At Narron Wenzel, P.A. we are committed to providing our small business clients the most up to date information about resources available to them during the COVID-19 shut down. In this post we cover the “Paycheck Protection Program” commonly known as the “PPP”. PPP loans are not SBA Economic Injury Disaster Loans, those too have been expanded under CARES but are not covered in this post. Please note, the details of the program and information regarding how to apply have not yet been released. If you are a small business owner and believe you need financial assistance, please feel free to contact us for more information on how to obtain one of these loans.  

What is the Paycheck Protection Program?

The PPP is part of the $2.2 trillion dollar stimulus package entitled Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed by Congress and signed by President Trump on Friday, March 27, 2020. The CARES Act allocates funds to businesses with fewer than 500 employees to provide immediate assistance for qualified expenses.

Who is eligible?

The PPP increases eligibility for SBA loans. PPP is available to you if you (i) employ 500 employees or less (includes individuals employed on a full-time, part-time or other basis) or (ii) if applicable, the size standard in number of employees established by the SBA for the industry in which Covered Entity operates. Small businesses as defined by the SBA in 13 C.F.R. 121.201, and businesses that receive assistance from the Small Business Investment Act without regard to affiliation under 13 C.F.R. 121.10 are also eligible.

Does this include non-profits?

Yes, the PPP is available to most 501(c)(3) organizations. However, it is currently unclear as to whether the PPP applies to churches.

What are “qualified costs”?

Qualified costs under the PPP include payroll, health care benefits, employee compensation, mortgage interest, rent, utilities, state and local taxes assessed on the compensation of employees, and interest on existing debt. However, no qualified sick leave wages for which a tax credit is allowed under the Families First Coronavirus Response Act is allowed.

How is my loan calculated, and what is the interest rate on this loan?

The maximum amount of loan allowed is the lesser of $10 million or 2.5 times the business’ average eligible monthly expenses. The highest rate of interest is 4% but the rate could be lower depending on your business. To calculate the maximum amount of the loan which you can take out the lender will consider your 2019 monthly average payroll cost. Payroll cost is not limited to just payroll, it can include mortgage interest and other operational expenses such as health care premiums. It will also include any 1099s you issued to any contractors with whom you work.

What if I was not in business in 2019?

If you were not operational for the full 2019 calendar year the lender will consider January and February 2020 payroll costs as well.

What does the loan forgiveness provision of this Act require?

The principal amount of the unsecured loan is eligible for forgiveness. Please note that for employees making over $100,000.00 annually, any amount paid in excess of $100,000 annually or over the $8,333.00 per month cap during the covered period is not eligible for forgiveness.  For example, if an employee makes $10,000.00 per month and the employer pays that salary during the covered period using the SBA loan, then the employer is responsible for the excess $1,700.00 paid to the employee per month over the $8,333.00 cap. For more information on this annualized cap please see Section 1105 of the Act. Also, the borrower will have to file paperwork requesting the forgiveness. If the qualifying business meets certain requirements then the loan may be forgiven. The first requirement is that the funds MUST be used for qualified costs only. The second requirement is that the loan forgiveness amount will be reduced by any reduction in employees and reduced by the reduction in pay of any employee beyond 25% of the prior year. Any amount of principal not forgiven carries a term of ten years from the date of the application. Any amount forgiven is not subject to federal income tax.

NOTE: Record keeping will be essential during the covered period of your loan. In order to be eligible for loan forgiveness you must be able to provide the SBA documentation that you utilized the loan proceeds only for the qualified costs outlined in the Act.

How do I apply for this loan?

Lenders currently authorized to distribute SBA loans are authorized to make determinations without going through the SBA. Instead of determining eligibility based on the ability to repay, the loan amount and eligibility will be determined by whether the business was operational on February 15, 2020, and had employees at that time. Additionally, during the application process, the borrower must make a certification that the uncertainty of the current economic conditions makes the loan necessary for the business and acknowledge they understand what the funds may be used to pay. The program removes the “Credit Elsewhere Test,” which requires an extensive analysis to determine whether the borrower has the ability to obtain some or all of the requested loan funds from alternative sources, without causing undue hardship.

While some banks are awaiting final confirmation of the SBA guidelines, others are already beginning to initiate applications and begin reviewing information with small business owners.

Are there any fees with this loan application?

No, there are no fees and unlike most other SBA loans the revenue cap has also been lifted. The bank will only consider your payroll costs and Congress has lifted most of the major restrictions on SBA loans to provide maximum eligibility.

Is there a deadline to apply?

Yes, June 30, 2020 is the official deadline. However, loans will not be given out over the $349 billion amount allocated. There is likely no need to rush to a bank if you are not prepared to take out the loan. The allocation is subject to extension and this sum is almost twelve times the average amount of money allocated to the SBA on a year over year basis.

More information is coming.

The SBA is required to issue regulations within 30 days. The U.S. Department of Treasury will be approving new lenders to ensure more funds are disbursed quickly. The U.S. Chamber of Commerce has released a loan checklist as a preliminary way to determine eligibility, insights on what lenders are available to you, and more.

If you have additional questions or need assistance with obtaining one of these loans please contact Matthew M. McGonagle at 919-934-0049, or via email at mmcgonagle@narronwenzel.com. You may also contact Whitney L. Hosey at whosey@narronwenzel.com.