As part of the Coronavirus Aid Relief and Economic Security (CARES) Act, the Small Business Administration has launched the Paycheck Protection Program. The program provides small businesses with no-fee funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent and utilities, and are fully forgiven when at least 75% of the amount is used for payroll. Loan payments are deferred for six months and no collateral or personal guarantees are required. We strongly encourage you to visit the US Treasury’s CARES website for the latest information as updates are happening on a daily basis.
Please note that submitting an incomplete application will delay processing significantly. Please be sure to complete all lines in the application, including adding signatures and/or initials to the designated spots. Be sure to include all necessary supplemental documentation as well. These include
- Payroll documentation to confirm the Average Monthly Payroll you entered into the application. Unless your company was newly formed this year (2020), your payroll will be based on your 2019 tax numbers. Acceptable documentation includes any of the following:
- 2019 W-3
- 2019 IRS Form 941 quarterly tax return for all 4 quarters
- 2019 IRS Form 940 annual FUTA tax return
- 2019 year-to-date payroll summary from your payroll processing company
- Schedule C for sole proprietors or single member LLCs
- Form 1065 for partnerships, with accompanying K-1 statements
- Form 1120-S for Subchapter S corporations, with accompanying K-1 statements
- If the business has employees, a payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the business was in operation and had employees on that date.
- If the business has no employees, an invoice, bank statement, or book of record establishing the business was in operation on February 15, 2020 must be provided.
The complete description of SBA and Treasury guidance can be found at the following site: https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf
The guidance addresses calculations and documentation requirements for each of these scenarios:
- Self-employed with no employees.
- Self-employed with employees.
- Self-employed farmers who report income on Schedule F.
- Subchapter S and C corporations.
- Nonprofit organizations.
- Eligible nonprofit religious organizations, veterans’ organizations and tribal businesses.
- Limited liability company owners.
The bank cannot begin processing your application until it is complete. The application will not be considered complete until the signed SBA Form 2483 is submitted along with the necessary supporting documentation listed above. It is important that you provide all of the application materials to the bank promptly so that processing does not get delayed.
What amounts shall be eligible for forgiveness?
The amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest. The actual amount of loan forgiveness will depend, in part, on the total amount spent over the covered period on:
- Payroll costs including salary, wages, and tips, up to $100,000 of annualized pay per employee (for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums);
- Owner compensation replacement, calculated based on 2019 net profit as described in Paragraph 1.b. above, with forgiveness of such amounts limited to eight weeks’ worth (8/52) of 2019 net profit, but excluding any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a credit is claimed under section 7004 of FFCRA;
- Payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business mortgage payments);
- Rent payments on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business rent payments); and
- Utility payments under service agreements dated before February 15, 2020 to the extent they are deductible on Form 1040 Schedule C (business utility payments).
The Administrator, in consultation with the Secretary, has determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C to eight weeks’ worth (8/52) of 2019 net profit. This is most consistent with the structure of the Act and its overarching focus on keeping workers paid, and will prevent windfalls that Congress did not intend.
Congress determined that the maximum loan amount is based on 2.5 months of the borrower’s payroll during the one-year period preceding the loan. Congress also determined that the maximum amount of loan forgiveness is based on the borrower’s eligible payments—i.e., the sum of payroll costs and certain overhead expenses— over the eight-week period following the date of loan disbursement. For individuals with self-employment income who file a Schedule C, the Administrator, in consultation with the Secretary, has determined that it is appropriate to limit loan forgiveness to a proportionate eight-week share of 2019 net profit, as reflected in the individual’s 2019 Form 1040 Schedule C. This is because many self-employed individuals have few of the overhead expenses that qualify for forgiveness under the Act. For example, many such individuals operate out of either their homes, vehicles, or sheds and thus do not incur qualifying mortgage interest, rent, or utility payments. As a result, most of their receipts will constitute net income. Allowing such a self- employed individual to treat the full amount of a PPP loan as net income would result in a windfall. The entire amount of the PPP loan (a maximum of 2.5 times monthly payroll costs) would be forgiven even though Congress designed this program to limit forgiveness to certain eligible expenses incurred in an eight-week covered period.
Limiting forgiveness to eight weeks of net profit from the owner’s 2019 Form 1040 Schedule C is consistent with the structure of the Act, which provides for loan forgiveness based on eight weeks of expenditures. This limitation will also help to ensure that the finite appropriations are directed toward payroll protection, consistent with the Act’s central objective. Finally, 75 percent of the amount forgiven must be attributable to payroll costs for the reasons specified in the First PPP Interim Final Rule.
What documentation will I be required to submit to my lender with my request for loan forgiveness?
In addition to the borrower certification required by Section 1106(e)(3) of the Act, to substantiate your request for loan forgiveness, if you have employees, you should submit:
- Form 941 and state quarterly wage unemployment insurance tax reporting forms, or
- Equivalent payroll processor records that best correspond to the covered period (with evidence of any retirement and health insurance contributions).
Whether or not you have employees, you must submit:
- Evidence of business rent,
- Business mortgage interest payments on real or personal property,
- Business utility payments for the covered period, if you used loan proceeds for those purposes.
The 2019 Form 1040 Schedule C that was provided at the time of the PPP loan application must be used to determine the amount of net profit allocated to the owner for the eight-week covered period. The Administrator, in consultation with the Secretary, determined that for purposes of loan forgiveness it is appropriate to require self-employed individuals to rely on the 2019 Form 1040 Schedule C to determine the amount of net profit allocated to the owner during the covered period.
To learn more of the details about the application requirements and the program, visit the US Treasury CARES website.