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U.S. Treasury Dept. Provides Clarity on the Paycheck Protection Loan Program
Further clarity from the Treasury Department was released yesterday on how
the PPL Program will work. Please note that the information below clarifies
something that was unclear or modifies statements regarding the PPL Program.
Application Process Start Date:
- Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. While the form is now available (see link below), only applications submitted through their online portals will be accepted for filing, and these are not available yet.
- Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
- Although the program doesn’t end until June 30, 2020, it is believed that since there is a funding cap and processing loans may take some time, that you should apply as quickly as possible. It is recommended that you reach out to your existing bank relationships to confirm that they will be processing PPP Loans, and if so, request to be placed on their list of customers desiring PPP Loans. You should not submit an application to more than one bank however.
How do I determine the loan amount?
- The average monthly Payroll Costs will be based on calendar year 2019 which is different from what was stated in the CARES Act.
- Although SBA guidance now says the lender will compute the loan amount, several banks have told their customers that the applicant should consult with their advisors to properly compute the loan amount being requested.
- Although the CARES Act did not state any documentation requirements for the loan amount, the application calls for documentation of tax filings to support the calculated loan amount. We believe this may include payroll tax returns, income tax returns, W-2 forms, and 1099s MISC, among others.
The loan amounts will be forgiven as long as:
- The loan proceeds are used to cover Payroll Costs, mortgage interest, rent, and utility costs over the 8-week period after the loan is made; and
- Employee and compensation levels are maintained.
Payroll costs are capped at $100,000 on an annualized basis for each employee.The Treasury now says Payroll Costs during the 8-week period must make up at least 75% of your total qualified spend for forgiveness. They have effectively limited the amount of other qualified expenses to make up for any payroll reduction during the benefit period which could limit your forgiveness.
How do I request loan forgiveness?
You can submit a request to the lender that is servicing the loan. The request must include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and correct, and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the loan forgiveness application within 60 days.
What is my interest rate on any remaining loan balance not forgiven?
1% fixed rate
When do I need to start paying interest on my loan?
All payments are deferred for 6 months; however, interest will continue to accrue over this period.
When is my loan due?
In 2 years, but there is no prepayment penalty.
Do I need to personally guarantee this loan?
No. There is no personal guarantee requirement, and no collateral is required.
Again, you can find the PPP loan application form at: U.S. Department of the Treasury
Paycheck Protection Program for Independent Contractors
Independent contractors will need to submit schedules from their 2019 tax return filed (or to be filed) as well as Form 1099-MISC from 2019 prior to June 30.
You will need to provide payroll/bookkeeping records to prove your payroll expenses. Such as: payroll processor records, payroll tax filings, form 1099-MISC records, income and expenses from a sole proprietorship.
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