Paycheck Protection Program (PPP) Loans FAQs


General

Do you apply for a PPP loan via the SBA website or directly with an authorized lender?

Directly with an authorized lender. The Department of Treasury will be in charge of authorizing new lenders, including non-bank lenders, to help meet the needs of small business owners. The Department of Treasury Fact Sheet states that you can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, or farm credit system institutions that are participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.

Can I get more than one PPP loan?

No, an entity is limited to one PPP loan.

Are personal guarantees or collateral required for a PPP loan?

No personal guarantees or collateral are required for the covered loan. In addition, SBA has no recourse against any individual shareholder, member or partner of an eligible recipient of a covered loan for nonpayment of any covered loan, except to the extent that the shareholder, member or partner uses the covered loan proceeds for a purpose not authorized.

Is it a first-come, first-serve basis, and do I need to apply immediately for a PPP loan?

Yes, per the SBA’s Interim Final Rule published on April 2, 2020. The CARES Act appropriates $349 billion for the PPP. As per the Fact Sheet mentioned above, we encourage you  to apply  quickly   because there is   funding cap  and  lenders need time to process the loan.  

What is the ‘covered period’?

General provisions of the CARES Act: February 15, 2020, to June 30, 2020.

Loan forgiveness provisions of the CARES Act: Eight-week period beginning on the date of the origination of the PPP loan.

Can I participate in both the PPP and Economic Injury Disaster Loan (EIDL) programs?

If an EIDL loan was obtained related to COVID-19 between January 31, 2020, and the date at which the PPP loan becomes available, borrowers may be able to refinance the EIDL into the PPP loan. However, borrowers may not take out an EIDL and a PPP for the same purposes.If a borrower took advantage of an emergency EIDL grant award of up to $10,000, that amount would be subtracted from the amount forgiven under the PPP.

What if I already took out an EIDL, but I would prefer to take out a PPP loan?

An EIDL loan made under subsection (b)(2) during the period beginning on Jan 31, 2020, and ending on the date on which covered loans are made available may be refinanced as part of a covered loan.

Eligibility

What types of businesses and entities are eligible for a PPP loan?

  1. Business, non-profit, veteran organization, or Tribal businesses that employ 500 or fewer employees (or, if applicable and larger, the employee size standard established for the industry). Further information can be found here.   
  2. Special provisions for accommodations and food services industry (NAICS codes beginning with 72) for determining number of employees:
    1. Affiliated employer rule waived
    2. Measured per physical location
  3. Affiliated employer rule waived for franchiser that is issued a franchise ID code and businesses receiving financial assistance from an SBIC. Further information can be found here.
  4. Sole-proprietors, independent contractors and eligible self-employed individuals as defined   in the Families First Coronavirus Response Act (FFCRA).

We are owned by a private equity group, venture capital firm or family office; are we eligible?

Based on the current guidelines and limited waiver of affiliation rules, it would appear that PEGs and their portfolio companies would be subject to the affiliation rules and would likely not be eligible for a PPP loan.

What is the deadline to apply for a PPP loan?

The covered period for obtaining a PPP loan ends June 30, 2020. However, the Department of the Treasury has recommended applicants  apply  quickly as there is a funding cap and lenders need time to process the loan. Click here for more information regarding the time lenders need to process any loans.

Maximum Loan Amount

What is my loan maximum amount?

The lesser of

  1.  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,
  2. or $10 million.

May the average monthly payroll period be based on the calendar year ended December 31, 2019?

The form instructions as of the morning of April 3 indicate that applicants may use 2019 calendar year.  The interim final rule also indicates that the 2019 calendar year may be used.

Do independent contractors count as employees for purposes of loan calculations?

No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.

Payroll Costs

What are included in the payroll cost?

The following items are included as a payroll cost (excluding costs over $100,000 on an annualized basis per employee):

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

What are not considered payroll costs for the purpose of the PPP loan?

Payroll costs do not include the following expenses:

  1. The compensation for an individual employee which is in excess of an annual salary of $100,000, as prorated for the covered period.
  2. 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).
  3. Any compensation of an employee whose principal place of residence is outside of the U.S.
  4. Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–127).
  5. Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

Allowable Use of Proceeds

What can I use the loan proceeds for?

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.

What percentage of the loan proceeds must be used for payroll costs?

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.

What if I use the loan proceeds for allowable costs that are not forgiven?

Any loan proceeds used to pay for allowable costs that are not forgiven will be included in a total that is due in full within two years. However, the first payment will be deferred six months, and interest will accrue over that period.

Amount of Loan That is Forgiven

How much of my loan may be forgiven?

  1. Sum of payments made during the eight-week period beginning on the date of the origination of the covered loan for: payroll cost, interest on covered mortgage, covered rent, and covered utilities. This will be reduced for the following:
    1. Decreases in full-time equivalent (FTE) employees and decreases of more than 25 percent in compensation to employees making less than $100,000 on annualized basis.  (Reductions in FTEs or compensation occurring between February 15, 2020 and 30 days after enactment of the CARES Act are not taken into consideration if restored by June 30, 2020.)
  2. Per the SBA’s Interim Final Rule published on April 2, 2020, not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs.

Do independent contractors count as employees for purposes of the loan forgiveness?

No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan forgiveness.

How is the reduction in FTEs calculated?

The amount of loan forgiveness shall be reduced by multiplying the amount of the potential loan forgiveness by the quotient obtained by dividing: the average number of full-time equivalent employees (FTEs) per month during the 8-week covered period by (at the election of the borrower) i) the average number of FTEs per month from Feb 15, 2019 to June 30, 2019, or ii) the average number of FTEs per month from Jan 1, 2020 to Feb 29, 2020. For seasonal employers, one should use the average number of FTEs per month from Feb 15, 2019 to June 30, 2019.

How is the reduction in compensation calculated?

The amount of loan forgiveness shall be reduced by the amount of any reduction in total salary or wages of any employee during the 8-week covered period that is in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.

What are considered payroll costs for the forgiveness determination?

See payroll costs section above

What is a covered mortgage obligation?

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,

What is a covered rent obligation?

Any rent obligation under a lease agreement in force before February 15, 2020.

What if there is no formal rent agreement in place?

An executed lease agreement dated prior to February 15, 2020 in order to include rent payments in the amount to be forgiven.

What is a covered 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 if the borrowing entity is paying rent to a related party?

  1. 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.
  2. There is nothing in the CARES Act that specifically prohibits this to be considered as covered rent and we are awaiting further guidance.

How do I prove and validate what the loan proceeds were used for to satisfy the requirements for loan forgiveness?

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:

  1. 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:
    1. (A) payroll tax filings reported to the IRS, and,
    2. (B) State income, payroll, and unemployment insurance filings
  2. 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.
  3. 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.

When will I know that my loan will be forgiven?

Not later than 60 days after the date on which a lender receives an application for loan forgiveness, the lender shall issue a decision on the application.

Is the debt forgiveness taxable?

The CARES Act states for purposes of the internal revenue code, the forgiveness will not be includable in gross income.

Repayment terms

What are the repayment terms if I do not have my loan forgiven?

Under the CARES Act, no longer than 10 years and no more than 4 percent. Under the SBA’s Interim Final Rule, the terms for all loans would be due in two years with a 1.00 percent fixed interest rate.

Are there any prepayment penalties?

No.

Are the payments deferred for a period of time?

Yes, both principal and interest payments shall be deferred for six months from the origination of the loan.

For questions or additional information, please contact CARESActQuestions@dhg.com.

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