Background: The Federal Paycheck Protection Program (PPP) is meant to provide small business with funds to allow to pay their employees while they are unable to operate due to the impacts of COVID-19. If used as intended, the business may have their loan forgiven by the SBA in full or in part. The program began on 04/03/20 and remained open through 08/08/2020.
Eligibility: Eligible businesses included small businesses with less than 500 employees, sole proprietorships, and independent contractors. There are important exclusions, including any business illegal under federal, state, or local law (including cannabis businesses).
Usage of Loan Proceeds: The business must primarily use the loan to pay payroll costs but can include some other expenses such as mortgage interest, rent, utilities, and to refinance disaster assistance loans obtained from the SBA between 01/31/2020-04/30/2020. For your other eligible expenses—rent, utilities, and/or mortgage interest—you must have claimed (or been able to claim) a deduction for those expenses on your 2019 Form 1040 Schedule C. Proof of having paid those expenses during your covered period, such as rent or lease payments, will be required.
Qualifying Payroll Costs: Allowed payroll costs are broadly defined and include compensation to employees, payment for leave time, health and retirement payments, and state and local taxes. For independent contractors or sole proprietors, it includes wages, commissions, income, or net earnings from self-employment or similar compensation. There are important exclusions, including compensation to employees living outside the USA, compensation of individual employees in excess of an annual salary of $100K, and some taxes.
Key Loan Terms:
- Maximum loan amount: the lesser of $10 million or average monthly payroll costs X 2.5
- Interest rate: 1.0%
- Maturity date: 2 years (can be modified up to 5 years)
- Limitation on # of PPP loans: borrowers are limited to no more than 1 PPP loan
- First payment due date: after SBA pays off the forgiven amount, or 10 months after funding.
Loan Forgiveness: Depending on how the business uses the loan, PPP loans can be forgiven by the SBA in whole or in part. There are important restrictions the business must abide by in order to qualify for loan forgiveness, including keeping employees on payroll or quickly rehiring them within 24 weeks of receiving the loan and using the loan primarily for payroll (only 40% may be used for non-payroll eligible expenses).