Paycheck Protection Program
Paycheck Protection Program and how it applies to 501(C) 3 Organizations, Including Training Funds
As part of the CARES Act passed by Congress, there is $350 billion earmarked to provide Small Business Loans during this crisis. This program, called the Paycheck Protection Program (“PPP”), is being administered by the Small Business Administration (SBA) through SBA loans issued by qualified lenders. The Paycheck Protection Program (PPP) is a loan program to help small businesses to keep their workforces employed during the COVID-19 crisis. The program provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during the COVID-19 emergency. If certain criteria are met, these loans would then be forgiven partially or in full. For example, if employers maintain their payroll, the loans would be forgiven. PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees and at least six months of deferral with maximum deferrals of up to a year. The loan would provide funding for up to eight weeks of payroll up to $10 million.
• Interest Rate 0.5%
• 2 year maturity
• Payments are deferred for six months (6)
• 100% guarantee by the Small Business Administration (SBA)
• No collateral, personal guarantees, or borrower or lender fees payable to SBA
• Loans can be for up to two months of your average monthly payroll costs plus an additional 25%
•The program currently will end June 30, 2020
When and How to Apply
• Starting April 3, 2020 – for small businesses (including Nonprofits) and sole proprietorships
•Starting April 10, 2020 – for independent contractors and self-employed individuals
• You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders
Amount of Loan
Depending on your situation, the loan size will be calculated in different ways however, the maximum loan size is always $10 million.
• Your max loan is equal to 250 percent of your average monthly payroll costs during the previous 12 months. If your business employs seasonal workers, there are separate rules for the calculation.
• If you were not in business between February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
• If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
Payroll Costs that Qualify
• Salary, wages, commissions, tips, or other “similar compensation”
o This is capped at $100,000 on an annualized basis per employee
Meaning the max an employee could receive during this period would be 8 weeks of pay based on an annual salary of $100,000
• Employee benefits including
o Vacation, parental, family, medical, or sick leave
o Allowance for separation or dismissal
o Payments for group health care benefits including insurance premiums
o Payment of retirement benefits
• State and local taxes assessed on compensation
• For sole proprietors or independent contractors
o Wages, commissions, income, or net earnings from self-employment is capped at $100,000 on an annualized basis
Allowable Uses of Loan Proceeds
• Payroll costs (as defined prior)
• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
• Employee salaries, commissions, or similar compensations (see exclusions above)
• Loan funds can also be used to pay for mortgage interest, rent, and utilities
o Again, the amount spent on these items must account for less than 25% of loan proceeds
o Mortgage obligations, leases, and utility service contracts must have been in place prior to February 15, 2020.
• The loan will be forgiven if funds are used to pay payroll costs, mortgage interest, rent, and utilities.
• At least 75% of funds must be used to cover payroll costs. Employers risk a portion of loans not being forgiven if too much of the funds were spent on non-payroll costs.
• Forgiveness is reduced if your full-time headcount declines or if salaries and wages decrease.
o This applies if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019
o Employers will have until June 30, 2020 to restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
o You will owe money if you do not maintain your staff and payroll.
Request Loan Forgiveness
• You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
As part of your application, you will need to certify in good faith that:
• Current economic uncertainty makes the loan necessary to support your ongoing operations.
•The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
•You have not and will not receive another loan under this program.
• You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
•Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
• All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
• You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.