Paycheck Protection Program FAQs for small businesses
As the COVID-19 (coronavirus) pandemic continues to affect communities across the nation, small businesses—often cornerstones of these communities—are facing unprecedented economic challenges. To help these businesses better navigate these uncertain times, the federal government has passed a number of legislative measures, including the Coronavirus Aid Relief and Economic Security Act, or CARES Act.
Specifically, the CARES Act includes the Paycheck Protection Program, a nationwide loan program aimed at helping small businesses affected by the COVID-19 pandemic.
Here are some of the most frequently asked questions from small business owners and their employees about the Paycheck Protection Program:
- Who can qualify for a Paycheck Protection Program loan?
The Paycheck Protection Program makes Section 7(a) loans available to businesses employing 500 people or less in the United States. Your business must have been operating since February 15, 2020, and substantially affected by the COVID-19 pandemic.
Businesses with more than 500 employees may also qualify under certain circumstances. These businesses must take the additional step of consulting the SBA size standards, and should refer to SBA guidelines to view additional types of businesses that may qualify.
- What is the maximum loan amount for a Paycheck Protection Program loan?
Under the Paycheck Protection Program, the maximum loan amount is the lesser of $10 million or 2.5 times the borrower’s average total monthly payroll costs incurred during the year prior to the loan date.
Under the CARES Act, the number you use for your business’ average monthly payroll costs in this formula is your payroll cost amount exactly one year prior to the date of your 7(a) loan application. The loan application suggests, however, that applicants generally will base this calculation on 2019 payroll costs.
- What qualifies as “payroll costs?”
“Payroll costs” include:
- salary, wage, commission or similar compensation
- vacation, parental, family, medical or sick leave
- allowance for dismissal or separation
- payments required for group healthcare benefits, including premiums
- payment of any retirement benefits
- state or local tax imposed on the compensation of employees
Payroll costs DO NOT include:
- compensation for any individual employee in excess of $100,000 in one year, as prorated for the period between February 15, 2020 and June 30, 2020
- any FICA tax or withheld income tax
- compensation of any individual whose principal residence is outside the United States
- qualified sick leave and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act
- How do I apply for a 7(a) loan under the Paycheck Protection Program?
Before you apply, calculate you average monthly payroll costs for the year. Your lender may be able to help. You will need to certify that the funds you receive will be used to support your business and its employees. Have your basic business information (such as EIN, revenue, sales) ready to use for your applications. The SBA provides a list of qualified lenders on its website.
Using this information, fill out the two-page Paycheck Protection Program loan application form that the Small Business Administration has provided for all borrowers and lenders.
Submit the application to your qualified 7(a) lender.
- What can the Paycheck Protection Program loan proceeds be used for?
Paycheck Protection Program loan proceeds can be used for:
- Payroll costs, including benefits
- Payment of interest on any mortgage obligation (principal payments are excluded) incurred before February 15, 2020
- Rent, under lease agreements in force before February 15, 2020
- Utilities, for which service began before February 15, 2020
- Interest on any debt obligations incurred before February 15, 2020
- Refinancing an Economic Injury Disaster Loan (EIDL made between January 31, 2020 and April 3, 2020)
At least 75% of the proceeds of a Paycheck Protection Program must be used for payroll costs.
- What is the interest rate and fees for a Paycheck Protection Program loan?
The interest rate will be 100 basis points, or 1%.
- What will be the maturity date on a Paycheck Protection Program loan?
The maturity is two years.
- Can my Paycheck Protection Program loan be forgiven in whole or in part?
Yes. A borrower is eligible for loan forgiveness equal to the amount spent on the following items during the 8-week period as of the date of the loan:
- Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent
- Utility payments
Only up to 25% of the forgiven amount can be for non-payroll expenses — as incurred and paid during the eight-week period beginning on the date of origination of the loan. The loan forgiveness amount can be up to the full principal amount of the loan and any accrued interest. A borrower will need to document the proceeds used for payroll costs, and other permissible uses, to determine the amount of forgiveness.
The forgiven amount is non-taxable. The SBA is expected to issue additional guidance on loan forgiveness.
- Can I apply for more than one Paycheck Protection Program loan?
No. Borrowers may not receive more than one Paycheck Protection Program loan. Accordingly, if applying for a Paycheck Protection Payment loan, consider applying for the maximum amount you believe you will need.
- Is the Paycheck Protection Program “first-come, first-served”?
Yes.
- When will I have to begin paying principal and interest on my Paycheck Protection Program loan?
You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue during this six-month deferment.
- In addition to the Paycheck Protection Program, are there other loan products that may be available to borrowers?
In addition to the Paycheck Protection Program, businesses impacted by COVID-19 can access the SBA’s long-standing Economic Injury Disaster Loan (EIDL) Program. The maximum Economic Injury Disaster Loan is a $2 million working capital loan at a rate of 3.75% for businesses with up to a 30-year term.
In addition, if you need a small infusion of cash immediately to help offset losses due to COVID-19, eligible applicants can receive a $10,000 emergency grant within three days of application. There is no obligation to repay the grant.
To receive the $10,000 emergency grant, it is not necessary to have an approved Economic Injury Disaster Loan. However, if you are able to secure a Paycheck Protection Program loan, the $10,000 Economic Injury Disaster Loan grant will be subtracted from the Paycheck Protection Program forgiveness amount.
- Can you apply for a Paycheck Protection Program loan and an Economic Injury Disaster Loan?
Yes, but you must use the loan proceeds for different expenses. For example, if you use the Paycheck Protection Program for salaries, you may not use the Economic Injury Disaster Loan for the same purpose.
- Can I get a Paycheck Protection Program loan and take the payroll tax credit?
No. Businesses that take advantage of loan forgiveness under the Paycheck Protection Program are excluded from receiving the payroll tax deferment provided by the stimulus packages.
- What is the deadline for filing for a Paycheck Protection Program loan?
All Paycheck Protection Program loan applications must be received on or before June 30, 2020.
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