Paycheck Protection Program
The Paycheck Protection Program (PPP) are loans, backed 100% by the government, that provide short-term cash flow assistance to small businesses who maintain their employees during the COVID-19 emergency.
Principal amounts on PPP loans may be forgiven, for the first eight-week period after the loan is made, if the funds are used for payroll costs, interest payments on mortgages, rent and utilities.
The paycheck protection program is administered by the Small Business Administration (SBA) and loans will be made through lenders approved by the SBA.
Which businesses are eligible to apply for a PPP loan?
Small businesses (businesses that are independently owned and operated, organized for a profit, and are not dominant in their field), 501(c)(3) nonprofits, 501(c)(19) veteran’s organizations and tribal business concerns with 500 or fewer employees (full and part-time) and not more than the applicable size standard for their industry, and provided by the SBA, if higher. SBA size standards can be found here: https://www.sba.gov/document/support--table-size-standards
Eligible small businesses also include sole-proprietors, independent contractors, or other self-employed individuals
The PPP is also available for franchises that are assigned a franchise identifier code by the SBA. Click here for a chart of these franchises: https://www.sba.gov/document/support--sba-franchise-directory
Affiliation rules are waived for these franchise businesses as well as businesses in the hospitality and restaurant industries. Affiliation rules are not waived for other small business concerns, nonprofits and veteran’s organizations.
What must PPP loan funds be used for?
- Payroll costs (i.e., salaries, wages, vacation, severance, retirement benefits, and state or local taxes assessed on compensations)
- Costs related to group health care benefits (i.e., insurance premiums)
- Employee commission
- Interest on mortgage obligations
- Rent, including rent under a lease
- Interest on other debt incurred prior to obtaining the loan
- PPP loan funds cannot be used to pay salaries over $100,000
What is payment forgiveness on a PPP loan?
Principal amounts on PPP loans may be forgiven, for the first 24 week period after the loan is made, if the funds are used for payroll costs, interest payments on mortgages, rent and utilities.
The amount of a PPP loan that can be forgiven can’t exceed the principal amount of the loan.
To get the full benefit of loan forgiveness, businesses must keep their employees and pay them at least 75% of their prior-year compensation.
Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
To apply for forgiveness, businesses must submit documentation regarding the use of funds (payroll, mortgage, utilities, etc.), a certification that the document is true and correct, as well as the amount to be forgiven, and any other SBA required documentation.
Can payments above forgiveness be deferred on PPP loans?
Payments on remaining principal, interest, and fee balance amounts, that exist after loan forgiveness, may be deferred for at least six months and not more than a year. Businesses can get a substantial portion of their loan forgiven in the first 24 weeks, after loan issue, and not have to make payments for up to a year.
What are the terms of a PPP Loan?
Loan amounts are determined by 8 weeks of prior average payroll plus an additional 25% of that amount, not to exceed $10 million (salaries over $100,000 are not counted as payroll costs). Any amount that is not used for forgiveness purposes will have a maturity of not more than 10 years. The maximum interest rate is 4%-PPP loans only start to mature following the date a business applies for loan forgiveness and can have a maximum maturity of ten years from that date.
The following are waived for PPP loans: borrower and lender fees; credit elsewhere test for funds; collateral and personal guarantee requirements.