Payroll Protection Program (PPP): Relief for Small Businesses SBA Paycheck Protection Program Loans

What is this Loan?

On March 27th, Congress passed, and the President signed into law a $349 billion “Payroll Protection Program” (PPP) as part of a massive COVID-19 relief package.  The PPP provides short term loans for small businesses equivalent to 250% of the employer’s average 2019 monthly payroll (or roughly 10 weeks of payroll expenses) or $10 million, whichever is less. Payroll costs are broadly defined as wages, salaries, retirement contributions and health care benefits. The loan can also be used for rent, mortgage and utilities.

Loan Forgiveness

Perhaps the most important feature is that these “loans”  turn into “grants”  during the 8 week period after origination of the loan if the business maintains its payroll through June 30, 2020 for eligible payroll costs, interest payments on any mortgage incurred prior to February 15, 2020, payment on any utility for which service began before February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and interest payments on any mortgage incurred prior to February 15, 2020 (excludes principal and prepayments).  Only 25% of the funds can be used for non-payroll expenses. Otherwise, loan is not forgiven and must be repaid.

Are 1099, “Gig” employees or independent contractors part of Payroll?

Initially there was a discussion about whether payment to independent contractors otherwise known as “Gig” employees or “1099s” would be added into the amount forgiven. The government has now clarified that funds paid to independent contractors will not be counted into repayment forgiveness. Moreover, the government is advising those independent contractors to apply on their own for aid as they are eligible for aid under the CARES act. default judgment, foreclosures sba coronavirus loans sba coronavirus loans

Additionally, the SBA has clarified that borrowers must maintain similar employment levels from 2019 for loan to be forgiven and that salaries over $100,000 would be reduced to $100,000 for purposes of the forgiveness calculation.

Eligibility and Application

There are specific eligibility requirements, and there are questions as to the availability of these funds for all the businesses that are in need.   You need to apply through an approved Small Business Administration (SBA) lender, and filing begins April 3, 2020 for small businesses and sole proprietorships, and April 10 for independent contractors and self-employed individuals. Banks have different requirements and are prioritizing their borrowers.  The application process has not been smooth as most lenders’ system capabilities were not designed and are not capable of managing the volume of application caused by this pandemic. Therefore, acting swiftly and communicating with financial institutions is crucial. forgiveness sba loan for coronavirus

Who may Apply?

All businesses—including nonprofits, self-employed individuals, independent contractors, veteran organizations, sole proprietors—with 500 or less employees can apply.  Some businesses with 500 or more employees can apply but must meet specific SBA requirements in order to do so.

In order to apply to the PPP, you need to complete the application and submit the required documents to an approved lender by June 30,2020.  However, it is recommended to submit the full application as soon as possible as there is a funding cap and lenders need time to process the applications. Should you require financial aid to help your business survive you need to apply NOW. As of the middle of the first week of the application period, there were 130,000 loans approved which equals to $38 billion of the $349 billion budget awarded and the average loan has gone down from $350,000 to $292,000. Hence, it is imperative that you act quickly and efficiently in securing this much needed funds.

More information about the PPP can be  found here:  https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf

For more information and specific guidance on the deductibility for federal income tax purposes of deductible expenses under the PPP Loans visit: https://www.irs.gov/pub/irs-drop/n-20-32.pdf