15 Apr 2020 SBA PPP Loan Application and Forgiveness
Paycheck Protection Program Q & A (updated 4/15/20)
Paycheck Protection Program (PPP)
On April 2, 2020 the SBA issued Interim Final Rules for the PPP. This summary has been adjusted from its earlier version to reflect the Interim Final Rules as published.
The Paycheck Protection Program (PPP) was signed into law on March 27, 2020. This may be one of the most important aspects of the Covid-19 legislation for businesses under 500 employees. In the few days since its passage there have been many detailed questions concerning how it works. Bankers and Haynie & Company do not have all the answers yet; however, here are the details as best we understand as of April 2, 2020.
• 500 employees or less (including affiliates)
• Meets applicable employee size standards based on NAICS (including affiliates)
• 500 employees or less by location in the accommodation and food service industry (NAICS 72x) or for any business acting as a franchise that is assigned a franchise identifier code by SBA
• Sole proprietors, independent contractors and other self-employed individuals, including “gig economy” workers
2.5 times a borrower’s average monthly payroll costs or $10 million (whichever is smaller)
• Loans issued through June 30, 2020 may defer payment of principal and interest for up to six months, but interest will accrue over such deferral period
• Loans are forgivable provided certain criteria are met
How to apply
• Make a reservation at your bank. Many banks have on-line reservation systems. If not, contact your banker and get on a list to submit an application. There is a maximum of $349 billion allocated for this program so you don’t want to wait.
• Gather the information shown below that the banker will need.
• Fill out the two page Loan Application Form (fillable pdf, REVISED as of April 2. If your are using a large bank they will likely have their own on-line application on their website which will help speed up the processing. Check this before completing this Loan Application from the SBA.)
Example of the Computations for a PPP Loan
In order to better understand how all of this is computed we’ve prepared example computations for both Maximum Loan Amount and Loan Forgiveness Amount:
Determine Maximum Loan Amount:
1. The Maximum loan amount which is based on Payroll Costs for 12 months averaged to a monthly amount times 2.5
2. The Allowable uses of funds during the period of February 15, 2020 to June 30, 2020
3. The Loan Forgiveness Computation
Conditions to have the PPP Loan Forgiven
The Purpose of the PPP Loan Forgiveness Program is to provide a method for Employers to maintain or quickly rehire employees. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. In the SBA, April 2nd Interim Final Rules they state, “SBA will issue additional guidance on loan forgiveness,” so we expect further clarification in the next week or so.
Loan Forgiveness is granted under two conditions:
Funds used in an eight-week period following loan origination are used to compute the amount of loan forgiveness. These include:
• Payroll costs (must be at least 75% of the Tentative Loan Forgiveness)
• Interest payments made on any mortgage incurred prior to February 15, 2020
• Payment of any lease in force prior to February 15, 2020
• Payment on any utility for which service began before February 15, 2020
Existing employees are retained at or near current salary levels
• Employee cuts or wage reductions will reduce forgiven amounts
• Employers can rehire employees previously let go before the application without penalty
Any remaining principal balance of the loan after the loan forgiveness is due in 2 years and carries a 1% interest rate. Loan payments can be deferred for 6 months following the date of the loan disbursement, but will accrue interest during this period. The program prohibits SBA from charging fees to the lender and the borrower.
Information needed for the Loan Application and for Loan Forgiveness
Banks will need the following financial information in order to process the SBA loan application:
Information needed by the bank to apply for the loan:
• Copies of quarterly and year end payroll tax reports filed with the IRS (including Forms 941, 940, state income and unemployment tax filing reports) for 2019.
• Copies of payroll reports for each pay period for the preceding 12 months. Such reports should include gross wages including PTO (which might include vacation, sick, and other PTO). This includes payroll reports through the pay period preceding the origination of the SBA loan.
• Documentation reflecting the health insurance premiums paid by the company under a group health plan including owners of the company for the immediately preceding 12 months prior to the date of the SBA loan origination. Copies of the monthly invoices should suffice.
• Documentation of all retirement plan funding by the employer for the immediately preceding 12 months. Copies of workpapers, schedules and remittances to the retirement plan administrator should be sufficient.
Information needed to present to the bank or SBA for Loan Forgiveness:
• Copies of payroll tax reports filed with the IRS (including Forms 941, 940, state income and unemployment tax filing reports) for the 8-week period following the original of the loan.
• Copies of payroll reports for each pay period for the 8-week period following the origination of the loan. Gross wages including PTO (which might include vacation, sick, and other PTO) should be reflected.
• Documentation reflecting the health insurance premiums paid by the company under a group health plan including owners of the company for the 8-week period following the origination of the loan should be provided. Copies of the monthly invoices should suffice.
• Documentation of all retirement plan funding by the employer for the 8 weeks following the origination of loan should be sufficient. Copies of workpapers, schedules and remittances to the retirement plan administrator should be available.
• Copies of all lease agreements for real estate and tangible personal property should be presented along with proof of payment during the 8-week period following the loan origination date.
• Copies of all statement of interest paid on debt obligations incurred prior to February 15, 2020 indicating payment amounts and proof of payment for the 8-week period following the loan origination date.
• Copies of cancelled checks, statements or other evidence of utilities paid during the “covered period” for the 8-week period following the loan origination date.
IMPORTANT NOTES: Each lender may require more or less information. In addition, each borrower will need to make a certification that the documentation is true and correct, the amount for which forgiveness is being requested was used to make payments to retain employees and to make interest payments on covered mortgage obligations, covered rent obligations and covered utility payments. In addition, the SBA may request further information. There will be NO forgiveness if the documentation is not presented. The SBA will render a decision within 60 days after receipt of an application for forgiveness. The amount of any loan forgiveness under this program is NOT taxable income.