We have put together some helpful information regarding the Paycheck Protection Program as part of the Cares-Act. There are many great features for small businesses (those with under 500 employees). We understand that each business is different in scope, ability see revenue (any) over the coming months as we deal with this Covid-19 storm. We will continue to send updates on the ever changing environment and would love to hear from you.
What to Know About the Paycheck Protection Program
The Paycheck Protection Program (PPP) was created under the Coronavirus Aid, Relief, and Economic Support Act, signed into law on March 27th.
The PPP prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses.
Small businesses and organizations, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program standards.
Three Helpful links included (Place into your web browser)
- FACT sheet for the Paycheck Protection Program – https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf
- Application – https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf Don’t apply yet—keep reading for timelines, eligibility requirements, and other details of the program.
- Additional Article on the Paycheck Protection Program – https://fortune.com/2020/03/31/sba-small-business-loans-paycheck-protection-program-who-qualifies-when-how-to-apply-how-much-pay-back-ppp-coronavirus-stimulus-faq/
When to Apply:
Starting April 3, 2020, small businesses and sole proprietorships can apply for loans under the Paycheck Protection Program.
Starting April 10, 2020, independent contractors and self-employed individuals can apply.
Once the application process opens, we encourage you to move quickly, as there is a funding cap under the legislation and loan applications will be processed as received.
There are eligibility, use, and loan forgiveness requirements.
Is there any penalty to apply for the PP Loan if you later determined to be ineligible?
No, there is no penalty for applying if the business is later determined by the SBA to be ineligible to apply. Keep in mind, the applicant is required to make a good faith certification that, among other things, it is necessary to obtain the loan to support ongoing operations of the business and the funds will be used to retain workers and maintain payroll, or make a mortgage, lease or utility payments.
Who is eligible for a “Paycheck Protection” (PP) loan under § 1102 of CARES?
Generally, businesses with less than 500 employees are eligible for PP loans. Businesses include any business concern, nonprofit organization, veterans organization or Tribal business concern.
Additionally, any business that qualifies as a small business under the criteria and size standards in 13 CFR 121.
Which employees are counted for purposes of the 500-employee threshold?
Employees for this purpose include full-time, part-time or employed on another basis.
Do employees of affiliates count towards the 500-employee threshold?
The general rule is that employees of affiliates are generally counted towards the 500-employee threshold under the SBA affiliation rules (13 CFR § 121.103.)
Are there exceptions?
Two exceptions make it much easier for businesses in the accommodations and restaurant industries to qualify for PP loans:
- For businesses with more than one physical location, any business concern that employs not more than 500 employees per physical location and that is assigned a North American Industry Classification System code beginning with 72 (see Exhibit A for a complete list) at the time of disbursal is eligible to receive a covered loan (NOTE: These include businesses in Subsector 721 (Accommodation) such as hotels and casino hotels and Subsector 722 (Food Services and Drinking Places) such as bars and restaurants.)
- There is also a general waiver of the affiliation rules (See Q&A 2, above) for any business concern described in the preceding paragraph with not more than 500 employees
What is the amount of a PP loan that is available to an eligible recipient?
An eligible recipient of a PP loan is eligible to receive a loan in the amount of 250% of the average total monthly payments by the applicant for payroll costs incurred 1 year before the date on which the loan is made. There is also an overall limit of $10 million dollars.
The Act provides that during the covered period, the requirement that a small business concern is unable to obtain credit elsewhere does NOT apply to a covered loan.
Are PP Loans available to dispensaries and other marijuana-related businesses?
No, because federal law currently prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, many businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance.
CFR § 120.110 (h).
Under the SBA’s Policy Notice dated April 3, 2018, the following businesses are ineligible:
(a) “Direct Marijuana Business” — a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to personal use and medical use even if the business is legal under local or state law where the applicant business is or will be located.
(b) “Indirect Marijuana Business” — a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana.
Examples include businesses that provide testing services, or sell grow lights or hydroponic equipment, to one or more Direct Marijuana Businesses. Additionally, businesses that sell smoking devices, pipes, bongs, inhalants, or other products that may be used in connection with marijuana are ineligible if the products are primarily intended or designed for such use or if the business markets the products for such use.
Certain “Hemp-Related Businesses” are ineligible unless the business can demonstrate that its business activities and products are legal under federal and state law. Examples of legal hemp products include paper, clothing, and rope.
The PP loan program is based upon the SBA loan program. Absent a specific override in the CARES Act of the illegal activity limitation, marijuana-related businesses would continue to be ineligible.
What Can the Paycheck Protection Loan Be Used For?
(i) Payroll costs and (ii) interest payments on mortgage obligations, rent, utilities, and interest on other debt obligations incurred before February 15, 2020.
What is included in “payroll costs” for this purpose?
Payroll costs are defined as the sum of payments of any compensation for employees that is a —
- salary, wage, commission, or similar compensation (capped at $100,000 prorated for the covered period or $8,333 per month)
- payment of cash tip or equivalent
- payment for vacation, parental, family, medical, or sick leave
- allowance for dismissal or separation
- payment required for the provisions of group health care benefits, including insurance premiums
- payment of any retirement benefit
- payment of State or local tax assessed on the compensation of employees and the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period
What is excluded from “payroll costs” for this purpose?
Specifically excluded from the definition of payroll costs are —
- the compensation of an individual employee above an annual salary of $100,000, as prorated for the covered period
- FICA (Social Security and Medicare) taxes imposed on the employer, FICA (Social Security and Medicare) taxes withheld from employees’ wages, federal income taxes withheld from employees’ wages withholding during the covered period
- any compensation of nonresident alien employees
- qualified sick leave wages for which a credit is allowed under FFCRA
- qualified family leave wages for which a credit is allowed under FFCRA
Is the business required to sign a guarantee or provide collateral for the loan?
No, normal requirements for SBA loans have been waived.
Is any portion of a PP loan forgiven?
An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period:
- Payroll costs (as defined above)
- Any payment of interest on any covered mortgage obligation (not including prepayment of or payment on principal)
- Any payment on any covered rent obligation
- Any covered utility payments
- Additional wages are considered for employers with tipped employees
NOTE: This amount (the “Base Loan Forgiveness Amount”) is potentially subject to further reductions.
What is the covered period for purposes of the loan forgiveness provisions?
“Covered period” means the 8-week period beginning on the date of the origination of a covered loan.
Are there further potential reductions to the Base Loan Forgiveness Amount?
Yes, there are potential reductions for reductions in employees and reductions in salaries.
Reductions in Employees:
The Base Loan Forgiveness Amount is reduced by multiplying it by the following fraction:
- The numerator of which is the average number of full-timeequivalent employees per month employed by the eligible recipient during the covered period
- The denominator of which is, at the election of the eligible recipient, either the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019, and ending on June 30, 2019, or the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on January 1, 2020, and ending on February 29, 2020.
For example, if the company employs 50 employees during the covered period and employed 100 employees during the period between January 1, 2020, and February 29, 2020, the Base Loan Forgiveness Amount would be multiplied by 50/100 or one-half.
Reductions in Salaries:
Taking into account only employees who did NOT earn $100,000 (prorated for the applicable period of employment) for any pay period in 2019, the Base Loan Forgiveness Amount is further reduced by any reduction in such employees’ wages during the covered period that is over 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.
What happens if I rehire employees or restore wages?
The reductions to the Base Loan Forgiveness Amount for reductions in employees or wages do not apply if the borrower eliminates these reductions no later than June 30, 2020.
How does a borrower claim loan forgiveness?
The borrower must submit to the lender an application that includes:
- documentation verifying the number of full-time equivalent employees on payroll and pay rates for the applicable periods including, payroll tax filings reported to the Internal Revenue Service and State income, payroll, and unemployment insurance filings;
- documentation verifying payments on covered mortgage obligations, lease obligations and utility payments
- certifications that the documentation presented is true and correct
The amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments, and any other documentation the Administrator determines necessary.
The statute makes clear that will be no loan forgiveness absent documentation.
Is the loan forgiveness considered taxable income to the borrower?