The Paycheck Protection Program or PPP. The program is $350 billion in (potentially) forgivable loans to keep workers on the payroll.
The coverage has made the loans sound overwhelming. But, for some, it’s just a matter of breaking down the details. For example, to be eligible, a business must meet some essential criteria:
- Have no more than 500 employees (individuals employed full time, part time or other basis) with certain restrictions applying;
- Principal place of business is physically in the United States; and
- Operational as of February 15, 2020.
Sole proprietorships, independent contractors, gig-economy workers, and self-employed individuals are also eligible for a PPP loan.
There was a provision that would have excluded farmers and agricultural businesses and instead direct them to Farm Service Agency (FSA) loan programs. However, that’s been changed.
You can borrow up to your average total monthly payroll costs during the one year immediately before the loan multiplied by 2.5, or 250% of average monthly payroll expenses. The cap is $10 million.
Payroll costs are capped at $100,000 (annualized) for each employee. The $100,000 limit does not include healthcare, retirement benefits, and state and local taxes. Payroll costs include what you’d think: salary, wages, commissions, or similar compensation, as well as tips, for employees in the United States. It also includes payment for leave (including vacation, parental, family, medical, or sick leave but not those that you get a credit for under the Families First Coronavirus Relief Act); severance packages; employee group health care benefits; and state and local taxes on compensation. If you’re an independent contractor or sole proprietor, it refers to your wage, commissions, income, or net earnings.
Payroll costs do not include federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including Federal Insurance Contributions Act (FICA) and Railroad Retirement Act taxes, as well as income taxes withheld from employees (but you probably already guessed that).
Payroll costs do not include money paid to independent contractors.
The money can be used for employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments. You can also use the funds for family, medical, and sick leave. But you can’t double-dip: no using PPP for qualified sick and family leave wages if you’re taking a tax credit for those costs under the Families First Coronavirus Response Act.
There are no standard 7(a) fees on the loan. There may be fees charged by your tax or other professionals to assemble and submit the application. No collateral or personal guaranties required.
The interest rate is 1%, and loan payments for any non-forgivable bits will be deferred for six months.
The loan can be forgiven if all employees are kept on the payroll for eight weeks, AND the loan proceeds are used as intended – that means payroll, rent, mortgage interest, or utilities.
There are strings. For example, no more than 25% of the loan forgiveness can be related to non-payroll costs. And since the whole point is to encourage businesses to hold onto employees, the amount of the loan available for forgiveness will be decreased if full-time headcount declines, or if salaries and wages fall. You’ll want to pay attention to the details. If the loan is forgiven it doesn’t become taxable income like many other forgiven loans.
Lenders had the ability to process loan applications on April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020. Its possible that the period may be extended longer. The money is going quickly and Congress is mulling another package. Small businesses and sole proprietors could apply as of April 3, 2020. Starting April 10, 2020, independent contractors and self-employed individuals can apply.
You can sign up for a PPP loan at any lending institution that is approved to participate through the existing SBA 7(a) lending program, or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.
Although possibly forgivable keep in mind this is an actual loan. So there will be restrictions and supporting documents required.
If you don’t want a loan there is also a tax credit for keeping employees.