As part of the CARES Act, the Paycheck Protection Program (PPP) was established providing Small Business Administration (SBA) loans to help businesses with less than 500 employees keep their workforce employed during the COVID-19 crisis. The SBA will forgive PPP loans if all employees are kept on the payroll for eight weeks from the date of loan origination and if the loan funds are used for payroll, rent, mortgage interest or utilities. For detailed PPP information, click here.
On April 16th, all $350 billion in CARES Act PPP funding was distributed. However, the Senate approved a second round of funding for the PPP in the amount of $310 billion. It is expected to pass the House of Representatives this week. If so, funding will begin again.
For businesses who have applied and did not receive initial funding, the advice has been to stay in line as banks will continue to process loans if additional funding is approved.
For businesses who have not yet applied but qualify, the following outlines the basic process steps which should be acted upon quickly given the limited potential new funding:
1) Contact your bank. The PPP loan is offered through banks, not directly from the SBA. Banks are working with existing customers, so contact your banker to confirm participation in the PPP program and gather instructions for the application process. Larger banks have required enrolling in online notification systems and have established online portals for applications. Bankers at smaller banks will work directly with individual customers. If you do not have a banking relationship, businesses may be able to apply through online lenders as most banks do not have the capacity to serve new customers.
2) Prepare your payroll records. The maximum loan amount equals 2.5x the average monthly payroll. In general, businesses may use payroll data from the previous 12 months or from calendar year 2019. Seasonal businesses may use the period from February 15, 2019 (or March 1, 2019) and June 30, 2019. The payroll calculation includes:
a. Gross wages, tips, vacation and Family Medical Leave Act compensation
b. Group healthcare benefits (employer’s portion only)
c. Retirement benefits (employer’s portion only)
d. State & Local taxes on compensation
The payroll calculation excludes the employer’s portion of payroll taxes and worker’s comp. In addition, employees with annual salaries over $100K must be adjusted down to $100K annual maximum.
The employee headcount may be based on the average over the same time period used for average payroll.
3) Complete the borrower application. The PPP borrower loan application form is available here. Your bank will provide additional guidance on their specific application process. Supporting documents such as payroll journals and tax records will likely be requested by the bank.
4) Wait for updates. Your bank will provide updates regarding the status of the loan if it is approved by the bank and moves to the SBA. Your bank will then notify when the loan has been cleared by the SBA and provide instructions on the closing and funding process.