In our prior blog posts on March 30 and April 1, 2020, we provided brief descriptions of some of the COVID-19 relief provisions. In those posts, we mentioned the Payroll Protection Program (PPP) loans. The application period for PPP loans is open starting today. Some of the very biggest banks appear to have the online application available. However, not all banks may be ready yet to accept your online application.
The SBA yesterday put out more information about the loans, which we’ll summarize below. We are also attaching the full text of the Interim Final Rules, if you want to dive deeply into them.
The loan can be for 2.5 times your average 2019 monthly payroll costs. To determine your average monthly payroll cost, you start with gross compensation for all employees in 2019 and exclude the compensation over $100k for any employees. You then add the employer cost of health insurance plus state and local payroll taxes (not Social Security and Medicare though) and 2019 retirement plan contributions. You then divide that total by 12 to get the average monthly payroll cost.
The interim final rules increased the interest rate from .5% to 1%. Interest is due only on the portion of the loan that is not forgiven. Any loan or portion of loan not forgiven is due over 2 years.
In order to have the loan forgiven you must spend the amount of the loan you receive on wages, payroll taxes, health insurance, retirement contributions, rent, utilities, (mortgage interest if the business owns the building), and interest on loans that were already in place before 2/15/2020. To earn loan forgiveness, at least 75% of the loan proceeds must be used to pay for wages, payroll taxes, health insurance, and retirement contributions.
Independent contractors do NOT count as employees for purposes of determining the borrowing amount or the forgiveness amount. This is because independent contractors can apply for PPP loans directly themselves.
Please note that if you take the PPP loan, you are ineligible to participate in the other payroll tax credit programs. There might be cases where the payroll tax credits could be more beneficial in total than forgivable PPP loans, but eligibility to claim the payroll tax credits involves satisfying many conditions, including being able to show that your revenue in the calendar quarter in which you claim the payroll tax credit has declined 50% or more as compared to the same calendar quarter in 2019.
The availability of PPP loans is first come, first serve. As of today, the pool of funds available for PPP loans is a fixed amount, which makes it important to apply as quickly as you can. Let us know if we can help in any way.