The Paycheck Protection Program is confusing. We’ve got answers.
What’s the deal with forgiveness? Can PPP funds cover paid sick leave? What does “500 employees or fewer” really mean? To make applying to the Paycheck Protection Program (PPP)—which you can learn more about here—as painless as possible, we’ve rounded up the most popular questions in one convenient spot. Let’s get into the details.
Who’s really responsible for the accurate calculation of payroll costs: borrowers or lenders?
It comes down to the borrowers who are also required to attest to the accuracy of payroll calculations on the Borrower Application Form. Lenders should perform a good-faith review and work out any errors noted with the borrower.
I keep hearing “500 employees or fewer” is a requirement. Are small business concerns required to meet this to be eligible borrowers in the PPP?
No. Small business concerns can be eligible borrowers even if they have more than 500 employees. The catch: They must satisfy the existing statutory and regulatory definition of a “small business concern” under section 3 of the Small Business Act, 15 U.S.C. 632. An SMB can qualify if it meets the SBA’s employee-based or revenue-based size standard for its industry. Or if its maximum tangible net worth is not more than $15 million and its average net income (after Federal income taxes and excluding any carry-over losses) for the previous two fiscal years is not more than $5 million.
Does my business have to qualify as a small business concern to participate?
No. A business is also eligible for a PPP loan if it has 500 or fewer employees whose principal place of residence is in the United States. Alternatively, it could meet the SBA employee-based size standards for the industry in which it operates. Qualifying tax-exempt nonprofit organizations, tax-exempt veterans, and tribal business concerns may also apply.
Who’s responsible for determining the applicability of affiliation rules?
Borrowers must apply the affiliation rules (if necessary) and certify that they are eligible for a PPP loan.
The CARES Act excludes employees with an annual salary over $100,000 from payroll costs. Does that go for cash and non-cash benefits?
No. The exclusion applies only to cash compensation. Employer contributions to retirement plans, group health care payments, and state and local tax payments are considered non-cash benefits.
Do PPP loans cover paid sick leave?
Yes! Including costs for employee vacation, parental, family, medical, and sick leave. However, qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act are not.
My small seasonal business wasn’t fully ramped up on February 15, 2020. Am I still eligible?
Possibly. Lenders may consider seasonal borrowers operating on February 15, 2020 or for eight weeks between February 15, 2019 and June 30, 2019.
My business contracts a third-party payer to process payroll and report payroll taxes—can I use their payroll documentation for my application?
Some states require eligible borrowers that use Professional Employer Organization (PEO) or payroll providers to report wages and other data on the Employer Identification Number (EIN) of the PEO or payroll provider. In these cases, you can use payroll provider documentation showing your employees’ wages and payroll taxes reported to the IRS.
Will lenders accept signatures from an individual who is authorized to sign on behalf of the borrower?
Yes, but they must be an authorized representative of the business.
Can I request a loan to support my small business if I plead guilty to a felony crime?
Yes, as long as you do not own 20% or more of the equity and are currently incarcerated, on probation, on parole, or subject to an indictment, criminal information, or arraignment.
My lender wants me to use their online system to submit the information and certifications requested on the Borrower Application Form—is this okay?
Yes. Also, know that lenders are still required to send the data to SBA using SBA’s interface.
I’m trying to calculate my maximum loan amount. What time period should I use to determine my number of employees and payroll costs?
Calculate your aggregate payroll costs using data from the previous twelve months or 2019. Seasonal businesses can use average monthly payroll for the period between either February 15 or March 1, 2019 and June 30, 2019. If you were not in business from February 15 to June 30, 2019, use the average monthly payroll costs from January 1 through February 29, 2020. You can also calculate it using the average number of employees per pay period in the 12 calendar months (or each pay period if you haven’t been open that long) before your application date.
Does my lender have to use an SBA promissory note, or can they use their own?
Lenders may use either.
The amount of forgiveness depends on a borrower’s payroll costs over eight weeks. When does that eight-week period begin?
On the date the lender makes the first loan disbursement.
Are agricultural producers, farmers, and ranchers eligible?
Yes, but they must have 500 or fewer employees or fit within the revenue-based sized standard.
Does the 500-employee requirement refer to all employees or only full-timers?
It applies to the total number of employees, including part-time employees.
I laid off an employee and offered to rehire them, but they declined. Will my loan forgiveness amount be reduced?
How does SBA review the necessity of a PPP loan request?
All borrowers must certify in good faith that current economic uncertainty makes this loan request necessary to support their ongoing operations. The SBA and Department of the Treasury have created this safe harbor: borrowers (and its affiliates) with an original principal loan amount of less than $2 million to have made the required certification concerning the necessity of the loan request in good faith.