Paycheck Protection Program (PPP)
Application Filing Deadline: August 8, 2020 or until funds are expended
To address concerns from small businesses regarding certain restrictions contained in the Paycheck Protection Program, Congress passed the Paycheck Protection Program Flexibility Act of 2020 on June 3. The President signed the bill into law on June 5. Updates to the program include the following:
- A borrower may extend the original eight-week forgiveness period to the earlier of (a) 24 weeks after the date the loan was originated and (b) December 31, 2020.
- The 75% payroll costs rule is replaced with a 60% payroll costs rule such that a borrower must spend 60% of loan proceeds on payroll costs for any of the loan to be forgivable.
- The covered period for a borrower’s good faith attempts to rehire employees is extended from the original February 15–June 30 timeframe to February 15–December 31.
- PPP loans now have a minimum maturity of five years.
- Borrowers may delay payment of payroll taxes.
A borrower may defer payments on the PPP loan until 10 months after the loan origination date. The CARES Act established the Paycheck Protection Program intended to provide eligible small businesses with 24 weeks of cash-flow assistance as a direct incentive to keep their workers on the payroll. The loans are 100 percent federally guaranteed loans from the U.S. SBA. The amount any small business is eligible to borrow and be forgiven is 250 percent of their average monthly payroll expenses, up to a total of $10 million.
Who Can Apply
The following entities affected by COVID-19 are eligible to apply:
- 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 the greater of:
- 500 employees, or
- That meets the SBA industry size standard if more than 500
- 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
The maximum loan amount is the lesser of 2.5 times the business’ average monthly payroll costs based on the previous 12-month period, or $10 million. Payroll costs are capped at $100,000 annualized for each employee (ex. $100,000 maximum individual amount / 12 months * 2.5 = $20,833). Click here for information on how to calculate loan amounts. Applicants are responsible for determining payroll costs and attest under perjury eligibility.
Payroll costs include:
- 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; 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 (n/a in Florida); and
*PPP Flexibility Act Update: For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, payroll costs are limited to the lesser of eight weeks’ worth of 2019 compensation or the eight-week equivalent of $100,000/year ($15,385).
Operating expenses include:
- Interest on mortgage obligations incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020.
* PPP Flexibility Act Update: It was clear that rental payments for office, storefront and other real estate property was going to be included, but the application for forgiveness now makes it clear that personal property items such as copiers, servers, autos and other common items of personal property that are leased by a business will be includable in the bucket of non payroll costs that may be forgiven. Similarly, a business “mortgage interest payment” includes loans for real property and personal property, and as a result interest paid on loans for equipment, autos and other personal property items are includable and can be forgiven.
Average monthly payroll period:
- Existing Businesses: Past 12 months or CY2019
- New Businesses: January 1 – February 29, 2020
- Seasonal Businesses: February 15 – June 30, 2019 (To be eligible, must be in operation on February 15, 2020 or 8-week period between February 15, 2019 and June 30, 2019.
SBA will forgive loans if employees are kept on the payroll during the covered period and the money is used for payroll, rent, mortgage interest, or utilities.
- At a minimum, 60% of the calculated loan forgiveness amount must have been used for allowable payroll.
- At a maximum, 40% can cover allowable operating expenses.
- Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
*PPP Flexibility Act Update: Previously 75% of proceeds must be used for payroll and 25% for other allowable non-payroll costs. The legislation reduces the percentage of the loan that must be used on payroll expenses.
Applying for Forgiveness (*Updated as of June 17, 2020)
The SBA and Department of the Treasury have simplified the PPP loan forgiveness application for borrowers. Both applications give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or an extended 24-week covered period. These changes will result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan.
Borrowers who are self-employed and have no employees; OR did not reduce the salaries and wages of their employees by more than 25%, and did not reduce the number of hours of their employees; OR experienced reductions in business activities as a result of COVID-19 and did not reduce the salaries or wages of their employees by more than 25% may use the new EZ version of the application:
Note: Businesses that don’t meet one of these requirements will still need to complete the Full Forgiveness Application.
Any amount of the loan not forgiven will be converted into a five-year term loan with a fixed interest rate of one percent. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
*PPP Flexibility Act Update: Under the terms of H.R. 7010, such payments could be deferred until the amount of forgiveness is remitted to the lender by the SBA or until at least 10 months after the last day of the borrower’s Covered Period if the borrower has not yet applied for loan forgiveness.
Deadline and How to Apply
Businesses may apply for a PPP loan at any lending institution that is approved to participate in the SBA 7(a) lending program. Additional lenders and non-traditional lenders will be approved by the Department of Treasury. This could be the bank you already use or a nearby bank.
We recommend that you contact your primary business banker. If your banker does not participate in the program, they can refer you to a local participating bank. You may also find SBA-approved lenders in your area through SBA’s online Lender Match Tool.
If you wish to begin preparing your application, you can download a copy of the PPP borrower application form to see the information that will be requested from you when you apply with a lender.
The deadline for filing an application is August 8, 2020 or until the funds are expended.
*Note: Applicants who have already submitted their applications will continue to be processed on a first-come, first-served basis.
Additional Rules and Guidance
SBA has issued the following Interim Final Rules related to the Paycheck Protection Program:
- Paycheck Protection Program
- Affiliation Rules
- Additional Eligibility Criteria and Requirements for Certain Pledges of Loans for the PPP
For additional rules, requirements, eligibility, etc., visit the SBA PPP webpage by clicking here.
For additional FAQs about the PPP program, click here.
For application status inquiries and/or questions about the loan program:
Please contact the SBA at 1-800-659-2955 (TTY: 1-800-877-8339) or firstname.lastname@example.org.
For assistance with completing an application:
Our Florida SBDC disaster recovery specialists provide one-on-one confidential consulting at no cost to help businesses prepare disaster loan applications and assist with other post-disaster challenges. Please note that consultations are taking place via phone call or virtual meeting. Due to the COVID-19 pandemic, we are experiencing high volumes of calls, emails, and requests for consulting. We will work to respond to your request as quickly as possible. We ask that you remain patient during this time and we’ll be in touch with you as soon as possible.
Find your local SBDC office by clicking here.