Walter & Shuffain - Certified Public Accountants & Business Advisors

What is the Paycheck Protection Program (PPP)?

NOTE:  "The Small Business Administration will resume accepting PPP loan applications on Monday, April 27 at 10:30AM EDT from approved lenders on behalf of any eligible borrower. This will ensure that SBA has properly coded the system to account for changes made by the legislation."

Description and Purpose of Paycheck Protection Program

Phase 3 and Phase 4 of the COVID-19 response plan, The Coronavirus Aid, Relief and Economic Security (CARES) Act included the “Paycheck Protection Program” (PPP) for small businesses. The PPP provides short-term cash flow assistance to small businesses to help these businesses and their employees deal with the immediate economic impact of the COVID-19 pandemic. Loans are made by lenders certified by the Small Business Administration (SBA) and guaranteed by the federal government. The SBA will administer the PPP. 

Eligibility Period

  • PPP loans must be made during the period prior to June 30, 2020.

Paycheck Protection Program Eligible Business

  • The PPP is available to any business that is independently owned and operated, organized for profit, 501(c)(3) nonprofits and 501(c)(19) veteran’s organizations, if it employs 500 or fewer employees (includes full-time, parttime).  Eligible small businesses also include sole-proprietors, independent contractors, or other self- employed individuals, such as “gig economy” workers.
  • The PPP is also available to franchises that are assigned a franchise identifier code by the SBA and businesses in the accommodation and food services sectors (i.e., businesses with a NAICS code beginning in 72). 

Use of Paycheck Protection Program Loan Funds

  • PPP loan proceeds are generally to be used for: 
    • Payroll costs, excluding the prorated portion of any compensation above $100,000 per year for any person
    • Group healthcare benefit costs and insurance premiums
    • Payment of any retirement benefit
    • Mortgage interest (but not prepayments or principal payments), utility and rent payments
    • Interest on debt that existed as of February 15, 2020 

Paycheck Protection Program Loan Terms

  • PPP loans can be as large as 250% of a business’s average monthly payroll costs over the last 12 months, not to exceed $10 million; provided, that, as noted above, salaries over $100,000 are not counted as payroll costs.  The AICPA ( American Institute of CPAs) has put out some good payroll calculators here
  • PPP loans have a maximum interest rate of 1%. In addition, PPP loans only start to mature following the date an eligible business applies for loan forgiveness, and can have a maximum maturity of two (2) years from such date.
  • No Security or Personal Guarantee; SBA Fee and Hardship Requirements Waived; Recourse to Owners for Misapplied Loan Proceeds
  • No collateral is required to be pledged and the normal personal guarantee requirement for SBA loans is waived. The SBA’s guaranty fee and annual servicing fee are also waived, as is the requirement that the business is not able to access credit elsewhere. So long as a business uses PPP loan proceeds for the purposes described above, the loan will be nonrecourse to the business’ shareholders, members and partners.

Payment Forgiveness - See W&S blog post- PPP Loan Forgiveness- Next Steps

  • Principal amounts on PPP loans, for the first 8-week period from when the PPP Loan is made, may be forgiven, if loan funds are used to cover payroll costs, interest payments on mortgages (not including prepayments or principal), rent and utilities.  The 8-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. 
  • Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs or put another way,  at least 75% of the PPP loan proceeds shall be used for payroll costs, as defined. 
  • If PPP funds are used for unauthorized purposes, the SBA will direct you to repay those amounts.
  • To apply for forgiveness, businesses must submit documentation regarding the eligible uses of loan funds (payroll costs, mortgage interest, utilities, etc.), a certification that such documents are true and correct, as well the amount to be forgiven, and any other documentation the SBA Administrator deems necessary. The SBA will purchase any loan forgiveness amounts from its certified lenders and this canceled indebtedness will not result in taxable income to the business.

Payment Deferral

  • For principal amounts that exist after any loan forgiveness under the PPP, small businesses may defer payment of remaining principal, interest, and fee balances for at least 6 months and not more than a year. Under the PPP, all borrowers are allowed to apply for deferment and all lenders have to apply complete deferment for all remaining balances for at least 6 months. Thus, businesses under the PPP can get a substantial portion of their loan forgiven in the first 8 weeks after the loan is issued, and not have to make any payments for up to a year.

How to obtain a Paycheck Protection Program Loan

  • The SBA is authorizing banks and other commercial lenders currently authorized to make SBA loans to originate and administer the new loan program.    Beginning April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Starting April 10, 2020, independent contractors and self-employed individuals can apply. The act allows banks to place preference on their current customers.

For everything you need to know about applying for a small business loan, see the U.S. Chamber’s Coronavirus Emergency Loans Small Business Guide and Checklist.

Additionally, you can see information provided by the American Institute of CPAs.

Contact us directly should you have any further questions.  At this time, the majority of our staff are currently working from home, which means the best means for contact is via email.  We continue to work hard to ensure your personal and business needs are met during these tumultuous times. Stay safe and healthy!

Yours truly,

Walter & Shuffain, P.C.