4/6 Updated PPP loan application: Click here for the latest application form (old forms are now out of date)

4/3 Update: scroll to bottom for list of docs recently requested by a bank in association with a PPP application

4/3 Updated PPP loan application

Paycheck Protection Program

The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18th. It created several payroll related obligations for employers (more on these obligations later.) To help businesses afford these new obligations the CARES act was signed into law March 27th. One of the most critical and time sensitive elements of the CARES act is the Paycheck Protection Program (PPP).

What is the Paycheck Protection Program?

It’s a loan through the Small Business Administration with incredibly attractive terms. So attractive you should definitely apply because there are essentially no downsides to getting these funds. The amount that is being lent by the SBA is capped currently at $349 billion nationwide. We believe this amount will be exhausted quickly so you should apply for this loan right now, stop reading, call your bank, get in line, then come back here for more information.

Do I qualify?

The basic qualifications are:

  • 500 employees are fewer (with exceptions for businesses in the hospitality and restaurant industries)

  • Must have paid salaries, payroll taxes, or an independent contractor (paying yourself from your small business counts)

Note: Sole-proprietors, independent contractors and self employed individuals are eligible

What do I need to apply?

Click this link to download the basic application. Any other documentation requirements will come from the bank. As we hear back from clients what is being requested we will update this page so subsequent applicants can do more prep work.

When can I apply?

As above we recommend you call your bank immediately to start anything that can be started. Applications officially begin April 3rd for small businesses and sole proprietorships. Independent contractors and self employed individuals can apply starting April 10th.

How big is the loan?

The loan is for two and a half months of average payroll expenses capped at $10 million.

Note: Any other SBA loan that closed after January 31st can be added to the amount above, wrapping that SBA loan into the PPP. You should almost definitely take this option because the PPP program’s terms will almost definitely be more attractive than the other SBA loan.

Example 1: total payroll for 2019 was $12,000 and you closed an SBA loan February 1st for $15,000.

  1. Divide total payroll by 12 months gets you average monthly payroll: $1,000.

  2. Times 2.5 months is $2,500

  3. Plus February SBA loan $15,000

  4. Your Total PPP loan: $17,500

Example 2: total payroll for the last 6 months was $6,000 (no SBA loan)

  1. Divide total payroll by 6 months gets you average monthly payroll $1,000

  2. Times 2.5 months is $2,500

  3. Your total PPP loan: $2,500

What is included in payroll?

Payroll for the purposes of PPP includes

  • Employee pay with no hours worked requirement, full time and part time both count. This includes:

    • Salary (capped at 100k per year per employee)

    • Wages (capped at 100k per year per employee)

    • Commissions

    • Paid Time Off (PTO)

    • Medical leave

    • Severance

    • Group health benefits

    • Insurance premiums

    • Retirement benefits

    • State and local payroll taxes

    • Federal payroll taxes (per AICPA guidance 4/4)

    • Compensation or income to sole proprietors and independent contractors including net earnings by someone who owns their own business

What is excluded from payroll costs?

Specific exclusions according to the latest guidance are:

  • Compensation to individual who’s principal residence is outside the US

  • Qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.

  • Payments to independent contractors

Okay, I got my loan. What can I use these funds for?

Funds used for the following purposes will be forgivable (you will not have to pay the loan back) if the employer (you) maintains employee number and salary levels. Reduction in employee headcount or decreases in salaries and wages will reduce loan forgiveness. If you have already reduced salaries or laid off employees because of the pandemic there is a grace period where you can rehire or return salaries to regular levels. This grace period ends June 30th, 2020.

Forgiven loan proceeds are usually taxed as income but this is not the case with the PPP. The takeaway here is if you keep your employees on payroll, use the loan for the following purposes, and document the use of funds, the end result will be that you will not have to pay back the loan.

Forgivable uses of the PPP proceeds:

  • Payroll (same broad definition as above) SEE NOTE

    • How to document: payroll tax returns.

  • Interest on a mortgage (prepayments/payments of loan principal not included)

    • How to document: mortgage statements

  • Interest on loans you already have

    • How to document: loan statements

  • Utilities

    • How to document: utility bills

  • Rent/Lease payment

    • How to document: copy of lease/rental agreement

NOTE: at least 75% of the loan must be used for payroll costs for full forgiveness.

Okay, it’s a loan though right? What about interest?

The initial interest rate is 1% first payment due after 6 months. Full loan due after two years. If the loan is forgiven you will not have to pay the interest accrued during the 6 months.

I run a small business, I pay myself and/or my spouse, what do I do?

The current guidance indicates is that payroll costs for the many individuals in the above circumstances will be considered as:

  • Yearly net earnings up to 100k divided by 12 PLUS

  • Any amounts paid to other employees/independent contractors. (Note, these amounts will have to be paid to these contractors to qualify for forgiveness)

I run a small Partnership/LLC, I pay myself and my partners via draws or guaranteed payments, what do I do?

There is essentially no guidance for this situation yet. A rational approach for the government to take would be to take yearly draws or guaranteed payments divided by 12 plus amounts paid to employees/independent contractors as above with Schedule C businesses but this is speculation at the moment. We will update as soon as we know more.

  • We suggest that you contact your bank for the latest information, and to take any steps they recommend to pre-prepare your application.

What documents will be requested by the bank?

Our most recent information is from a local bank requesting the following. We suggest you compile these reports in PDF form immediately for rapid submission as requested by your bank.

  • Payroll reports for the last 12 months.

    • This likely refers to internal reports via Quickbooks or other accounting software showing amounts paid to employees

  • Payroll tax returns covering the last 4 quarters

  • 2019 W2s and 1099s issued by your business

  • Most recent filed tax returns, whether 2019 or 2018