PAYCHECK PROTECTION PROGRAM LOANS

PPP PROGRAM INFO

The Paycheck Protection Program (PPP) is a new loan program for small businesses. The program will be administered by the Small Business Administration (SBA), which will fully guarantee loans provided by approved lenders to eligible entities. Forgiveness of these loans is also available under certain circumstances and the SBA has announced that it will be providing guidance on loan forgiveness. Here is some additional information about the PPP:

Eligible Businesses: Businesses and nonprofit organizations with no more than 500 employees are eligible for the PPP through June 30, 2020. Businesses must have been in operation, with employees, on February 15, 2020. There are special rules for determining the 500-employee limit (for example, for employers in the Hospitality and Food Service industries (NAICS code 72), the 500-employee limit may be determined based on the number of employees per physical location). Certain franchises may also qualify as separate businesses.

Maximum Loan Amount: PPP loans will be provided in amounts approximately equivalent to ten weeks of payroll costs. Loan amounts are determined based on 250% of average monthly payroll costs, taking into consideration average wages paid during the applicable period (which will either be the one-year period prior to the loan or calendar year 2019, at your option), up to a limit of $10 million. There are alternate periods for seasonal employers and those not in business in the prior year.

In addition to wages, commissions, and other compensation, the calculation of payroll costs includes employer healthcare costs such as insurance premiums, employer state and local taxes paid on employee gross pay, and other specified costs. However, as provided by the CARES Act, this calculation excludes employee annual salary over $100,000 per employee.

Loan Uses:

• Payroll costs (as described above);
• Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums;
• Interest on mortgage obligations, incurred before February 15, 2020;
• Rent, under lease agreements in force before February 15, 2020; and
• Utilities, for which service began before February 15, 2020.

Loan Forgiveness: Up to 100 percent of the PPP loan is forgivable (to the extent that employers maintain specified employment and wage levels), and the loan amounts forgiven are excluded from taxable income for federal income tax purposes. The loan will be fully forgiven if the funds are used for payroll costs and the other Loan Uses described above (however, the SBA has announced that due to likely “high subscription,” at least 75 percent of the forgiven amount must have been used for payroll).

To determine the amount that will be forgiven, the average number of full-time equivalent employees per month during the 8-week period from the date of the loan will be compared to either the period from February 15, 2019 to June 30, 2019 or January through February of 2020, at the option of the borrower. An alternate calculation may apply for seasonal employers. A similar comparison will apply to wage levels.

Repayment of a corresponding part of the loan may be required if earnings of an employee is reduced by 25% or more during the 8-week period from the date of the loan compared to the most recent full quarter of employment before the date of the loan. In addition, reductions in the number of employees or compensation occurring between February 15 and April 26, 2020 will not be considered in reducing the loan forgiveness amount if reversed by June 30, 2020.

Lenders will be required to obtain specified documentation to demonstrate employment and wage levels through the period.

Restrictions:

• Loan proceeds may not be used to pay:
  • Wages exceeding $100,000 per employee (prorated for the covered period)
  • Employees who live outside the U.S.
  • FFCRA paid sick or family leave wages for which credit is allowed
• Employers that receive PPP loan forgiveness are not permitted to defer employer Social Security taxes under Section 2302 of the CARES Act*.
• Employers that receive the Employee Retention Credit for Closures Due to COVID-19 are not eligible for the PPP.