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Paycheck Protection Program
The CARES Act includes the Paycheck Protection Program (PPP). This program offers $349 billion in Small Business Administration (SBA) loans for businesses with 500 or fewer employees.
SBA approves loans for small businesses based on a number of factors, including business collateral, personal guarantees by the borrowers, and the credit score of the company owners. PPP loans, however, have different requirements.
The federal government is providing loan guarantees to lenders, so that banks are not exposed to loan default risk.
- Business with 500 or fewer employees can apply.
- The owner must certify in the application that the uncertainty of economic conditions makes the loan necessary to continue operations during the pandemic.
What you must certify
- The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
- You have not and will not receive another loan under this program.
- You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
- Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities.
- All the information you provided in your application and in all supporting documents and forms is true and accurate.
- You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS.
- Eligible small businesses can borrow up to $10 million.
- The maximum loan amount is based on the business’s average total monthly payroll costs for the prior 12 months, multiplied by 2.5.
- The loan will cover payroll up to $100,000 per worker.
Use of loan proceeds
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020
- Utilities, for which service began before February 15, 2020.
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for vacation, parental, family, medical, or sick leave (more sick leave details below); allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation; and
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
The CARES Act expressly excludes qualified sick and family leave wages that relate to the new refundable tax credit. If you’re using the tax credit, these wages are not included in the loan forgiveness total.
There is a separate law that offers a tax credit or these sick and family leave wages. Learn more about the FFCRA’s Paid Sick Leave Refundable Credit here, and consult with a tax accountant regarding the credit.
If you stay within loan requirements, the loan balance will be forgiven and does not to be repaid.
Requirements to request loan forgiveness
- Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
- Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
How can I request loan forgiveness?
You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
Terms of the loan
- You have up to two years repay the loan, and there are no prepayment penalties or fees if you repay the loan at a faster rate
- Interest rate of 1%
- First payment deferred for six months after approval
- 100% guarantee by the SBA
- No collateral or personal guarantees from borrowers
- No borrower or lender fees payable to the SBA
How to apply
Step 1: Contact your bank, and ask the institution if they are participating as an SBA lender for the PPP program. If the bank is not participating, ask people in your business network for a referral to another lender. This SBA link allows you to search for lenders that are currently accepting PPP loan applications.
*Many big banks are reporting that they have stopped taking new applications. There are many non-bank lenders available and borrowers have reported good luck with them. You can only accept one loan, but you can apply with multiple lenders to improve your chances.
Step 2: Complete the SBA’s Paycheck Protection Program sample application and submit the document to any SBA-approved lender. (The above lenders have an online version of this)
Step 3: Gather your records for the past 12 months, including payroll information, rent or mortgage costs, and utility expenses.
Take action now and get your application in as soon as possible. The total dollar amount of loans available is limited, and you need to start the process to get your loan in the system. Use the benefits of the PPP loan program to fund your business during this financial crisis.
*As of April 27th new applications are being accepted, but with limited funding you should apply as soon as possible to secure a loan.
This article is for informational purposes only and ‘The Rideshare Guru’ does not make any guarantees to its accuracy as each individual’s financial situation is unique. We recommend that you hire a certified public accountant or contact the Small Business Administration for guidance. We may get a referral fee to services or products linked to from this site.
Ken Boyd spent over 15 years working as a Certified Public Accountant (CPA) and has authored several books on accounting, including ‘Cost Accounting For Dummies’. He blogs and provides video content at AccountingAccidentally.com