Rick Parmelee | March 31, 2020
What types of businesses and entities are eligible for a PPP loan?
- Businesses and entities must have been in operation on February 15, 2020.
- Small business concerns, as well as any business concern that has fewer than 500 employees—or the applicable size standard in number of employees for the North American Industry Classification System (NAICS) industry as provided by the Small Business Administration (SBA), if higher—and is also a 501(c)(3) non-profit organization, a 501(c)(19) veterans organization, or Tribal business concern described in Section 31(b)(2)(C).
- Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
- Any business concern that employs not more than 500 employees per physical location of the business concern and is assigned an NAICS code beginning with 72, for which the affiliation rules are waived.
- Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the SBA, and any company that receives funding through a Small Business Investment Company.
- Sense of the Senate – the Senate bill directs the SBA to prioritize loans to small business concerns; entities in underserved and rural markets—including veterans and members of the military community; small business concerns owned and controlled by socially and economically disadvantaged individuals and women; and businesses in operation for less than 2 years.
What are SBA affiliation rules?
Affiliation rules become important when the SBA is deciding whether a business’s affiliations preclude them from being considered “small.” Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses. Please see this resource for more on these rules and how they can impact your business’s eligibility.
What types of non-profits are eligible for the SBA PPP assistance?
In general, 501(c)(3) and 501(c)(19) non-profits with 500 employees or fewer as most non-profit SBA size standards are based on employee count, not revenue. You can check here.
How is the PPP loan size determined?
Depending on your business’s situation, the loan size will be calculated in different ways (see below). The maximum loan size is always $10 million.
- If you were in business February 15, 2019 – June 30, 2019: Your maximum loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date.
- If you were not in business between February 15, 2019 – June 30, 2019: Your maximum loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
- If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
What costs are eligible for payroll under the PPP?
- Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
- Payment or income of a sole proprietor that is earnings from self-employment
- 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
What costs are not eligible for payroll under the PPP?
- Employee/owner compensation over $100,000
- Self-employment earnings over $100,000
- Taxes imposed or withheld under Chapters 21, 22 and 24 of the IRS code
- Compensation of employees whose principal place of residence is outside of the U.S.
- Qualified sick and family leave for which a credit is allowed under Sections 7001 and 7003 of the Families First Coronavirus Response Act
What are allowable uses of loan proceeds with a PPP loan?
- Payroll costs (as noted above)
- 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 (see exclusions above)
- Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
- Rent (including rent under a lease agreement)
- Utilities
- Interest on any other debt obligations that were incurred before the covered period
What are the loan term, interest rate and fees for a PPP loan?
For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4 percent, zero loan fees, zero prepayment fee (the SBA will establish application fees caps for lenders that charge).
How is the forgiveness amount calculated under PPP?
Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8-week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000):
Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus any covered utility payment.
How do I get forgiveness on my PPP loan?
You must apply through your lender for forgiveness on your loan. In this application, you must include:
- Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and state income, payroll and unemployment insurance filings
- Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
- Certification from a representative of your business or organization who is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.
What happens after the forgiveness period for a PPP loan?
Any loan amounts not forgiven are carried forward as an ongoing loan with maximum terms of 10 years, at 4% maximum interest. Principal and interest will continue to be deferred for a total of 6 months to a year after disbursement of the loan. The clock does not start again.
Can I get more than one PPP loan?
No, an entity is limited to one PPP loan. Each loan will be registered under a Taxpayer Identification Number at the SBA to prevent multiple loans to the same entity.
What kind of lender can I get a PPP loan from?
All current SBA 7(a) lenders are eligible lenders for PPP. The Department of Treasury will also be in charge of authorizing new lenders, including non-bank lenders, to help meet the needs of small business owners.
You can call your bank or find SBA-approved lenders in your area through SBA’s online Lender Match tool. You can call your local Small Business Development Center or Women’s Business Center and they will provide free assistance and guide you to lenders.
How does the PPP loan coordinate with the SBA’s existing loans?
Borrowers may apply for PPP loans and other SBA financial assistance—including EIDLs, 7(a) loans, 504 loans, and microloans—and also receive investment capital from Small Business Investment Corporations (SBICs).
How does the PPP loan work with the temporary Emergency Economic Injury Grants and the Small Business Debt Relief program?
Emergency Economic Injury Grant recipients and those who receive loan payment relief through the Small Business Debt Relief Program may apply for and take out a PPP loan. Refer to those sections for more information.
When is the application deadline for the PPP?
Applicants are eligible to apply for the PPP loan until June 30th, 2020.
I took out a bridge loan through my state, am I eligible to apply for the PPP?
Yes, you can take out a state bridge loan and are still be eligible for the PPP loan.
Does the PPP require personal guarantees or collateral?
Between February 15, 2020 and June 30, 2020, no personal guarantee is required for the covered loan and no collateral is required for the covered loan.
Is the PPP a recourse loan?
There will be no recourse against any individual, stockholder, member or partner of an eligible recipient of a covered loan for nonpayment of any covered loan unless it is used for a purpose not authorized.
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Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.
Disclaimer: The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation
