Paycheck Protection Program
Paycheck Protection Program.
Summary: Immediate loan equal to 250% (2.5 times) of your average monthly payroll salaries. This program provides immediate working capital injection to your small businesses to specifically support payroll including paid sick, medical or family leave and costs related to continuation of group health care benefits, salaries, mortgage payments, rent, utilities only.
About the Program.
The Paycheck Protection Program will provide up to 250% of your average monthly payroll in cash-flow assistance through 100 percent federally guaranteed loans to small employers (less than 500 employees), who maintain their payroll during this emergency. If the employer maintains its payroll, then the portion of the loan used for covered payroll costs, interest on mortgage obligations, rent, and utilities will be 100% forgivable.
This is an expansion of the existing SBA 7A Program.
It does not matter your tax filing status. Sole Proprietorship, LLC’s, C-Corps and S-Corps are available for this loan. Yes, sole proprietors, independent contractors, and eligible self-employed individuals are indeed also eligible for loans, subject to some documentation requirements as detailed below to substantiate (prove) eligibility and income. Basically you will need to prove your companies payroll or in the case of an independent contractor situation you will need to prove your income (via 1099 etc.).
The maximum loan amount is 2.5 times average total monthly payroll costs incurred in the one-year period before the loan is made or $10,000,000. There is a additional provision for seasonal businesses, the maximum loan for the 12 weeks beginning on February 15, 2019, or from March 1, 2019 to June 30, 2019.
Example
Here’s an example: for instance, if your business paid out $250,000 in payroll in 2019, and your average monthly payroll was $20,833 per month, the max amount you would be able to obtain from this loan is $52,083 ($20,833 x 2.5)..
In another example, let’s say your business paid out $750,000 in payroll in 2019, and your average monthly payroll was $62,500 per month, the max amount that you would be able to obtain from this loan is $156,250 ($62,500 x 2.5).
Additionally, this loan qualifies for complete loan forgiveness. More, specifically, the loan is forgiven (and its excluded from gross income for your 2020 taxes) in an amount (not to exceed the principal amount of the loan) equal to the following costs incurred and payments made during the covered period: Payroll costs; Interest payments on mortgages; Rent; and Utility payments. The key is you must use this loan on qualified business expenses.
Additionally there is no personal guarantee for these loans, no collateral requirement, and no filing fees from you, the business owner!
2 key items: First, there is only $350 billion available for this program. You must apply quickly. With the demand I am anticipating, this loan program will be over-subscribed. Apply now, deadline is June 30,2020. (See application instructions below.)
John’s Take: The Paycheck protection program is amazing! This program will put immediate dollars into your businesses hands. The forgivable loan covers 250% and 8 weeks of your businesses payroll and overhead expenses. This Paycheck protection program is available for all businesses as long as you have 500 or less employees and were in business as of March 1, 2020.
The one thing to watch out for is these loans are “forgivable,” but not automatically forgiven. They are forgiven if you meet the guidelines as described below:
The details of the Paycheck Protection Program easily explained….
How do I know if my business is eligible for this loan?
This is a very simply program to qualify for - there are only four simple qualifications:
Your business must have been in business on February 15, 2020. “Your business” means your business entity LLC, S-Corp, C-Corp or your personal business if you are considered a sole proprietor, independent contractor, or other self employed individual.
You or your business has Taxpayer Identification Number (TIN) or Employer Identification Number (EIN) number
Your Business has 500 or less employees
You or your business had employees for whom the borrower paid salaries and payroll taxes or paid independent contractors, as reported on Form 1099-MISC.
OK, my business is eligible for the this Paycheck Protection Loan, I meet the four requirements, what can I use proceeds for this loan for?
The program is very specific you can only use it in the following ways if you want the loan to be forgiven: use it for the following items:
Any payroll costs that were consistent to your proceeding 12 months of payroll costs
Employee salaries, commissions, or similar compensations.
Health care benefits (Paid Sick, Healthcare, Family Leave, and Healthcare insurance premiums)
Payments of interest on any mortgage obligation (which shall not include any prepayment of principal on a mortgage obligation);
Rent (including rent under a lease agreement)
Utilities
Is it true this loan will be forgiven?
If you use the loan for the above items (which must be proven at the end of 2020 to your bank), then your loan will be completely forgiven provided that you keep the same level of employees that you had in February 2020 to December 2020! So what does that mean- if you laid off some employees in 2020 then you would need to rehire employees by the end of the year in order to get full forgiveness? Basically, if the business uses the loan funds for the approved purposes and maintains the average size of its full-time workforce based on when it received the loan, the principal of the loan will be forgiven.
For example, if you employed 100 people in February 2020 and had to lay off 30 people as long as at the end of the year you hire those employees back your loan will be 100% forgiven. If you did not hire back the full amount of employees you laid off then the loan will only be partially forgiven.
For example the amount of loan 6 forgiveness under this section shall be reduced by the amount of any reduction in total salary or wages of any employee described that is in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period.
If you use the loan for other expenses in your business not included in the above items, then your loan will not be forgiven and you will be required to pay the loan back at a low interest rate of 4% over 10 years. Additionally, if your loan is not forgiven then you will have a complete deferral of the loan for 6 months both interest and tax free.
Here are the application instructions:
1) Gather the required documents-
A copy of your TIN or EIN Number
Proof that your in business as of February 20, 2020 through copies of your debit card transactions, rent payments, etc.
A copy of employee roster. This is usually run from your accounting or payroll system. This is used to substantiate you have 500 or less employees.
Calculation Support for Loan disbursement (W2’s and 1099’s for the last 12 months) See worksheet I created here.
2) Submit application to lender that includes the above items and other items to the SBA.
3) Certify that the eligible recipient applying for a covered loan shall make the following good faith certification
that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
Acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments
That the eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied
Additionally there is no personal guarantee for these loans, no collateral requirement, and no filing fees from you, the business owner! Beware of any loan brokers, banks, or individuals charging for this service.