Answering Questions About the Paycheck Protection Program and Economic Injury Disaster Loan

Two weeks ago President Trump extended the PPP application deadline from July 6^th, to August 8^th giving small business owners an extra month to apply. The Paycheck protection program has been intended to help small businesses operating with their employees still in place. With so much uncertainty currently it has been a God send for many businesses who are struggling, as well as the employees who will be able to continue working.  Over the last few months we have seen unemployment levels reach unnerving levels.  As of March 26^th, 3.3 Million Americans filled for unemployment benefits. With companies being forced to close, how are so many of these businesses supposed to pay their staff or even stay in business?

The SBA putting in place the Paycheck Protection Program to assist with payroll, utility expenses and mortgage interest has been very helpful.  However, many of American’s still can’t receive PPP money.  Why have some large companies like Yeezy, run by Rapper Kanye West or Robert Di Niro backed company Nobu received large loans, while others still haven’t received a dime?  For that, I don’t have an answer.  Regardless of affiliation or status, why has there been a struggle for some to receive the PPP and how does one qualify for this program?

First things first, you must choose a qualified PPP lender.  Qualifying specially: First, you must show your businesses bank statements for February 2020, as well the most recent statements. When a file goes into these lenders underwriting teams what will be looked for is businesses 2019 940 IRS forms. They will be specifically looking at your 2019 total payments to all employees showing what your business payroll is. It is that specific number divided by 12 months, multiplied by 2.5. That is the number that you will be approved for.

Line 3 (X) / 12 months X 2.5 = $PPP funding amount

If you have not shown on your tax returns payment to employees, due to being a Sole Proprietorship or Independent Contractor (1099) it will be difficult to get approved for this program. The recommendation for a business in those circumstances would be to apply for the EIDL program. The first go around with the EIDL, consisted of large payouts to a smaller amount of businesses. Back in May, when the agricultural industry was struggling in the US, the program was switched to strictly allowing agriculture businesses to apply. Since mid June it has been switched back, which means it is still available. What is not available anymore, is the Grant, which businesses could qualify for up to $10,000, which was designating $1,000 per employee. Many small businesses received the grant even if they weren’t approved for the loan.

This brings me to the next point – we are in uncharted waters. Shouldn’t it  be easy to get approved for a relief loan that was designed to help out businesses during this time? Well for many, they are finding out it isn’t as easy to get approved for the EIDL program that is 3.75 % interest over 30 years. As described by the SBA, “any small business with less than 500 employees (including sole proprietorships, independent contractors, and self-employed persons), private non-profit organizations or 501(c)(19) veterans organizations affected by COVID-19” can apply.  You must have a minimum credit score of 620, have your 2019 taxes complete and show good payment history for personal and business.  It is very similar to standard SBA guidelines.

Lastly what I would like to touch on: Forgiveness of the PPP.  The SBA PPP Loan has a 1% interest rate with a maturity of 2 years for loans issued prior to June 5 and 5 years for loans issued after June 5th.  Loan payments are deferred for 6 months. How can I get PPP loan forgiveness? The answer to that may be easier than you think. Forgiveness is generally based off the business owner keeping their employees in place or rehiring those who may have been let go. If their salaries are returned you will be forgiven. You must show you have been using the funds for the designated purposes.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, include: 

• Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
• Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the 24-week period after receiving their PPP loan
• Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
• Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30
• Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined