Paycheck Protection Program (PPP)

The Coronavirus “Loan” Programs for Businesses and Self-Employed Individuals: The Steak and the Sizzle


The “Paycheck Protection Program” for Businesses and Self-Employed Individuals

Who Is Eligible for a Loan Under the Program?
  • Businesses with 500 or fewer employees are eligible to receive a loan.  A business in the food industry with more than 500 employees, but that employs 500 or fewer employees at each of their restaurants, can receive a loan for each of their restaurant locations.  If you are a franchisee that owns multiple franchise locations, you will be eligible for a loan for each of your locations, regardless of how many other franchise locations you may own

  • If your business is NOT in the food industry and you are NOT a franchisee, rules similar to the “controlled group” rules apply, meaning if multiple businesses are under “common ownership,” all of the employees of all of the businesses will be aggregated and counted together to determine whether this “controlled group” employs 500 or fewer employees (and thus, is eligible for a loan).

  •  Nonprofit 501(c)(3) and 501(c)(19) organizations are also eligible for the loan. 

  • Note, any 501(c) organization that is NOT a 501(c)(3) or 501(c)(19) organization is NOT eligible for a loan (e.g., 501(c)(4) and 501(c)(6) organizations are NOT eligible)

  • Self-employed individuals are also eligible to for the loan.

What Is the Maximum Amount of the Loan for Most Businesses?
  • If you are a business, and you were operating during 2019, the maximum amount of your loan will likely equal the following amount: 
  •    250% of your monthly “payroll costs” during February 15, 2019 and June 30, 2019.  So, for purposes of applying for the loan, you are going to need your payroll and other expense records from 2019.
  • If you are a business, and you were NOT operating during 2019, the maximum amount of your loan will likely equal the following amount: 
  •    250% of your monthly “payroll costs” during January 1, 2020 and February 29, 2020.
  • “Payroll costs” for a business include (1) salaries, wages, or commissions paid to employees (but limited to the first $100,000 of amounts paid to each employee prorated over the February 15th to June 30th time period), (2) cash tip equivalents (if applicable), (3) your employer contributions for health benefits, (4) your employer contributions for retirement benefits, (5) the cost of leave (e.g., vacation, family, and sick leave), or (6) the payment of State or local taxes assessed on employee compensation.
  •    Again, you are going to need your payroll and other expense records from 2019 (or 2020 if you are a new business).
What Is the Maximum Amount of the Loan for Self-Employed Individuals?
  • If you are a self-employed individual, and you were operating during 2019, the maximum amount of your loan will equal the following amount: 
  •    250% of the amount of your own compensation that you generated for yourself during February 15, 2019 and June 30, 2019 up to $100,000 (which would be a prorated over the February 15th to June 30th time period).
  • If you are a self-employed individual, and you were NOT operating during 2019, the maximum amount of your loan will equal the following amount: 
  •    250% of the amount of your own compensation that you generated for yourself during January 1, 2020 and June 30, 2020 up to $100,000 (which would be a prorated over the February 15th to June 30th time period). 
If You Are a Business, What Can You Use The Loan to Pay For?
  • You can use your loan to pay your business’s “payroll costs” (described above) during February 15th and June 30th.  The loan can also be used to pay your business’s mortgage interest, rent, utility bills, interest on other debt, and premiums for COBRA for the employees you terminated/laid off during February 15th and June 30th.  
If You Are a Self-Employed Individual, What Can You Use The Loan to Pay For?
  • You can use your loan to cover your own compensation during February 15th and June 30th.  You can also use the loan to pay mortgage interest, rent, utility bills, or interest on other debt during February 15th and June 30th.
Are There Time Limits?
  • You may apply for a loan up until June 30th.  The loan amounts can be used to pay the above stated costs that started back on February 15th.  Remember, the loans can only be used to pay the above stated costs incurred during February 15th and June 30th.
What Else Should You Know?
  • To be eligible for the loan, you must certify, among other things, that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations,” and you must acknowledge that “funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.”
  • A bank making the loan is required to allow you to defer any loan repayments for up to 6 months, but not more than 1 year.  Interest on the loan cannot exceed 4% for the period of loan (which again, is February 15th to June 30th). 
  • You do not have to show that you have credit elsewhere to be eligible for the loan, and there are no fees for applying for the loan.
  • Eligible Lenders - You can apply through any existing SBA 7(a) 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 in the program.
  • What You Should Have Ready for the PPP Application:
    • Fill out the PPP form
    • On April 3rd, submit the form (the government link for the PPP page is here; this page should either host the portal or link you to it)
    • Have documentation proving revenue/expenses prior to February 15th, 2020
    • Key documents
      • Gather your company EIN or TIN number
      • 2017 taxes
      • 2018 taxes
    • 2019 taxes (if not complete yet, 2019 Profit and loss broken down by month will work)
    • Lenders will request documents to verify:
      • Full-time equivalent employees on payroll
      • Dollar amounts of payroll costs
      • Covered mortgage interest payments
      • Covered rent payments
      • Covered utilities for the eight-week period starting when you get this loan
    • Stay in contact with your local SBA office
  • Key Dates:
    • Lenders can process PPP on April 3rd (be ready); there should be a portal also to submit docs (this government page should point you to it)

The “Loan” Forgiveness Program

What Is It?
  •  All or a portion of the loan provided through the Paycheck Protection Program may be 100% forgiven.  In other words, the business or the self-employed individual would NOT be required to repay the loan, instead, the Federal government would repay the bank the amount of the loan that is forgiven.
What Portions of the Loan Are Eligible for Being Forgiven?
  • The following portion of loan may be forgiven:  Amounts paid for (1) salaries, wages, or commissions paid to employees (but limited to the first $100,000 of amounts paid to each employee prorated over the February 15th to June 30th time period), (2) cash tip equivalents (if applicable), (3) your employer contributions for health benefits, (4) your employer contributions for retirement benefits, (5) the cost of leave (e.g., vacation, family, and sick leave), or (6) the payment of State or local taxes assessed on employee compensation.
  • Loan amounts used to pay for mortgage interest, rent, and/or utility payments may also be forgiven. 
Are There Limitations on How Much of the Loan Can Be Forgiven?
  • The amount of the loan that may be forgiven will be reduced by the number of employees the business laid off during the period between February 15th and June 30th
  • In addition, if the business reduces the wages of an employee who makes less than $100,000 by more than 25% during the period between February 15th and June 30th, the loan amount that may be forgiven will also be reduced. 
  • If, however, the business re-hires the employees that were laid off prior to – or during – February 15th the June 30th and/or the business restores the salary for those employees that may have seen a wage reduction, the loan amount that is eligible to be forgiven would correspondingly be increased.
Are There Time Limits?
  • Remember, the loan can only be used to pay for the above described costs incurred during February 15th and June 30th.  Under the Loan Forgiveness Program, you can choose an 8-week period of the allowable costs – incurred between February 15th and June 30th – to be forgiven.  For example, you could choose to go back to February 15th as the starting point for the 8-week period even though you did not get your loan until some time in April or May.
How Can I Get My Loan Forgiven?
  • To be eligible for the loan forgiveness, the business must, among other things, (1) verify the number employees on payroll and the amount of salaries, wages, and commissions paid to these employees, (2) verify the mortgage interest, rent, and/or utility payments, and (3) certify that the documentation used to “verify” things is true and accurate.  Without this “verification,” the business would NOT be eligible for the loan forgiveness.   
  • Presumably, a self-employed individual must make similar “verifications” about their compensation and the expenses like mortgage interest, rent, and/or utility payments to be eligible for the loan forgiveness.
  • For the loan to be forgiven, the business and self-employed individual must apply to the lending bank asking for all or a portion of the loan to be forgiven.  As a result, all of the above information must be presented to the lending bank with the application asking for the loan forgiveness.
  • Any portion of the loan that is NOT forgiven will be amortized over 10 years with a 4% interest rate.  Again, payments of principal and interest on the loan may be deferred by 6 months, but not more than a year. 
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