This article incorporates updates based on (i) the extended application deadline in response to the President signing the Paycheck Protection Program’s extension legislation on July 4, 2020 (new application deadline: August 8, 2020), (ii) the updated PPP loan forgiveness application and the new EZ version of the application published by the SBA on June 17, 2020, and (iii) the Paycheck Protection Program Flexibility Act signed on June 5, 2020.
The Small Business Administration (SBA) resumed accepting new applications for the Paycheck Protection Program (PPP) from July 6, 2020 upon the coronavirus stimulus bill and amendments being signed into law. The new application deadline is August 8, 2020. The PPP is designed to provide small businesses that are affected by the coronavirus pandemic with cash support. We recommend to visit the SBA’s website for the most updated information, as the information related to the PPP is being updated regularly.
Please also check the News about the Economic Injury Disaster Loan (EIDL) on our website.
1. Eligible Recipients
- Sole proprietors, independent contractors, and eligible self-employed individuals
- Small business concerns
- With 500 or fewer employees* (including affiliates**)
Exception: Business concerns for which affiliates are not included
- Hotels, restaurants, and other businesses assigned a NAICS code beginning with 72
- Franchises that are assigned a franchise identifier by the SBA. See SBA Franchise Directory)
- Business concerns that receive financial assistance from a company licensed under Section 301 of the Small Business Investment Act
- Business concerns that meet the SBA’s standard business size definition
- The SBA’s standard business size differs depending on the industry. Please see the SBA’s Size Standards Tool (enter (1) NAICS code and (2) annual gross receipts or employee number) or the Table of Small Business Size Standards.
- Other organizations and business concerns
- Tax-exempt nonprofit organizations under Section 501(c)(3) of the Internal Revenue Code (IRC)
- Tax-exempt veterans organizations under Section 501(c)(3) of the IRC
- Tribal business concerns under Section 31(b)(2)(C) of the Small Business Act
** “Affiliates” mainly include a parent company, subsidiaries, and sister companies and are determined based on their control over the other. Generally, a business concern that has more than 50% ownership (or vice versa) is considered an affiliate. See “Affiliate” in the SBA’s Glossary of Business Financial Terms and 13 CFR 121.103.
- With 500 or fewer employees* (including affiliates**)
2. Other Requirements/Prerequisites
- An applicant must have been in operation on February 2020 and either had W-2 employees or 1099-MISC independent contractors.
- The uncertainty of current economic conditions due to the coronavirus pandemic is creating a necessity for financial support for applicant’s ongoing operations.
- [NOT REQUIRED] Being unable to obtain credit elsewhere is not a requirement for the PPP loan.
3. Allowable Uses: The proceeds of the PPP loan may be used for the following:
- Payroll costs*
- Mortgage interest payments (excluding prepayments or principal payments)
- Interest on any other debt obligations incurred before February 15, 2020
- If an applicant also received the EIDL loan, both loans may not be used for the same purposes. If the EIDL loan was used for payroll costs, the PPP loan must be used to refinance the EIDL loan. (If the EIDL loan was not used for payroll costs, it does not affect the applicant’s eligibility for a PPP loan.)
* Payroll costs include / exclude the following items:
- Salaries, wages, commissions, or similar compensation
- Cash tips or equivalent
- Payments for vacations, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payments for group health care benefits, including insurance premiums
- Payments of retirement benefits
- Payments of State or local taxes assessed on employee compensation
- Compensation of individual employees in excess of an annual salary of $100,000
- Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code
- Compensation of an employee whose principal place of residence is outside of the US
- Sick leave wages under § 7001 of the Families First Coronavirus Response Act
- Family leave wages under § 7003 of the Families First Coronavirus Response Act
4. Loan Amount, Interest, Loan Term
- Loan Amount
- An applicant’s average total monthly payroll costs* multiplied by 2.5
- If refinanced, any outstanding amount of Economy Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 excluding any advanced amount
- Maximum amount: $10 M
- Interest: 1%
- Term: 5 years
- Covered period: February 15, 2020 to December 31, 2020
- No personal guarantee or collateral requirement
- Nonrecourse: Although no personal guarantee or collateral is needed, the SBA has no recourse against any individual shareholder, member, or partner of an applicant for nonpayment of any covered loan, so long as the loan proceeds are used for the designated purposes.
* How to calculate average monthly payroll costs
- An applicant may use the average monthly payroll for 2019.
- For seasonal businesses, an applicant may use average monthly payroll from February 15, 2019 to June 30, 2019.
- For new businesses, an applicant may use average monthly payroll from January 1, 2020 to February 29, 2020.
- An applicant/employer may defer the payment of the employer’s share of 2020 payroll tax by remitting 50% of the tax by December 31, 2021 and the remaining 50% by December 31, 2022.
