Payroll protection program

What is it?

The Payroll Protection Program (PPP) provides relief to America’s small businesses. No guarantees or collateral required in connection with the loan. No fees will be charged. The loan program has limited funds so apply as soon as possible.

Who is eligible?

Any small business in the United States with 500 or fewer employees and existed on February 15, 2020 with employees.
Sole proprietors, independent contractors and self-employed individuals are also eligible.

What records must be submitted?

The documents to be provided are payroll reports, and payroll tax returns. For a self-employed individual, you would submit Forms 1099-MISC, if any, and your income statement.

What is the maximum loan amount?

The maximum loan amount is based on a formula:
Step 1: Aggregate payroll costs for the last twelve months for employees working in the United States.
Step 2: Subtract any compensation paid to an employee, or payments to independent contractors or sole proprietor over an annual salary of $100,000 annually
Step 3: Calculate average monthly payroll costs by dividing the amount in Step 2 by 12.
Step 4: Multiply the average monthly payroll costs in Step 3 by 2.5
Step 5: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 less any “advance” under the EIDL.
The loan can’t exceed $10 million.

What is the definition of payroll costs?

Payroll costs consist of:

  • Salary, wages, commissions, or similar compensation limited to $100,000 per individual,
  • Cash tips or the equivalent
  • Payment for vacation, parental, family, medical or sick leave
  • Allowances for separation or dismissal
  • Employee benefits to include health care coverage including insurance premiums, and retirement
  • And state and local taxes assessed on employee compensation.
  • Payments to independent contractors are not considered payroll costs.

How do I calculate my payroll costs if I am self-employed?

Besides the payroll costs listed above, you can add in your self-employment income.

Are there any costs specifically excluded?

  • Qualified sick and family leave wages for which a credit is allowed under sections 701 and 7003 of the Families First Coronavirus Response Act.
  • Compensation in excess of an annual salary of $100,000
  • Compensation paid to employees whose principal residence is outside the United states and
  • Federal employment taxes incurred or withheld between February 15, 2020 and June 30, 2020 including the employee and employer’s share of FICA and income tax withholding. However, based on a conference call with Senator Reed and the SBA representative, this exclusion only applies in the calculation of the loan forgiveness.

What is the interest rate?

The interest rate is 1%.

What is the maturity date?

The maturity date is 2 year, but can be paid back early without a prepayment penalty.

When do I have to make payments on the loan?

Payments will begin after six months of receiving the loan proceeds. However, interest will continue to accrue during the six month deferral.

Can my PPP loan be forgiven in whole or in part?

Loan proceeds used for payroll costs, payments on mortgages incurred before February 15, 2020, rent payments on leases incurred before February 15, 2020 and utility payments on service agreements before February 15, 2020 over an eight week period following the loan are eligible for forgiveness. Not over 25% of the loan forgiveness amount may be for nonpayroll costs.

What forms do I need and how do I submit an application?

SBA Form 2843 (Paycheck Protection Program Application Form) and payroll documentation as described above.

How can the loan proceeds be used?

The proceeds can be used for:

  • Payroll costs
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave and insurance premiums,
  • Mortgage interest payments but not prepayments or principal payments.
  • Rent payments
  • Utility payments
  • Interest payments on debt incurred before February 15, 2020, and
  • Refinancing an SBA Economic Injury Disaster Loan made between January 31, 2020 and April 30, 2020.

At least 75% of the loan proceeds must be for payroll costs.

Are there any resources available?

The SBA issued interim final rule with some details regarding the program. Click [here] for the final rule.
View the link to the PPP lender application form [here].
We are available to help you complete the application. Please contact us at 401-831-0200.

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