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The Legal Paige - The Paycheck Protection Program (PPP) and How to Apply

The Paycheck Protection Program (PPP) and How to Apply

The Paycheck Protection Program (“PPP”) is part of the CARES Act that was passed in late March and authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis.

PPP enables businesses to get loans of 2.5 times their average annual "payroll costs" and have those loans forgiven if they spend at least 75% of those funds on "payroll costs" within eight weeks. It’s designed to get paychecks to those working in small businesses quickly. When the applications went live last Friday, April 3, 2020, it became overwhelming popular and hasn't been as helpful to small businesses as the Feds expected.

Starting on April 3, 2020, small businesses and sole proprietorships were able apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. (Note: Starting April 10, 2020, independent contractors and self-employed individuals can also apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.).

But, because the Senate wanted these funds to go through banks instead of the Treasury Department or the SBA, it's created a ton of confusion and chaos. This was supposed to get money to businesses faster. However, every bank has different online application processes and requires different documentation.

Many banks are only accepting applications from existing customers, and even limiting it further to existing customers with business bank accounts, which leaves out sole proprietors even though they were supposed to be allowed to apply.

"By Monday morning, Wells Fargo stopped accepting applications altogether, saying they’d reached their financial limit. Bank of America had received over $32 billion in applications. Websites crashed. Small-business owners were frustrated. Sole proprietors were perplexed. Everyone was angry." - USA Today

Personally, I've been talking to many clients who have tried to apply and either couldn't get through the entire application because they didn't have all the required documents before the applications closed, or applied and haven't heard a peep back from the financial institution.

In an effort to save the PPP Program, Treasury Secretary Steven Mnuchin asked Congress for another $250 billion in funding. A Senate vote was expected as soon as Thursday, April 9, 2020, on this increase in funds.

The forgivable nature of the PPP debt is one of the program’s key attractions. This is why is was so darn popular for small businesses and why this is a vital financial need that the Government needs to figure out as soon as possible.

While Congress, the SBA, the Treasury Department, and Financial Institutions get this all figured out so the health of the economy doesn't suffer, here's a bit more bullet pointed information about the PPP that you need to know about:

Who can apply?

All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply.

What do I need to apply?

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.

What other documents will I need to include in my application?

You will need to provide your lender with payroll documentation.

Do I need to first look for other funds before applying to this program?

No. The SBA is waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., we are waiving the Credit Elsewhere requirement).

How long will this program last?

Although the program is open until June 30, 2020, its encouraged to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.

How many loans can I take out under this program?

Only one.

What can I use these loans for?

You should use the proceeds from these loans on your:

  • Payroll costs, including benefits;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

What counts as payroll costs?

Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave;
  • Allowance for separation or dismissal; payments required for the provisions of group
  • Health care benefits including insurance premiums; and payment of any retirement
  • benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Does the PPP cover paid sick leave?

Yes, the PPP covers payroll costs, which include employee benefits such as costs for parental, family, medical, or sick leave. However, it is worth noting that the CARES Act expressly excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116–127).

How large can my loan be?

Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

How much of my loan will be forgiven?

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

You will also owe money if you do not maintain your staff and payroll.

  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time
  • employee headcount.
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and
  • wages by more than 25% for any employee that made less than $100,000 annualized in
  • 2019.
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and
  • salary levels for any changes made between February 15, 2020 and April 26, 2020.

How can I 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.

What is my interest rate?

1.00% fixed rate.

When do I need to start paying interest on my loan?

All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due?

In 2 years.

Can I pay my loan earlier than 2 years?

Yes. There are no prepayment penalties or fees.

Do I need to pledge any collateral for these loans?

No. No collateral is required.

Do I need to personally guarantee this loan?

No. There is no personal guarantee requirement. However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.

What do I need to certify?

As part of your application, you need to certify in good faith that: Your 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, and more.


- List of SBA lenders

- Source: USA Today

- Source: PPP Fact Sheet

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