Now that the Paycheck Protection Program (PPP) has been open for applications for almost two weeks, more details about the process, payroll calculations, and loan forgiveness are becoming available from the Small Business Administration (SBA) and Treasury Department. This $349 billion program is designed to help small and mid-sized businesses retain employees and stay afloat through the coronavirus crises.

Below are answers to a number of questions that we’ve received over the last week, but first here is a disclaimer. It’s important to note that the PPP is still evolving, kind of like building a car while traveling 60 mph. As the SBA and Treasury Department continue to issue updates and guidance, the answers to the questions listed below may change. We’ll try to keep this post updated, and add new questions/answers as needed.

Who is eligible for a PPP loan?
Small businesses with 500 or fewer employees can apply for a loan under the program. Entities include sole proprietors, S corporations, C corporations, limited liability companies, independent contractors, self-employed individuals, and nonprofits. More details are available on the SBA website.

How much money can I borrow?
An eligible borrower may receive up to 2.5 times its average monthly payroll costs incurred over the last year. So, if your company’s average monthly payroll for the past 12 months was $20,000, then you can borrow up to $50,000.

Here are a few additional details to consider:

  • The definition of “payroll” may include more than just salary. We can help make sure you correctly calculate your total eligible payroll costs.
  • Only the first $100,000 of an employee’s compensation can be included in total payroll calculations.
  • The maximum loan amount is $10 million per business.

Can I include both employees and independent (Form 1099) contractors?
Only employees should be included in your calculations. This is a change from early guidance. 1099 contractors can apply for their own PPP loan.

How do sole proprietors, self-employed individuals, and independent contractors apply, and on what basis?
Sole proprietors, self-employed individuals, and independent contractors can apply for PPP loans starting Friday, April 10, but please check with your bank for its exact application date. Note that similar restrictions apply, including eligibility for up to $100,000 in annual compensation per person. There will probably be additional updates provided by the SBA and Treasury Department, so we’ll try to adjust accordingly.

What do I do if my bank doesn’t offer PPP loans, or I don’t qualify through my bank?
Unfortunately, you may need to shop around to find an alternative bank. While most banks are prioritizing current clients, some are accepting outside applications. A few SBA-approved banks have decided not to offer PPP loans at all. The SBA website has a listing of eligible lenders.

What can I use the money for?
The intent of the program is to keep your business running and your employees paid. To receive forgiveness (see below), you’ll need to retain your full-time employee headcount, maintain at least 75% of overall wages, and spend at least 75% of the money on payroll. No more than 25% of the forgiven amount may be spent on non-payroll essential expenses, like rent, mortgage interest, and utilities.

Can I use this money for other business expenses?
You can technically use the loan for any business expense, but only payroll and other essential expenses are eligible for forgiveness. If the loan is not forgiven, you must repay the loan within 2 years at 1% interest. No payments are required for the first 6 months.

Is this the same as the free Small Business Administration (SBA) grant money?
No, the $10,000 Economic Injury Disaster Loan (EIDL) emergency grant is a different program than PPP. The grant is essentially an advance on the EIDL, available even if your loan application is subsequently not approved. You can’t use the EIDL grant and PPP loan for the same purposes, so it would be a good idea for us to review your specific situation and recommend the right solution.

When I submit the application, does that mean I’m done?
No. The bank needs to process the application, then send your info to the SBA for review and approval, since the SBA is guaranteeing the loan. Expect to receive a request for more specific tax and other financial documents.

How long will it take to get the money?
Typically, it can take a couple of months to receive money from an SBA loan. PPP loans are supposed to have a faster turnaround time, but there is tremendous demand. Be patient.

How do I get loan forgiveness?
Everyone seems to be focused on lending money now, so details of the forgiveness process are still not very well defined. It looks like you’ll make a forgiveness request to the lender 8 weeks after receiving your loan. The lender will then apply to the SBA for your loan forgiveness. The SBA is expected to provide additional guidance soon

How can BJM help?

Bach, James, Mansour & Company can help determine your loan amount and ensure you have the correct PPP eligible payroll or self-employed income. After you receive your loan, we can help you maintain appropriate records and compliance documents so you can receive the proper amount of loan forgiveness. Contact your BJM CPA, or the firm at 678-551-2900 or info@bjmco.com.