Paycheck Protection Program: FAQs for Small Businesses
The Paycheck Protection Program, from the US Small Business Association (SBA), offers 100% federally guaranteed loans to small businesses as an incentive to keep their employees on payroll during the Coronavirus pandemic. Businesses can receive a loan up to $10 million for payroll and other expenses.
Is my business eligible?
Businesses with 500 or fewer employees, was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes may apply. This includes eligible non-profits, veterans organizations, tribal concerns, sole proprietorships, self-employed individuals, and independent contractors described in the Small Business Act. Businesses in certain industries with more than 500 employees may be eligible if they meet the SBA’s size standards for those industries.
How do I apply for the Paycheck Protection Program?
Businesses will need to apply through banks and credit unions and the loans are guaranteed by the SBA. The SBA is the ultimate administrator of these funds, the banks will be serving as the vehicle and will be following their protocol. Please keep in mind, the banks will be prioritizing the applications for this program based on existing client relationships.
You will need to submit documentation that includes:
- Employee wages for the last 12 months
- Paid time off, vacation, sick pay, family medical pay, etc.
- Withholding for state and local taxes on employee compensation
- 1099s paid to independent contractors
- Documentation showing how much the employer paid in employee group health insurance premiums for the past 12 months
- Documentation showing the amount of retirement plan funding the employer made for employees over the past 12 months, such as profit sharing 401(k) plans, cash balance plans, SIMPLE and SEP IRAs.
You will need to make a “good faith certification” that the uncertainty of the current environment makes the loan request necessary. You intend to use the funds to retain employees and maintain payroll, or make mortgage payments, lease payments and utility payments, and that you haven’t applied for another Section 7(a) loan.
How much of a loan can my business receive?
The maximum loan amount you can receive is 2.5 times your average payroll costs during the one year period before the loan is taken. No loans may be larger than $10 million.
Payroll costs include:
- employee salaries, wages, commissions, up to $100,000 per year
- Payments for vacation, parental, family, medical, or sick leave
- Severance payments
- Group health insurance
- Retirement plan contributions
- State and local taxes assesses on compensation
Payroll costs don’t include compensation over $100,000 per year, Federal tax withholdings, compensation for non-US residents, and sick leave and family leave provided by the Families First Coronavirus Response Act.
What can the loan pay for?
The loan can be used to pay for payroll costs, interest payments on mortgages, rent, utilities, and interest on any debts incurred before February 15, 2020.
When can I apply?
Small businesses and sole proprietorships can begin applying on April 3. Independent contractors and self-employed individuals can begin applying on April 10.
When will I have to make payments?
There is complete deferment of loan payments for at least six months, but not more than one year.
What is the amount of loan forgiveness?
The amount of loan forgiveness is equal to the amount spent on payroll costs during the eight-week period following loan issuance. Loan forgiveness also includes interest payments on a mortgage, rent payments, and utility payments, as long as these costs were already in place before February 15, 2020.
The amount of loan forgiveness will be reduced proportionally by any reduction in employees retained compared to the prior year and by the reduction in pay of any employee beyond 25% of their prior year compensation. A large pay cut to a highly paid employee won’t proportionately reduce the loan forgiveness. If, by June 30, 2020, laid off employees are rehired and/or restore the salaries of the employees who took pay cuts, then the loan forgiveness will not be reduced.
The remaining balance will continue to be guaranteed by the SBA, have a maximum maturity of 10 years and bear interest at the rate of 4% or less.
What is required for loan forgiveness?
You will need to provide evidence that money was spent on the things that are eligible for loan forgiveness by submitting an application to the bank. It should include:
- Documentation verifying the number of employees on payroll during the 8-week period of eligible loan forgiveness. This includes payroll tax filings reported to the IRS as well as state income, payroll, and unemployment insurance filings
- Documentation, including cancelled checks, payment receipts, and accounting reports verifying payments on business debts, rent and utility payments
- A certification from an officer or owner of the borrower that the information being submitted is true and that the amount for which forgiveness is being requested was used to retain employees, and make interest payments on business debts, lease payments and utilities.
Download the complete details on the Paycheck Protection Program here.
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