The Paycheck Protection Program Will Likely Be Expanded. Here’s What That Means For You.
Sabaa Sharma Boston College Law School 2L
Shutterbug75 from Pixabay
The Paycheck Protection Program (PPP) is a provision of the CARES Act.
It offers small businesses who are facing uncertainty during the Coronavirus pandemic an incentive to retain workers, maintain payroll, and cover certain other existing overhead costs.
The original PPP provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can additionally be used to pay interest on mortgages, rent, or utilities.
The PPP Flexibility Act was just passed in the House of Representatives and is now awaiting Senate approval. Most people expect the Senate will greenlight the bill.
The new legislation will give borrowers up to 24 weeks to use the funds, up from the 8 set in the initial bill passed in March.
Who can apply?
Businesses with 500 or fewer employees can apply for the PPP. This includes non-profits, veteran organizations, tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors.
Businesses with more than 500 employees are eligible in certain industries.
Where can I apply?
Applications can be submitted 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. A list of lenders is available on the SBA’s website.
What documents do I need to apply?
In order to submit an application for the PPP loan, you will need to complete the form provided by your lender, and submit the application with your payroll documentation. For reference, see the application form provided by the SBA here.
For what purposes can PPP funds be used?
1) Payroll – salary, wage, vacation, parental, family, medical, or sick leave, health benefits.
2) Mortgage Interest – as long as the mortgage was signed before February 15, 2020
3) Rent – as long as the lease agreement was in effect before February 15, 2020
4) Utilities – as long as service began before February 15, 2020
At least 75% of your loan must be used for payroll costs, and payments to independent contractors cannot be included in payroll costs. Should the PPP Flexibility Act pass in the Senate, only 60% of the funds must be used towards payroll.
How long will the PPP fund my small business?
Eligible expenses (listed above), are funded for a total of eight weeks, beginning on the day the first payment was made by your lender.
If the PPP Flexibility Act passes, you’ll have 24 weeks.
What portion of the loan is forgivable (& what does that mean)?
PPP loans are forgivable under certain conditions – which will turn the “loan” into a “grant” for businesses. Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months.
Loan payments may be reduced if you cut full-time employee headcount, or salaries by more than 25% for any employee earning less than $100,000. If you did any of the two, then you have until June 30, 2020 to restore employment and salary levels that changed between February 15, 2020 and April 26, 2020.
Applications for loan forgiveness are reviewed by your lender, and instructions for the application will be provided by your lender. Your lender has 60 days to provide you with a response after your application is submitted.
Documents Needed for Loan Forgiveness Application:
- Payroll reports from your payroll provider
- Payroll documentation: includes wages, taxes, tips, commissions, health care premiums paid, and sick/family leave payments that qualify under the PPP
- Payroll tax filings (Form 941) if made
- Income, payroll, and unemployment insurance filings from your state
- Documents verifying that your eligible interest, rent, and utility payments were active in February 2020
What if a portion of my loan is not forgiven?
If any portion of the loan does not qualify for loan forgiveness, all payments are deferred for 6 months. Interest is 1% and will continue to accrue over this period. The loan will be due in 2 years. Loan forgiveness requests will likely begin after the June 30, 2020 application date.
More about the PPP Flexibility Act
The new regulations and legislation may change the requirements for the PPP loan or forgiveness program. The bill would reduce the level of PPP funds that must be used for payroll to 60% from 75% and would extend the deadline to rehire workers to December 31.
It is important to continue to update your understanding of the PPP loan requirements and terms. Court Buddy updates our PPP loan page daily, as more guidance comes out around the parameters for loan forgiveness. Check out our loan page here.
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