SBA Paycheck Protection Program (PPP)

Congress recently passed the CARES Act which includes the Paycheck Protection Program.

This program offers loans which can be forgiven if certain conditions are met.

WHO QUALIFIES FOR THESE LOANS

Most businesses will qualify.  The application requirements are as follows:

The business must have been in operation since February 15, 2020,

Have 500 or less employees,

Paid salaries or non-employee compensation, and

Can demonstrate that the business was economically affected by COVID-19.  (Most eligible recipients will be presumed to have been adversely impacted.)

HOW MUCH CAN BE BORROWED

An eligible business can borrow up to 2½ times its average monthly payroll costs during the preceding one-year period.

Payroll costs include salaries, wages, tips, sick leave, medical insurance, and state & local payroll taxes (SUTA, L&I, etc).  Annual compensation of individual employees in excess of $100,000 is excludable from allowable payroll costs.

HOW MUCH OF THE LOAN WILL BE FORGIVEN

The business will not be required to make any payments, and the entire amount of the loan will be forgiven, if the following requirements are met:

• The money is spent on the following qualified payments within 8 weeks after the loan is approved: (1) payroll, (2) mortgage or rent, (3) employee health benefits, (4) vacation/sick pay, and (5) utilities.

• The business has to maintain the same number of employees between February 15th and June 30th that it had during the same period in 2019 or from Jan 1, 2020 until February 15, 2020.

• Total employee wages cannot show a reduction of more than 25%.

Going outside of these requirements will either reduce or eliminate the amount of the loan that is forgiven by the SBA.

The loan forgiveness is not subject to income tax.

HOW TO APPLY FOR PPP LOANS

These loans are issued through participating banks.  The SBA is a guarantor of the loans.  The loans are extremely popular.  It is therefore important to submit all of the proper documentation for the loan with the initial application.  The banks receive a fee for every loan that they process, so they will focus on complete and concise applications.