PAYCHECK PROTECTION PROGRAM LOANS FREQUENTLY ASKED QUESTIONS [FAQs]. These FAQs are as of May 6, 2020. The Small Business Administration [SBA], in consultation with the Department of the Treasury, intends to provide timely additional guidance to address borrower and lender questions concerning the implementation of the Paycheck Protection Program [PPP], established by §1102 of the Coronavirus Aid, Relief, and Economic Security Act [CARES]. These FAQs are as of May 6, 2020.

 

Additional updates can be found on the SBA site for Corona Relief Options. The SBA intends to update guidance on a regular basis.

 

PAYCHECK PROTECTION PROGRAM

GUIDANCE ON THE US SMALL BUSINESS ADMINISTRATION DISASTER LOANS

An SBA loan that helps businesses keep their workforce employed during the Coronavirus (COVID-19) crisis.

 
Please be mindful this information is everchanging and the US Small Business Administration [US SBA]

is issuing guidance to authorized lending institutions frequently.  This summary is based on current information.

Although we are monitoring this information, it can and most likely will be changed.

Please do not rely solely on this information for your financial decisions as we do not provide accounting,

financial planning, or legal advice.  That is provided by your CPA and Attorney specifically qualified

and experienced in SBA and its lending programs, and you should seek their advice and counsel.  

All information below is subject to change and interpretations. You are encouraged to review

your current situation and discuss your funding options with your local bank lender.

Banks and Lenders began accepting applications for PPP Loans on April 3, 2020 with workers on their payroll.

Banks and Lenders began accepting applications for PPP Loans on April 10, 2020 for sole proprietors, self-employed, and independent contractors.

Small Business PPP Loan Guidance: [based on Published Official SBA FAQs] 

What Does Payroll Include?

  • Salary, wage or similar compensation

  • Payment of cash tips or equivalent

  • Payment for vacation, parental, family, medical, or sick leave

  • Allowance for dismissal or separation

  • Payment required for the provisions of group health care benefits, including insurance premiums

  • Payment of any retirement benefit

  • Payment of State or local tax assessed on the compensation of employees

  • The sum of payments of any compensation or income that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period

It Does Not Include:

  • The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period

  • Certain taxes imposed or withheld during the time period

  • Any compensation of an employee whose principal place of residence is outside the United States;

  • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–6 127)

  • Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–12 127)

What Do Utilities Include?

Utilities include electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.  For Business Use of Home Office, it is the prorated amounts for home utility expenses.

Do I Qualify for the SBA Stimulus Loans?

To qualify for SBA funding, you must be a small business as defined by the SBA. This includes:

  • Small businesses or non-profit 501(c)(3) organizations with 500 or fewer employees

  • Small businesses, 501(c)(19) veteran’s organizations or tribal concerns that meet the SBA size standards

(See the 2020 SBA size standards here.) 

  • Sole proprietors or independent contractors

Businesses in the food or hospitality industry (NAICS codes beginning in 72) may be eligible on a per location basis.

In addition, the normal affiliation rules are waived for franchises or businesses receiving financial assistance from a Small Business Investment Company.

In determining eligibility for these loans, the lender must consider whether the business was in operation on February 15, 2020; and had employees for whom the borrower paid salaries and payroll taxes. An ‘employee’ includes individuals employed on a full-time, part-time, or other basis.

I Don’t Have Employees, Can I Still Qualify?

You may. The CARES Act states: “…individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible. Applicants who fall in this category will need to provide documentation such as “payroll tax filings reported to the Internal Revenue Service and income and expenses from the sole proprietorship, as determined by the (SBA) Administrator and the (Treasury) Secretary.” Further guidance is expected to be issued to lending institutions shortly.

Are Franchises Eligible?

Franchises and hospitality businesses (NAICS code 72) with multiple locations, even if they have more than 500 employees, may be eligible on a per location basis as well as any businesses receiving financial assistance from a Small Business Investment Company (SBIC).

How Much Money Can I Borrow?

The basic answer is that the maximum loan amount is 2.5 times the average monthly payroll for the 12 months preceding the date the loan is made, up to a maximum of $10 million.

However, if you are a seasonal business, you can apply to borrow 2.5 times your payroll from the 12-week period beginning February 15, 2019, (or you can choose March 1, 2019 as the starting date) and ending June 30, 2019.

What if you are a newer business?

 

If you were not in business for the time period beginning on February 15, 2019 and ending on June 30, 2019, then you can use your average total monthly payroll costs incurred from January 1, 2020 to February 29, 2020 and multiply that by 2.5. Payroll does not include salaries above $100,000 or qualified sick leave pay under the Families First Coronavirus Response Act. (See above: What Does Payroll Include.)

 

What’s the Difference Between the Payroll Protection Act and Disaster Assistance loans? 

The CARES Act includes a number of relief programs for small businesses. This loan program overview is for the Paycheck Protection Program Loans. As part of the new stimulus package under CARES Act, businesses may be able to more easily get certain SBA guaranteed 7(a) loans. Borrowers will then be able to apply for forgiveness of certain portions of the loan if they meet requirements by keeping employees on payroll. (See more details below.)

 

The Economic Injury Disaster Loan [EIDL] is a separate loan altogether and you apply directly to the SBA, not to individual lenders. 

Is This Free SBA Grant Money?

No. The Economic Injury Disaster Loan contains a provision to advance to businesses an amount of up to $10,000 that may be forgiven.  Visit www.sba.gov for all of your loan options that may be available through the Small Business Administration.

