PPP Overview:
- Round 2 provided $310 billion for the Paycheck Protection Program which provides loans to small businesses and 501(c)(3)’s with less than 500 employees, sole proprietors, independent contractors, and self employed individuals. Faith based organizations are generally eligible: https://www.sba.gov/sites/default/files/2020 04/SBA%20Faith Based%20FAQ%20Final.pdf
- These loans are 100% backed by the federal government with an interest rate of 1% with a 2 or 5 year term.
- Loan amounts will be based on 2.5 times the average monthly payroll of the business or $10 million, whichever is less.
- Lenders are given delegation authority meaning these loans can be in the hands of small businesses without time consuming SBA authorization.
- The program provides for automatic deferral of principal, interest, and fee payments for the first six months.
- Amounts used to cover payroll costs, mortgage interest payments, rent, and utility bills over an 8- or 24-week period will be forgiven if the business retains employees.
- Forgiveness is reserved for employers that maintain payroll continuity over the 24-week period after the loan is made.
- Flexibility is granted for businesses to rehire individuals already laid off and still be eligible.
- Failure to maintain payroll continuity does not immediately disqualify forgiveness, instead, if employee numbers decrease the forgiven amount is reduced proportionally based on the prior year’s FTEs.
- Businesses will work with lenders to establish that it met payroll requirements, at which time the federal government will purchase the loan.
- Not more than 40% of the loan amount may be used for non-payroll costs for the loan to be forgiven.
Recent Changes to PPP:
- New rules will confirm that August 8, 2020, is the last date on which a PPP loan application can be approved.
- PPP borrowers may choose to extend the eight-week period to 24 weeks.
- Payroll expenditure requirement drops to 60% from 75%. Borrowers can still qualify for partial loan forgiveness if less than 60% of the PPP loan is used for payroll.
- Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
- The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- For loans approved after June 5, borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%. For loans issued before June 5, the individual lender has the option to extend the term to five years but is not required to do
so. - The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
PPP Forgiveness Applications:
In addition to revising the full forgiveness application, SBA also published a new EZ version of the
forgiveness application that applies to borrowers that:
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.
Both applications give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or an extended 24-week covered period. These changes will result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan.
My recommendation is to complete your application and submit it to your lender.
If You Also Applied for an Economic Injury Disaster Loan or Have Interest in Doing So
Effective July 11 The Economic Injury Disaster Loan (EIDL) application
portal is still open to all eligible small businesses, non-profits, and agricultural
businesses impacted by COVID-19 but the EIDL Advance has been
discontinued.
- EIDL advance will be subtracted from PPP loan forgiveness amount.
- EIDL loan may be refinanced through PPP.
If you have questions regarding your PPP Loan or if you are looking to sell, buy, or value your business, please contact me at:
Eric J. Gall
239-738-6227
[email protected]
