This article may be out of date as the U.S. Senate recently passed the Paycheck Protection Program Flexibility Act of 2020 on June 3, 2020. Please this our latest post on the topic.
The Paycheck Protection Program (“PPP”) Loan is a potentially forgivable loan to small businesses to offset the cost of paying their employees during the COVID-19 pandemic. The PPP loan is intended to keep employees on payroll and reduce the amount of workers that are laid off due to disruptions in business.
What are the PPP loan terms?
If any amount of the loan is not forgiven, the loan terms are as follows:
- 1.00% fixed interest rate
- 2-year term
- 6-month deferral following the date of disbursement of the loan
- No collateral or personal guarantee is required
- No prepayment penalty
In order to have the loans forgiven you must maintain employee and compensation levels for the 8-Week Covered Period and spend the loan amounts on:
- Eligible payroll costs such as salaries, wages, commission, vacation, parental, family, medical or sick leave, state and local taxes (75% minimum and capped at $100K per employee)
- Eligible non-payroll costs such as business rent, utilities and mortgage interest (max 25%)
When can I apply?
- Small businesses and sole proprietorships – starting April 3, 2020
- Independent contractors and self-employed individuals – starting April 10, 2020
Where can I apply?
Through any approved SBA lenders, banks and other federally insured institutions such as credit unions. Depending on the size of your business, some have found more luck applying through local banks and credit unions. The SBA has released a list of SBA lenders. You will need to complete the PPP Loan Application for approval.
Who can apply?
Generally all businesses with fewer than 500 employees can apply such as:
- Corporations
- LLCs
- Nonprofits
- S Corps
- Sole proprietors
- Self-employed individuals
Can I apply for multiple loans?
Each business is only eligible for one PPP loan. There is no limit to the number of lenders you can apply with, BUT each business can only receive one PPP loan. If you have multiple businesses, you can apply for a loan for each business.
What do I need to apply for loan forgiveness?
To apply for forgiveness of your PPP loan, you must complete the SBA’s loan forgiveness application and submit it to your Lender (or the Lender that is servicing your loan).
The PPP loan forgiveness application has the following components:
- The PPP Loan Forgiveness Calculation Form
- PPP Schedule A
- PPP Schedule A Worksheet
- The PPP Borrower Demographic Information Form (optional)
Read our Simple Guide to PPP Loan Forgiveness for a more in-depth discussion on loan forgiveness. A must read!
| Type of Business | Forgiven Amounts | Documents Needed | Requirements |
| Sole Props, Self-employed, SMLLC with no payroll | “Owner Compensation replacement” for 8 weeks based on your 2019 tax return. Includes business rent, utilities and mortgage interest | Schedule C or Schedule K-1 from your 2019 tax return. The return does not have to be complete. Make sure to have records of rent/utility/mortgage interest payments. | Rents/utilities/mortgage interest contracts had to have been in place before February 15, 2020. |
| Sole Props, Self-employed, SMLLC with payroll | “Owner Compensation replacement” for 8 weeks based on your 2019 tax return and payroll expenses and non-payroll expenses. Includes business rent, utilities and mortgage interest. | Schedule C or Schedule K-1 from your 2019 tax return. Form 941 for payroll expenses along with payroll processor reports and records of rent/utility/mortgage interest payments. | Rents/utilities/mortgage interest contracts had to have been in place before February 15, 2020. You will also need to calculate your full time equivalent for employees. |
| Corporations and nonprofits with payroll | Average payroll costs for the 8-Week Covered Period and non-payroll costs. Includes business rent, utilities and mortgage interest. | Form 941 for payroll expenses and other payroll reports verifying the amounts spent on payroll costs. Make sure to have records of rent/utility/mortgage interest payments. | Subject to 75%/25% rule. Rents/utilities/mortgage interest contracts had to have been in place before February 15, 2020. You will also need to calculate your full time equivalent for employees. |
What happens after you submit your loan forgiveness application?
Your lender will have 60 days to make a decision on the amount of your loan forgiveness based on your application. Good luck!
If you have questions or would like to discuss your PPP loan or business with us, please email us at info@horsfordcpa.com or call us at (347) 201-2045. Follow us on Twitter or Facebook for the latest PPP updates.
This post was adapted from the latest SBA/Treasury updates as of May 15, 2020. It is intended to be used for informational purposes only and does not constitute legal, business, or tax advice. It is always best to consult with a qualified professional before making decisions with respect to matters referenced in this post.