Does your group qualify for the Paycheck Protection Program?

March 31, 2020

Many of our clients have reached out to us in recent days to inquire about applying for business protection grants or loans through Coronavirus Aid, Relief, and Economic Security (CARES) Act, specifically through the Small Business Administration Paycheck Protection Program (PPP) instituted as part of the act. However, there are still several unknowns and finer details being ironed out at this early stage after the stimulus bill was approved late last week.

The program will provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during the current COVID-19 public health emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and the US economy bounce back quicker after the crisis.

Companies and not-for-profits with fewer than 500 employees are eligible for up to $10 million in grant money under the program. The funds are intended to cover up to eight weeks of payroll costs, including benefits. The loans can also be used to pay interest on mortgages, rent and utilities.

Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020. Loan payments will be deferred for six months at a 0.5% fixed interest rate.

The application may be accessed here:

In short, there are three primary steps to determine the amount your group may be eligible for:

  • For those in business from Feb. 15, 2019 to June 30, 2019, you max loan equals 250 percent of your monthly payroll average during that time.
  • If you were not in business during that timeframe, your max loan would equal 250 percent of your average monthly payroll costs from Jan. 1, 2020 to Feb. 29, 2020.
  • For purposes of calculating the formula, reduce the salary of anyone making over $100K to $100K. (salaries above $100,000 are not covered by the program).

Qualifying for loan forgiveness, however, is a more complex process.

The principal amount of a PPP loan will be eligible for forgiveness (subject to submission of proper documentation) up to an amount equal to the total of the following costs incurred and/or payments made during the eight-week period following the origination of the loan:

  • Compensation and other “payroll costs”
  • Any payment of interest (excluding any prepayment of or payment of principal) on any “covered mortgage obligation” (i.e., any indebtedness or debt instrument incurred in the ordinary course of business that is a liability of the PPP loan borrower, is a mortgage on real or personal property and was incurred before Feb. 15, 2015)
  • Any payment on any “covered rent obligation”
  • Any “covered utility payment”

The amount of PPP loan forgiveness will be capped at the principal amount of the loan and will be subject to reduction if the borrower reduces the number of employees, employee salaries or both during the eight-week period following the origination of the loan, as follows:

  • Employee Termination: Loan forgiveness will be reduced by multiplying the forgiveness amount by the quotient of the borrower’s average number of full-time employees per month during the eight weeks following the origination of the loan by either (at the election of the borrower) (x) the borrower’s average number of full-time employees per month employed during the period beginning on Feb. 15, 2019, and ending on June 30, 2019, or (y) the average number of the borrower’s full-time employees per month employed during the period beginning on Jan. 1, 2020 and ending on Feb. 29, 2020 (alternative criteria apply for seasonal employers).
    • For purposes of this calculation, the average number of full-time employees is determined by calculating the average number of full-time equivalent employees for each pay period falling within a month.
  • Salary Reduction: Loan forgiveness will be reduced by any reduction in total salary or wages of any employees earning $100,000 or less on an annualized basis for 2019 during the eight-week period following the origination of the loan that is in excess of 25% of the total salary or wages of such employee during the most recent full quarter during which the employee was employed before such period.

However, there is relief from these forgiveness reduction penalties for employers that by June 30, 2020 increase their employee count and employee salaries to the levels in effect on Feb. 15, 2020.

Any canceled indebtedness will not be taxable to the borrower as gross income.

The loans will be made available through all current SBA 7(a) lenders. The Department of Treasury is also approving non-bank lenders in order to meet the anticipated increase in demand.

It’s also important to keep in mind that while it is prudent to start the application process soon to ensure your cashflow sees as little disruption as possible, banks and the treasury department are likely to be soon inundated with requests, if they haven’t been already. As we’ve seen with the recent unprecedented flux in unemployment filings, it will likely take a bit longer than usual for the system to be able to efficiently handle this surge of requests.

A full FAQ on this process may be downloaded here:

If you have questions about utilizing this program, determining eligibility or applying, feel free to reach out to us directly at 517-486-4262.

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