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Paycheck Protection Program Loans
Paycheck Protection Program Loans
has had a significant effect on the lives of millions of people across the United States. Small business owners are some of those hardest hit by the pandemic, as governors throughout the country have shut down restaurants, bars, retail shops, hair salons and others as a means to stop the spread of the virus. While some organizations still offer online ordering,
delivery and carry out options
, there’s no doubt it will take some time until things are running “business as usual” again.
The good news is that on March 27, 2020, the
Coronavirus Aid, Relief, and Economic Security (CARES) Act
was signed into law to deliver much needed relief to individuals and businesses negatively affected by COVID-19. The CARES Act provides a variety of programs and initiatives designed to support small business owners during these difficult times, including $349 billion in small business loans.
What are Paycheck Protection Program Loans?
One of the key initiatives for small business support in the CARES Act is the Paycheck Protection Program (PPP), which offers government-backed loans from a network of
Small Business Association (SBA)
lenders across the country starting April 3. Up to 100% of the principal amount of these loans is forgiven if small businesses keep workers on the payroll (without salary reductions) or rehire laid off employees.
U.S. Department of the Treasury
states that PPP loans can be used to cover payroll costs, most mortgage interest, rent and utilities over the eight-week period after the loan is made, provided that employee and compensation levels are also maintained.
Unfortunately, as of April 16, 2020, the SBA announced that the initial $349 billion Congress allocated for PPP loans had been depleted. However, Congress passed a new bill on April 24, providing an additional $310 billion in relief for small businesses with $60 billion set aside for small lenders, another $60 billion in SBA disaster loans, $75 billion in grants for hospitals, and an additional $25 billion to increase testing for COVID-19. The funds became available on April 27.
On June 5, the
Payment Protection Program Flexibility Act
was signed into law to address some of the concerns small business owners had about the initial program. The PPPFA includes:
Changes the amount of the loan needed for payroll from 75% to 60%
Extends the time period to use funds from 8 to 24 weeks, allowing businesses to have until the end of 2020 to use the funds
Pushes back the deadline to rehire workers from June 30, 2020 to December 31, 2020
Eases rehire requirements by extending the rehire date and providing additional exceptions for a reduced headcount
Extends the repayment term from two to five years in the event loans or portions of them are not forgiven
What Small Businesses Need to Know about PPP Loans
Let’s take a closer look at the Paycheck Protection Program, including some of the most frequently asked questions and the information small business owners need to start the application process.
Who is eligible to receive PPP loans?
To be eligible for a PPP loan, the criteria includes:
Must be a small business, 501(c)(3) nonprofit or tribal business concern with 500 or fewer employees, 501(c)(19) veterans organization, or other select businesses that meet the applicable SBA standards
Independent contractors do not count as employees, however, self-employed, sole proprietors, freelance and gig workers may apply
Principal place of residence is in the United States
Must have been in operation on February 15, 2020 and paid employees’ salaries and payroll taxes
What are the key terms for PPP loans?
Loans under the Paycheck Protection Program can be 2.5 times the borrower’s average monthly payroll costs and cannot exceed $10 million. PPP loans are first-come, first-served, and the basic terms include:
Application for PPP loans must be made by June 30, 2020
Interest rate: 1%
Maturity date: Two (2) years
Borrowers may only receive one PPP loan
Interest payments will be deferred for the first six months
At least 75% of PPP loan must be used for payroll costs
No personal guarantee or collateral required
What is meant by “payroll costs?”
Here’s a closer look at what PPP loans will cover in regards to payroll costs:
Salary, wages, commissions, or similar compensation
Cash tips or the equivalent
Payment for vacation, parental, family, medical, or sick leave
Allowance for separation or dismissal; payment for group health care coverage
Payment of state and local taxes assessed on compensation However, the following are not considered payroll costs:
Compensation of an employee whose principal residence is outside the United States
Any compensation paid to an employee in excess of an annual salary of $100,000
Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA, Railroad Retirement Act taxes and income taxes required to be withheld from employees
Sick and family leave wages where a credit is allowed under the
Families First Coronavirus Response Act
How can small businesses determine their maximum loan amount?
The maximum loan amount can be determined in five steps:
: Aggregate payroll costs from the last 12 months for employees who are U.S. residents
Subtract compensation in excess of an annual salary of $100,000
Divide the total by 12 to determine average monthly payroll
Multiply the average monthly payroll by 2.5
Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 30, 2020, less the amount of any advance under an EIDL COVID-19 loan
This can also apply for the lesser of $10 million or the amount determined in step 5.
What portion of the loan can be forgiven?
The amount of the loan that can be forgiven includes the amount up to the full principal plus any accrued interest. Expenses like payroll costs, mortgage or rent and utility payments may be eligible for loan forgiveness.
However, keep in mind the amount of loan forgiveness may be reduced if there is a reduction in the number of employees or the amount of wages paid to the company’s employees. This forgiveness reduction can be decreased or eliminated if the business restores the reduced wages or brings back any laid off employees.
What can PPP loan proceeds be used for?
Borrowers can use their loan proceeds for:
Payroll costs (Note that at least 75% of loan proceeds must be used for payroll costs)
Group health care during periods of paid sick, medical, or family leave, and insurance premiums
Mortgage interest payments (but not mortgage prepayments or principal payments)
Interest payments on any other debt obligations that were incurred before February 15, 2020
Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
Does a PPP loan coordinate with other SBA loans?
Those who receive an SBA EIDL loan from January 31, 2020 through April 3, 2020 are not precluded from applying for a Paycheck Protection Program loan. If the EIDL loan was not used for payroll costs, it does not affect the eligibility for a PPP loan.
However, if an EIDL loan was used for payroll costs, the PPP loan must be used to refinance the EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
How can a small business apply for a Paycheck Protection Program loan?
Small businesses can apply for PPP loans through any existing SBA 7(a) lender or any participating federally insured depository institution or credit union, and Farm Credit System institution. All current SBA 7(a) lenders are eligible lenders for the Paycheck Protection Program, and the U.S. Department of Treasury is in charge of approving new lenders to meet the needs of small businesses. Small business owners can contact their bank to find out if they are an SBA 7(a) lender, or
view a list of active lenders here
. To view a sample application,
Payment Protection Program Resources
Here’s a helpful list of links for more information about PPP loans:
AmTrust: What are Paycheck Protection Program Loans?
U.S. Chamber of Commerce – Coronavirus Emergency Loans
U.S. Department of Treasury – PPP Loans Fact Sheet
U.S. Senate Committee on Small Business & Entrepreneurship: Small Business Owner’s Guide to the CARES Act
AmTrust Supports Small Businesses
AmTrust offers our support to our small business policyholders as well as our appointed agents during these uncertain times. We’ve created a
library of resources
regarding the coronavirus to help you stay informed, safe and healthy. For more information about our
small business insurance
This material is for informational purposes only and is not legal, tax or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is accurate, appropriate or suitable for any specific business, tax or legal purpose. Readers seeking resolution of specific questions should consult their business, tax and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.
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