PAYCHECK PROTECTION PROGRAM
Part of the CARES Act, the Paycheck Protection Program (PPP) provides small businesses and sole proprietorships cash flow assistance through 100% federally guaranteed loans. PPP is intended to encourage eligible employers to keep employees on their payroll, despite the economic hardship related to the COVID-19 pandemic.
Current law dictates that the Paycheck Protection Program close on August 8, 2020. The small business ADMINISTRATION (SBA) is no longer accepting PPP applications from participating lenders.
- Borrowers may defer principal and interest payments until the SBA compensates lenders for any forgiven amounts, instead of the previous six month deferral period. Borrowers must apply for loan forgiveness within 10 months of the end of the covered period.
- Borrowers loan duration period is five years.
- Loans may be spent over a 24-week or 8-week period following disbursement or through Dec. 31, 2020.
- Employers may spend only 60 percent of the loan proceeds on payroll costs, leaving 40 percent of the loan to non-payroll expenses such as mortgage interest, rent and covered utilities.
Small businesses can have PPP loans fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. On June 5, 2020 the Paycheck Protection Program Flexibility Act of 2020 was signed into law extending the benefits of the program which are outlined below.
Employers have until Dec. 31, 2020 to apply for loan forgiveness. SBA began approving PPP forgiveness applications and remitting forgiveness payments to lenders for borrowers on October 2, 2020.
Calculating Loan Forgiveness
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 24-week period beginning on the date of the loan’s origination:
- Payroll costs (includes tips, commissions, bonuses or other forms of incentive pay, employer portions of health care benefits and retirement plans)
- Interest on mortgage obligation incurred in the ordinary course of business
- Rent on leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone or internet)
- For borrowers with tipped employees, additional wages paid to those employees
A maximum of 40% of the loan amount used for eligible non-payroll costs is expected to be forgivable.
Borrowers may elect to calculate eligible costs in an 8-week or 24-week coverage period. The coverage period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender should disburse the loan no later than 10 calendar days from the date of loan approval.
Costs incurred during the covered period, but paid after the period are eligible for forgiveness. Similarly, costs incurred before the covered period, but paid during the period are also eligible.
Alternative Payroll Coverage Period
An employer may elect to use the Alternative Payroll Covered Period to align with its biweekly or more frequent payroll schedule. The alternative period only applies to payroll costs, not nonpayroll costs such as rent. The covered period begins on the date the lender disburses the loan and nonpayroll costs must be paid or incurred during the covered period to be eligible.
Employers now have until Dec. 31, 2020 (previously June 30, 2020) to restore staffing levels for any reductions made between Feb. 15, 2020 and April 27, 2020.
- Employers who are unable to restore employee levels may still be eligible for loan forgiveness if they document an employee did not accept a rehire offer, the inability to hire a similarly qualified worker for the position or an hindrance to rehire employees due to compliance with federal guidelines for sanitation or social distancing.
APPLY FOR LOAN FORGIVENESS
The U.S. Small Business Administration has released a new EZ Loan Forgiveness Application and revised full forgiveness applications to support more small businesses by making the Paycheck Protection Program more borrower-friendly.
The SBA and the Treasury Department released a simpler loan forgiveness application for loans of $50,000 or less on October 8, 2020.