll related costs incurred from February 15, 2020 – June 30, 2020. Below is paycheck protection program for small businesses FAQ’s we are passing along to you from the NY State Development Corp and is current as of April 1, 2020. You can visit the NYSDC for updates and further guidance at https://esd.ny.gov/ as it becomes available. We are not accountants nor lawyers, and we are providing this information as a courtesy to you. You should consult with your own tax professional before making any decisions.

Eligible applicants can apply for a PPP loan, up to a maximum of $10 million, from participating lenders. Loan amounts are based on previous payroll and covered cost amounts.
Up to eight weeks of eligible expenses during the covered period can be forgiven from the loan principal as long as the employer maintains previous payroll counts during this emergency.
PPP loan repayments will be deferred for six months. Lenders can elect to defer the loan for a total of twelve months.
Interest rates associated with PPP loans will be at a maximum 4% per annum.
There will be no fees for borrowers to apply.
There are not collateral requirements or personal guarantees for the loan.
SBA credit elsewhere test does not apply to this loan.
All PPP loans are federally guaranteed by the SBA 100%.
Additional details of PPP can be found on the US Treasury Website

When can I apply?

Starting April 3, 2020, small businesses and sole proprietorships 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 are eligible expenses under PPP?

Eligible expenses include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.

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

Who is eligible and can apply for PPP?

Small businesses with 500 employees or less; The SBA size standards show by NAICS code for each type of business: https://www.sba.gov/size-standards; or
501(c)(3) nonprofit; or
501(c)(19) veteran’s organization; or
Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees; or
Sole-proprietors, independent contractors, and other self-employed individuals; or
Businesses with more than one physical location that employs no more than 500 employees per physical location in certain industries to be eligible and is below a gross annual receipts threshold in certain industries; or
Businesses in the hospitality and restaurant industries, franchises that are approved on the SBA’s Franchise Directory; or
Small business that receives financing through the Small Business Investment Company (SBIC) program.

Do I have to be operational to apply?

Yes, entities must have been operational by February 15, 2020 and had payroll and paid taxes.

Where can I apply for PPP loan?

Click Here for the PPP loan application from US Department of the Treasury
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. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.

Who approves my PPP loan?

The lender who is approved by SBA or U.S. Treasury for PPP will approve your loan application.

What is the time period covered under the PPP?

The covered loan period is from February 15, 2020 to June 30, 2020.

What is the maximum loan amount under the PPP?

The maximum loan amount to $10 million.
There is formula to determine the loan amount that is related to payroll costs incurred by the business.

How much is the loan guarantee provided by SBA to lenders under the Program?

100% loan guarantee through December 31, 2020.

Can I still apply for PPP if I can obtain credit elsewhere?

Yes. Credit elsewhere requirements are waived for this PPP.

What certifications will I need to provide in order to apply for PPP?

Borrow must certify in good faith that funds are needed for COVID-19 related purposes, that the funds will be used to retain workers, and that their request is not duplicative with other SBA funds for the same purpose.

What fees will I need to pay in order for PPP?

PPP Waives borrower and lender fees.

Is there a collateral or personal guarantee requirement for PPP?

No. Both collateral and personal guarantees are waived.

What is the interest on PPP loans?

Maximum interest that can be is up to 4%.
The Lender will determine the interest rate.

Is there a prepayment penalty or fee on PPP?

No. There are no prepayment fees or penalty.

Are there deferred payments allowed under PPP?

Loan payments will be deferred for 6 months.
A lender can elect to defer for additional 6 months.

Is any portion of the PPP loan forgivable?

Yes. Amount spent by borrower in the first 8 weeks from loan origination will be forgiven with appropriate documentation provided to the lender.
Amount will be reduced proportionately by the reductions in workforce as compared to the previous year.
If rehires are made during the 8-week period, then will be no penalty in reflection of possible layoffs early in the 8-week period.

What happens to my PPP loan after December 31, 2020?

Anything not forgiven or repaid by December 31, 2020 will convert to a maximum 10-year loan at a maximum of 4% interest rate per annum.
The loan will remain 100% guaranteed by SBA.

Loan Forgiveness for Paycheck Protection Program (PPP)

The Act establishes that the PPP borrower are eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the PPP loan.

What can be included in the PPP loan forgiveness amount?

Payroll costs;
Mortgage payment on mortgage incurred prior to February 15, 2020;
Interest payment on mortgage incurred prior to February 15, 2020;
Payment of rent on lease prior to February 15, 2020; and
Payment on any utility for which service began before February 15, 2020.

What is the maximum amount of PPP loan can be forgiven?

Amounts forgiven may not exceed the principal amount of the loan.
Eligible payroll costs do not include compensation above $100,000 in wages.

How is PPP loan forgiveness calculated?

PPP Loan forgiveness equals the sum of payroll costs incurred during the covered 8-week period compared to the previous year or time period, proportionate to maintaining employees and wages:
- Payroll costs plus any payment of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any rent obligation and any utility payment.
- The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by thereduction in pay of any employee beyond 25 percent of their prior year compensation.
- To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. Further, forgiveness is allowed for additional wages paid to tipped

What proof do I need to submit to my lender to qualify to PPP loan forgiveness?

Borrowers will provide documentation to lenders of their payments during the period such as payroll tax filings, proof of lease payments, proof of mortgage payments, and proof of utility payments.
Proof of payment can be a bank statement or canceled checks.

When will my PPP loan be approved for forgiveness?

The borrower must make a request to the lender for forgiveness by providing documentation of payments made under the covered period.
The lender has 60 days to review and approve the request for forgiveness.

What happens to the portion of my PPP loan that is not forgiven?

Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at maximum 4% interest per annum.
100% loan guarantee remains intact from the SBA.