Where Can I Get One of These Loans?

Individual lenders, including many banks, credit unions and some online lenders will make these loans. 

Some banks and lenders are taking applications only from their current customers; others are offering them through alternative marketplace lenders.  Neither the government nor lenders will charge small businesses any fees. Normal 7(a) loan fees are waived.  Be aware of scams and those who attempt to tie your financial services into their business services or charge a fee. 

If you are not currently a bank customer, you may be required to open a business checking account for tracking and accounting purposes between the SBA, the lending bank and your business.  You may not be permitted to apply for multiple Paycheck Protection Program loans through multiple lenders.

What Can I Use the Funds For? 

You can use the loan proceeds for:

  • payroll costs

  • costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums

  • employee salaries, commissions, or similar compensations

  • payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)

  • rent (including rent under a lease agreement)

  • utilities

  • and interest on any other debt obligations that were incurred before the covered period

How Fast Can I Get a Loan?

This legislation was specifically designed to make these loans faster and easier for lenders to approve and fund. Traditionally, SBA 7(a) loans can take anywhere from a few weeks to a couple of months. The relaxed standards are designed for very fast approval (in as little as 48 hours).

Lenders need to prepare to process applications. The expected volume of the applications will far exceed anything we have ever seen in terms of SBA loans.  At this time, it’s impossible to guarantee how fast these loans will be processed and funded. 

Loan Dels and Forgiveness

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

This loan has a maturity of 2 years and an interest rate of 1%.

If you wish to begin preparing your application, you can download a copy of the PPP borrower application form to see the information that will be requested from you when you apply with a lender.

You can prepay at any time without penalty. 

Is there a Personal Credit Check?

We don’t know yet as the Act does not mention whether a personal or business credit check will be required for these loans.  Some banks and lenders will make credit inquiries in accordance with their own lending policies.   Since no collateral or personal guarantee is required, some banks are not running credit checks. We will monitor this to determine if it changes. 

Is There a Personal Guarantee?

No. There is no personal guarantee required. In addition, these will be non-recourse loans as long as proceeds are used for covered purposes. (Non-recourse means the government won’t be able to collect if you default.) 

Is Collateral Required?

No. Normally SBA loans for more than $25,000 require collateral. That requirement is waived for these loans. 

How Soon Do I Have to Start Making Payments?

Lenders must provide deferred payments for a period of no less than six months, including the payment of principal, interest, and fees. The maximum deferment period is one year. In other words, you don’t have to make payments for at least six months and up to one year

Do I Have to Prove I Can’t Get Credit Elsewhere?

No. Normally SBA loans require a “credit elsewhere” test to determine whether the borrower can get similar credit at another financial institution. This is waived here. 

What If My Business Hasn’t Been Impacted Yet?

You have until June 30, 2020 to apply. 

How Do I Get Loan Forgiveness?

If you obtain a PPP Loan, you can request forgiveness of the principal portion of the loan for the eight-week period after you get the loan, which covers:

  • Payroll costs

  • Interest on a mortgage

  • Rent

  • Utilities

The amount forgiven can’t be more than the amount of the loan. And, the amount forgiven will be reduced by a reduction of pay of more than 25% for certain employees. You may also receive forgiveness for additional wages paid to tipped workers. 

Rehiring employees may mitigate reductions in the amount that can be forgiven. 

 

In addition: 

  • Payroll includes the costs listed under the section “What Does Payroll Include?” above

  • Forgiven debt will not be taxable

  • The mortgage rent and utilities covered in this section must be in place before February 15, 2020

 

More guidance on this important section of the law will come from the SBA Administrator and/or the Treasury Department.

Please note there are specific and technical calculations included in this section of the law, and you should not rely on this description to determine whether to keep employees, reduce employee wages, or to determine your eligibility for loan forgiveness.

What If I Have Already Laid Off Employees or Cut Pay?

If you reduced employment or wages during the period beginning on February 15, 2020 and ending 30 days after enactment of the CARES Act, you may be able to avoid a reduction in loan forgiveness if you eliminate the reduction in employment or wages by June 30, 2020. Essentially this gives you the opportunity to restore employment and/or wages and still be eligible for loan forgiveness. 

Can I Apply for This Loan and Disaster Assistance?

It is unclear and you may want to wait until further guidance is available. What’s clear is that you can’t “double dip” and get funds from both loan programs for the same purpose. A borrower who has taken out an EIDL for purposes other than payroll costs between January 31, 2020, and the date Paycheck Protection Loans are first made available are still eligible for a Paycheck Protection Loan as long as it is not used for the same purposes. Another option may be to refinance the EIDL with a Paycheck Protection Loan. 

What Can I Do Right Now?

While you wait for these loans to become available there are several things you can do right now:

  • Gather payroll documentation. While we don’t have exact document requirements yet, you’ll need documents such as payroll tax filings verifying the number of full-time employees on payroll and how much they were paid during the applicable time period. (See “How Much Can I Borrow” above.) 

  • If necessary, contact your accountant, bookkeeper or payroll processing firm to make sure you have the documents you need. If you are self-employed, see “I Don’t Have Employees.”

  • Check your credit. It’s likely banks and lenders will still require a credit check, even if not required by SBA. 

  • Get clear on your finances. If you have let your bookkeeping fall behind, catch up. You need a clear picture of your income and expenses to make decisions about how your business will weather the crisis. If you hope to apply for loan forgiveness, you’ll also need documentation of the expenses you will pay during the eight weeks after you get the loan, including mortgage interest and/or rent and utilities.

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