Skip to content

Call us at (614) 556-4415

Updated May 20, 2020 1:00 PM EDT

Note that information and guidance on the PPP loan program is fluid and changing on a daily basis. We're working to provide the most recent information available. Please read our other blog posts (links at the bottom) for additional details.

PPP Loan Program running out of funds. Read the latest from Forbes.

Disclaimer

This presentation is not intended to be tax or legal advice for any specific situation. The facts of every situation vary. Contact your accountant or attorney to discuss your specific situation.

The guidelines for the PPP program are vague (at best) in certain parts. The SBA stated that additional guidance is forthcoming. 

What is the Paycheck Protection Program (PPP)?

The PPP is a loan created by the CARES act and designed to provide a direct incentive for small businesses to keep their workers on the payroll.

SBA's interim final rule.

PPP Loan info from the Treasury and their FAQ.

See also Washington Post.

Where do I apply?

With your local bank or any bank that is an SBA 7(a) lender. You can search for a lender on the the SBA website.

How many PPP loans can I have?

One loan per entity.

How much funding is available?

Congress appropriated $349 billion for the program, but the funding is on a first come, first served basis.

When is the application deadline?

June 30, 2020, but funding is on a first come, first served basis.

Who can apply?

The following entities affected by Coronavirus (COVID-19) may be eligible:

  • Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
    • 500 employees, or
    • That meets the SBA industry size standard if more than 500
  • Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
  • Sole proprietors, independent contractors, and self-employed persons

How much can I borrow?

The lesser of

  • 2.5 times average monthly payroll costs based upon one year period preceding the date of the loan (special computations are available for seasonal employers and businesses not in business for full year), plus outstanding loan amount under 7(b)(2) made on or after Jan 31, 2020, and before or on the date covered loans are made available to be refinanced under the covered loan,
  • or $10 million

Check out our online calculator.

How can I use the money?

Payroll costs, continuation of group health care benefits during periods of leave (sick, medical, family leave and parental), interest portion of mortgage payments (not to include prepayments), rent, and utilities. Proceeds may also be used to make interest payments on other debt obligations originated before February 15, 2020.

Payroll costs include:

  • Salary, wage, commissions or similar compensation payments.
  • Payments of cash tip or equivalent.
  • Paid vacation, parental, family, medical or sick leave (other than payments for which credit allowed under FFCRA).
  • Allowance for dismissal or separation
  • Payment required for provision of group health benefits, including premiums and retirement benefits.
  • State and local taxes assessed on compensation of employees

Payroll costs exclude:

  • The compensation for an individual employee which is in excess of an annual salary of $100,000, as prorated for the covered period.
  • Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and
  • Railroad Retirement Act taxes, and income taxes required to be withheld from employees, during the covered period of February 15 2020 through June 30, 2020. (payroll taxes, railroad retirement taxes, income taxes).
  • Any compensation of an employee whose principal place of residence is outside of the U.S.
  • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–127).
  • Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

There is not a requirement to use a specified percentage of the funds for payroll costs. However, at least 75 percent of the PPP loan proceeds to be forgiven shall be for payroll costs.

Use this additional guidance from Forbes on "How To Calculate Payroll Costs For Your Paycheck Protection Program Loan."

Interest Portion of Mortgage Obligations

Any debt incurred in the ordinary course of business that is a liability to the borrower, is a mortgage on real or personal property and was incurred before February 15, 2020.

Interest portion only, no principal and no prepayments.

Credit cards are unsecured debt and lines of credit are often not tied to property (real or personal), so the interest on these items would not qualify.

Rent Obligation

Any rent obligation under a lease agreement in force before February 15, 2020. "Rent" is not defined in the regulations or guidance, but appears to be intended for rent of a building. Rental and leases of vehicles and other equipment is unclear at this time.

Related Party Rent
Based on the current provisions of the CARES Act, there is nothing to indicate that there is an exclusion for related party transactions; however, we are waiting for further guidance in this area.

Note there are still related party rent issues for government contractors covered in FAR 31.205-36.

Utility Payment

Any payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

What are the payment terms?

Full repayment must occur in two (2) years from date loan is approved. The first payment is deferred for six (6) months. Interest rate is 1.0% and interest accrues from the date the loan is dispersed.

Do I need collateral or a personal guarantee?

No collateral or personal guarantees are required.

Is there a fee to apply?

No. Neither the government nor lenders will charge small businesses any fees.

What about loan forgiveness?

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (at least 75% of the forgiven amount must have been used for payroll). 

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

According to the CARES Act, the borrower seeking loan forgiveness shall submit to the lender servicing the covered loan an application which shall include the following:

  • documentation verifying the number of FTE employees on payroll and pay rates for the periods described in the eight-week period beginning on the date of the origination of a covered loan, including:
    • payroll tax filings reported to the IRS, and,
    • State income, payroll, and unemployment insurance filings
  • documentation, including cancelled checks, payment receipts, transcripts of accounts or other documents verifying payments on covered mortgage obligations, payments on covered rent obligations, and covered utility payments.

The interim final rule states that guidance for forgiveness will be provided at a later date. Additional requirements for documentation will likely be provided as part of this upcoming guidance.

See this excellent blog from Withum on "PPP and the Enigma of Loan Forgiveness" and their "Analysis of Forgiveness."

CBH's "How to Ask for Forgiveness on a PPP Loan"

What are the tax effects?

The CARES Act states for purposes of the internal revenue code, the forgiveness will not be includable in gross income. What's not clear is the deductibility of expenses paid with the loan proceeds. The IRS typically does not allow deduction of expenses related to non-taxable income. That would not seem to align with the intent of loans, so we'll have to wait for additional info.

See this article from the Tax Foundation.

Additional Resources

AICPA resources for CPAs

Paul Hastings' "Borrower's Guide to PPP Loans"

Foley's "SBA Loans Under the CARES Act"

DHG's "PPP Loan FAQ"

DoD's "COVID-19 Small Business Resources"

Need Help?

Check out our other blog post "What's Wrong With Free Money?" and our online PPP loan calculator. You can print your results and download an Excel version.

Robert Jones

Robert Jones

Robert E. Jones knows government contracts: How to qualify for them. How to manage them. And how to profit from them. With over 14 years of Department of Defense contract and accounting experience, he helps companies successfully navigate the complex legal and regulatory framework of federal contracting. Robert Jones' full biography