5. Loan Repayment and Forgiveness
- If the following apply, a borrower is eligible for forgiveness of loan in the amount equal to the following costs made during the forgiveness period:
- The loan proceeds were used for the first 4 items listed in “Allowable Uses” above (i.e., payroll costs, mortgage interest payments excluding prepayments or principal payments, rent, and utilities).
- At least 60% of the loan proceeds were used for payroll costs.
- Forgiveness period: From the date of the origination of a covered loan until the earlier of:
- 24 weeks after the origination date; or
- December 31, 2020.
- The amount of loan forgiveness will be reduced if the following occur(s): (but see below)
- The number of full-time equivalent employees decreased during the above forgiveness covered period.
- An employee’s total salary/wages during the above forgiveness covered period period decreased more than 25% of the employee’s total salary/wages during the most recent full quarter before the forgiveness covered period. Any employee, whose salary/wages at an annualized rate of pay did not exceed $100,000 during any single pay period in 2019, is included.
- Cases in which the amount of loan forgiveness will not be reduced:
- When both of the following apply:
- The reduction of the number of employee or salary/wages occurred between February 15, 2020 and April 26, 2020.
- The number of employees or salary/wages are restored by December 31, 2020.
- When a borrower is able to document in good faith, regardless of the decrease of the number of full-time equivalent employees:
- Both of the following:
- An inability to rehire individuals who were employees of the borrower on February 15, 2020; and
- An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020
- An inability to return to the same level of business activity as such business was operating at before February 15, 2020 due to compliance with requirements for safety requirement related to COVID-19 issued by the Secretary of Health and Human Services (HHS), the Director of the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) during the period from March 1, 2020 to December 31, 2020.
- Both of the following:
- When both of the following apply:
- The amount that is not forgiven accrues an interest of 1% over the loan term (see “Loan Amount, Interest, Term” above).
- The loan repayment will be deferred until the date on which the SBA remits the forgiveness amount to the lender (prior to the signing of the PPP Flexibility Act, the repayment deferral period was 6 months). If a borrower does not apply for forgiveness within 10 months after the end of the forgiveness period (i.e. the earlier of 24 weeks from loan funding or December 31, 2020) , the borrower needs to start making loan payments after the 10-months period.
- There is no prepayment penalty.
- The amount of loan forgiveness will not exceed the principal.
6. Application Deadline: August 8, 2020
7. How to Apply
- PPP loan applications are accepted through lenders with delegated authority from the SBA (e.g., banks and credit unions).
- Details in how to apply may vary at each lender. (For example, a certain lender accepts applications only online.)
- See SBA Form 2483 (Paycheck Protection Program Borrower Application Form) for necessary information for the application.
8. Supporting Documents (Example)
- Payroll processor records
- Payroll tax filings
- Form 1099-MISC
- Income and expenses from a sole proprietorship
Documents for Loan Forgiveness (Example)
- Documentation verifying the number of full-time equivalent employees on payroll and pay rates
- Payroll tax filings reported to the IRS
- State income, payroll, and unemployment insurance filings
- Cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments for mortgage interest, lease, and utilities
- Certification stating that the documentation is true and correct, and that the amount was used to retain employees or make payments on mortgage interest, rent, or utilities
- Any other documentation the SBA determines necessary
Loan Forgiveness Applications (Published by the SBA on June 17, 2020)
The SBA published the following forms for borrowers to apply for PPP loan forgiveness. The EZ version requires fewer calculations and documents.
- Loan Forgiveness Application, Form 3508 (Revised on June 16, 2020)
- EZ Loan Forgiveness Application, Form 3508EZ – This form can be used when one of the following applies:
- A borrower is self-employed and has no employees; or
- A borrower did not reduce salaries or hourly wages by more than 25% for any employee during the covered period compared to the period between January 1, 2020 and March 31, 2020, AND if one of the following applies:
- A borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period (other than any reductions due to an inability to rehire individuals who were employees on February 15, 2020 or to hire similarly qualified employees for unfilled positions on or before December 31, 2020, and reductions in an employee’s hours that a borrower offered to restore and were refused); or
- A borrower was unable to operate between February 15, 2020 and the end of the covered period at the same level of business activity as before February 15, 2020 as a result of health directives related to COVID-19.
9. SBA Contact Information
- Tel. 1-800-659-2955 (TTY: 1-800- 877-8339)
- Find local assistance: https://www.sba.gov/local-assistance/find/
- U.S. Small Business Administration: https://www.sba.gov/
- SBA PPP webpage: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program
- SBA Size Standards: https://www.sba.gov/federal-contracting/contracting-guide/size-standards
- Economic Injury Disaster Loan Overview: https://baxterlawintl.com/covid19sba/
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