Paycheck Protection Program: What Should You Be Doing Now?
Update: This article has been updated with the latest guidance as of April 8.
The federal government is making a lot of COVID-19 relief programs available. Where do I start, and how quickly do I need to act?
It is a bit overwhelming, and new information is coming out every day. Take a deep breath, because KSM is working around the clock on your behalf, ensuring you have access to information as it becomes available.
While the list of potentially helpful programs is long, the Paycheck Protection Program appears to be the most immediately beneficial. Introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Paycheck Protection Program is a lifeline for small businesses, injecting capital just when they need it most. The program offers nearly $350 billion in federally guaranteed loans, but the hallmark is that the loans can be partially or fully forgivable, provided certain criteria are satisfied.
What Is the Paycheck Protection Program (PPP)?
- The PPP authorizes nearly $350 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis.
- All loan terms will be the same for everyone.
- The loan amounts will be forgiven as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the eight-week period after the loan is made; and
- Employee and compensation levels are maintained.
- Payroll costs are capped at $100,000 on an annualized basis for each employee. No more than 25% of the forgiven amount may be for non-payroll costs.
- Loan payments will be deferred for six months.
- There has been a demand for the forgivable loan, so applying quickly is important.
When Can I Apply?
- Starting April 3, 2020, small businesses and sole proprietorships were able to apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
Who Can Apply?
- All businesses – including nonprofits (including 501(c)(3)s with a religious purpose), veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply.
- Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries.
- For this program, the SBA’s affiliation standards are waived for small businesses
- in the hotel and food services industries; or
- that are franchises in the SBA’s Franchise Directory; or
- that receive financial assistance from small business investment companies licensed by the SBA.
- Those businesses that meet the SBA’s alternative size standard:
- The maximum tangible net worth of the business is not more than $15 million; and
- The average net income after federal income taxes for the two full fiscal years before the date of the application is not more than $5 million.
How Do I Find a Bank That Will Accept My PPP Application?
A great place to start is with your current lending institution. If they are not participating in the program, you can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.
Some lenders are electing to only process those PPP applications for existing clients, but rules vary by institution.
What Do I Need to Do to Apply for the PPP?
You will need to complete the PPP loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.
What Other Documents Will I Need to Include in My PPP Application?
This information is changing as new guidance becomes available. We will continue to update this list as we receive more guidance but as of today the following will be required:
- Payroll costs
- Monthly payroll reports from payroll provider, which includes the employee federal withholding broken out, for 2019 or the 12 months ending 2020 Q1
- Applicant to provide adjustment for individuals earning >$100K, based upon annualized wages
- Supporting documentation for payments for group health care benefits (includes coverage, claims paid, TPA costs, etc.) monthly for 2019 or the 12 months ending 2020 Q1, examples of supporting documentation could include invoice copies and proof of payment
- Retirement funding supporting documentation monthly for 2019 or the 12 months ending2020 Q1, examples of supporting documentation could include invoice copies and proof of payment
- State or local tax assessed on the compensation of the employee, for example, state unemployment tax paid by the company monthly for 2019 or the 12 months ending 2020 Q1
Ready to Get Started?
KSM is here to answer your questions and can help you prepare the necessary documentation for the Paycheck Protection Program. Please reach out to your KSM advisor to begin the process for applying or complete this form. Time is of the essence for this application, as loans may be given on a first-come, first-served basis.
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