On March 27, 2020, President Trump signed into law the CARES Act, which contained the Paycheck Protection Program (PPP) designed to help small companies keep workers employed during the COVID-19 pandemic. The initial funding for the program has been distributed. In just 10 days in early April, America’s banks allocated all $349 billion in forgivable loans available under the PPP; however, an additional $310 billion has been approved and signed into law.
The PPP is designed to provide small businesses access to capital for payroll and payroll costs. Loans of up to $10 million can be made to small businesses with less than 500 employees. Qualifying companies can borrow up to 2.5 times their average monthly payroll. If at least 75% of the loan is used to meet payroll, then after eight weeks the business can request that the loan be forgiven. Otherwise, the borrowers are expected to repay the loan within two years. These loans carry a 1% interest rate and there are no fees. The program is open with the Small Business Administration (SBA) until June 30, 2020, but funds are limited and subject to availability from the SBA.
Entities Affected by COVID-19 That May Be Eligible for PPP Support
- Any “small business concern” that meets SBA’s size standards (either the industry-based sized standard or the alternative-size standard)
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with 500 employees or fewer
- Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
- Sole proprietors, independent contractors, and self-employed persons
Key Tips to Help Complete the Loan Application
- Reach Out. Contact your banker and let them know you’re interested in a PPP loan.
- Read the instructions. This should go without saying, but the pressure of trying to complete the application quickly may lead to items being missed or misread. Take a moment and read the instructions before trying to complete the SBA application.
- Get organized. Read through the application and additional instructions for applying and gather the required documents. The more organized and ready you are, the easier it will be to complete your application. Note that lenders are not able to fill out the PPP loan application on your behalf.
Some items needed include:
- Payroll report as of February 15, 2020
- A copy of W-2 forms for all employees, including those who make under and over $100,000
- For partnerships, a list of any distributions to partners up to $100,000 per partner
- For self-employed individuals, 1099-MISC and 2019 tax return, Schedule C showing self-employment income
- Rent, mortgage interest utilities, and other debt service statements
Additional documents that you should have ready include:
- Company tax return for 2019, if filed already
- Your balance sheet for 2019, with a previous year comparison
- Year-end profit and loss statement, with a previous year comparison
- Determine the loan amount you will need. Calculating the correct average monthly payroll needed to determine the loan amount your business needs can be the most confusing part of the process, but it is the most important part. If you don’t calculate the loan amount properly, you may not be able to get as much as the loan forgiven. Take the time to calculate the loan amount and do not just send in payroll information. Your lender doesn’t know your payroll process, so they may not capture all the necessary information.
The loan amount is determined by taking your company’s adjusted average monthly payroll over the preceding 12-month period and multiplying that by 2.5, subject to certain adjustments that can be found in the PPP rules. Step by step instructions and examples of how to calculate the loan amount can be found in this document.
Some Payroll Costs That Are NOT Included in PPP
- The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period
- Any compensation of an employee whose principal place of residence is outside of the United States
- Qualified sick leave wages and qualified family leave wages, in each case, for which a credit is allowed under the Families First Coronavirus Response Act
- Complete the SBA application. After you have gathered all the necessary information and calculated your loan amount, it’s time to fill out the application. Do not fill out the application by hand. Handwriting can be difficult to read and could slow down the process.
- Submit your application and follow up. Once you have completed the application, plan to check in with your lender. However, it’s important to know that lenders are working hard processing a number of applications, so remember to be patient. Finally, don’t panic and file with multiple lenders. It will take more time to fill out another application, and you can only have one lender submit your application to the SBA.
At AMG we are here to help our clients navigate through these challenging times. Please contact your AMG Banker with any questions regarding the PPP loan application process.