The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was recently signed into law. A key provision of the CARES Act is the Paycheck Protection Program (or “PPP”), which offers forgivable loans to small businesses to cover payroll costs in light of the economic uncertainty caused by the Coronavirus pandemic.

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$349 billion has been set aside for these PPP loans, and those funds will be disbursed on a first-come, first-served basis. Businesses can apply for the loans through most local, SBA-approved lenders. Banks began accepting applications on April 3, 2020.

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Eligibility:

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Generally, small businesses, including non-profits, with less than 500 employees that were in operation as of February 15, 2020 are eligible to apply. Additionally, many sole proprietors, self-employed individuals, and independent contractors are also eligible.

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Loan amount:

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The loan will be equal to 2.5 times the average of your business’s “monthly payroll costs” over the past 12 months. The interest rate on the loan has been set at 1%. However, principal and interest payments will be deferred for 6 months.

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How do I apply?

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To apply, you will need to complete an SBA Form 2483, titled “Paycheck Protection Program — Borrower Application Form.” That form is available on the U.S. Small Business Administration’s and the U.S. Treasury’s websites, or from a local SBA-approved lending institution. Additionally, you will need to collect and submit documentation supporting that your business was in existence on February 15, 2020 and supporting your calculations of “payroll costs.” Each business may only apply for 1 PPP loan.

 

What expenses count as “payroll costs”?

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“Payroll costs” is defined to specifically include certain monthly expenses and exclude others.

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• Payroll costs specifically include:

  • Salaries, wages, or similar compensation;

  • Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);

  • Payments for vacation, parental, family, medical, or sick leave;

  • Allowance for dismissal or separation;

  • Group health plan payments, including premiums;

  • Retirement plan benefits/contributions; and

  • State and local taxes assessed on employee compensation.

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• Payroll costs specifically exclude:

  • Compensation of an individual employee of more than $100,000 per year;

  • FICA (Federal Insurance Contribution Act) taxes;

  • Railroad retirement taxes;

  • Income taxes;

  • Compensation of employees residing out of the United States;

  • Qualified paid sick leave and paid family leave for which an employer is allowed a credit under sections 7001 and 7003 of the Families First Coronavirus Response Act.

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You will need to provide documentation of each of the above expenses and provide them to your lender as part of your application. If you are unsure what documents would qualify, ask your lender, or call the Broehl Law Office and one of our attorneys will be happy to assist you.

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Once I get a PPP Loan, what can I use the money for?

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PPP loan proceeds must be used only for “covered expenses,” or else the loan will not be forgiven. To be eligible for forgiveness, you must document that, for the 8-week period after your business received its PPP loan, you only used the loan proceeds for the following covered expenses:

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• Payroll costs (including payments to continue group health benefits during periods of paid leave);

• Interest payments on a mortgage or other debt existing prior to February 15, 2020;

• Rent payments; and

• Utility payments.

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However, at least 75% of the PPP loan proceeds must be used for payroll costs (i.e., no more than 25% can be used for the other covered expenses). This is because the primary intent of the Paycheck Protection Program is to ensure that employees continue receiving paychecks during the Coronavirus pandemic.

It is very important that you keep careful records of the expenses for which you used PPP loan proceeds for the 8-week covered period. If you are unsure how to documents such expenses, contact your lender, and the Broehl Law Office will be happy to offer guidance, as well.

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How do I get my PPP loan forgiven?

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You must apply for forgiveness to your lender at the end of the 8-week period following the date you received the loan. Your lender may have other requirements, but generally, you will be required to provide:

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• Documentation verifying the number of full-time equivalent employees on the payroll, as well as their pay rates, during the covered period, including:

  • IRS payroll tax filings; and

  • State income, payroll, and unemployment insurance filings;

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• Documentation verifying mortgage interest payments, rent payments, and utility payments;

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• A certification by a representative of the borrower that the documentation presented is true and correct and that the amount for which forgiveness was requested was, in fact, used for forgivable purposes.

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Where do I go to apply?

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If you have a relationship with a local lender that is SBA-approved, start there. If not, you can search for a local SBA lending institution using the U.S. Small Business Administration’s website. The search function is available here: https://www.sba.gov/local-assistance. Please note that some lenders will only grant PPP loans to existing customers.

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Additionally, the Broehl Law Office can help you connect with a local SBA lender, as well as answer any questions you might have with respect to PPP loans or other Coronavirus-related business concerns.