Payroll Protection Program (PPP) Standard Guidelines & FAQs
Who is Eligble?
PPP loans are available for businesses (including non-profits) with 500 or fewer employees if it has its principal place of residence in the United States, but each business may only make one application.
The business must have been in operation on February 15, 2020, and had employees for whom it paid salaries or wages and payroll taxes.
Sole Proprietors/Independent Contractors:
Businesses who exclusively pay independent contractors in lieu of employees are likely not eligible for a PPP loan.
However, sole proprietorships, independent contractors and self-employed individuals are typically eligible. These businesses must submit payroll processor records, payroll tax filings, Form 1099-MISC, or any documentation establishing income and expenses from a sole proprietorship. Household employers are excluded.
EIDL Program:
If the business received funds under the SBA’s Economic Injury Disaster Loan program, it is still eligible for a PPP loan. If any portion of the EIDL loan proceeds were used for payroll purposes, the balance of the EIDL loan must be refinanced into the PPP loan.
Disqualifying factors:
The business is not eligible if a 20% owner has pending criminal charges, is incarcerated, on probation, on parole, or has otherwise been convicted of a felony within the last 5 years. The business is also not eligible if it or a controlling owner became delinquent on a loan guaranteed by the SBA or any other federal agency within the last 7 years.
What are the loan terms?
These terms are available to all qualifying businesses:
- 100% guaranteed by the Small Business Administration
- No collateral required
- No personal guarantees required
- Eligible for forgiveness (see below for additional information)
- Non-recourse: This term will not apply if PPP loan proceeds are used for an impermissible purpose, and the intentional misuse exposes the business and its owners or partners to criminal liability
- Interest rate of 1.0%
- No requirement to be unable to obtain credit elsewhere
- No up-front fees or annual service fees
- Payment deferment for 6 months (interest will accrue during the deferment period)
- 2-year term
What does the business need to certify on its application?
- A single authorized representative may make these representations on behalf of the business and attest to the qualifying conditions of each 20% owner if so authorized.
The business was in operation on February 15, 2020, and had employees for whom it paid salaries and payroll taxes; or, if a sole proprietor or independent contractor, paid independent contractors as reported on a Form 1099-MISC. - The current economic uncertainty makes this loan request necessary to support to ongoing operations of the applicant.
- The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable such as for charges of fraud. Not more than 25 percent of loan proceeds may be used for non-payroll costs.
- Documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight week period following this loan will be provided to the lender.
- Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Not more than 25 percent of the forgiven amount may be for non-payroll costs.
- During the period beginning February 15, 2020, and ending on December 31, 2020, the applicant has not and will not receive another loan under this program.
- I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
- I acknowledge that the lender will confirm the eligible loan amount using tax documents I have submitted. I affirm that these tax documents are identical to those submitted to the Internal Revenue Service. I also understand, acknowledge, and agree that the Lender can share the tax information with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA Reviews.
Will each eligible business receive funding?
Congress appropriated $349,000,000,000 to fund PPP loans. Loans will be made on a first-come, first-serve basis. Some lenders give priority to pre-existing customers, but there is no federal mandate or guidance for priority applications. Congress has the ability to appropriate more funding for the PPP if needed.
What documents do I need to submit with the application? [subject to specific lender]
All records evidencing employees on or around February 15, 2020, and the business’ average monthly payroll costs for the prior year. These records may include payroll processor records, payroll tax filings (Form 941), Form 1099-MISC, or income and expenses from a sole proprietorship. The documentation must be the same as any submitted to the IRS.
What are “payroll cost?”
This term is used by the PPP in determining the amount of the loan, providing the appropriate uses of the loan, and in calculating loan forgiveness.
“Payroll costs” include: wages, salary, commissions, or similar compensation, plus most benefits like paid vacation, family, or sick leave, group health benefits (including premiums paid), retirement funding and payments for state and local taxes assessed on compensation.
Payroll costs exclude:
- The portion of any employee’s cash compensation (salary, wages or similar) that exceeds $100,000 on an annualized basis.
- Compensation to an employee who principally resides outside the United States
- Qualified sick and family leave wages for which a credit will be taken under the Families First Coronavirus Response Act.
- Compensation to independent contractors and sole proprietors.
- Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020, including FICA, Railroad Retirement Act taxes, and income taxes required to be withheld.
What are “average monthly payroll costs” in determining the amount of a loan?
- Total “payroll costs” for 2019 or the 12 months prior to the loan, divided by 12.
- Seasonal employers should use the period of February 15, 2019, through June 30, 2019, in determining their average monthly payroll costs, ensuring to exclude compensation during that period that would annualize to over $100,000.
- New businesses – those beginning operations during 2019 and that were in business on February 15, 2020 – should use the period of January 1, 2020, through February 29, 2020, ensuring to exclude compensation during that period that would annualize to over $100,000.
How much may a business borrow?
- The lesser of $10,000,000 or;
- “Average monthly payroll cost” times 2.5,
- Plus the outstanding balance of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020,
- Minus any “emergency advance” made under the EIDL program.
What are the permissible uses of the PPP loan?
Business must use the PPP loan proceeds on or before June 30, 2020, for:
- “Payroll costs”
- Costs for the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Interest payments on mortgages existing prior to February 15, 2020
- Rents paid on leases existing prior to February 15, 2020
- Utility payments (phone, internet, water, gas, electricity, trash) for service contracts existing prior to February 15, 2020
- Interest payments on existing debts incurred prior to February 15, 2020
- 75% of the loan proceeds must be used for “payroll costs.” Amounts used for unapproved purposes must be repaid and the SBA will have recourse against shareholders, members, or partners, for funds misused by them. A business that intentionally misuses PPP funds may face criminal liability.
Loan Forgiveness Guidance:
75% of the total amount forgiven must have been used for payroll costs.
If debt is forgiven, the business will not be eligible for the deferred employer payroll taxes contemplated under Section 2302 of the CARES Act.
The SBA anticipates that it will be able to offer forgiveness on amounts paid to tipped workers as an increase to their wages as necessary to compensate for the loss of tips.
What loan uses are eligible for forgiveness?
- “Payroll costs”
- Interest payments on mortgages existing prior to February 15, 2020
- Rents paid on leases existing prior to February 15, 2020
- Utility payments (phone, internet, water, gas, electricity, trash) for service contracts existing prior to February 15, 2020
What will reduce the amount of forgiveness?
(1) A reduction in Full-Time Equivalent Employees (FTEE) before June 30, 2020. FTEE means employees working 30+ hours/week or 130+ hours/month, plus part-time employee hours pooled to reach these thresholds to count as a single employee.
a. FTEE per month over the 8-week period following the loan; divided by either
i. Average monthly FTEE between February 15, 2019, and June 30, 2019, or
ii. If a seasonal or new business, average FTEE between January 1, 2020, and February 29, 2020.
b. Otherwise eligible forgiveness will be capped by the percentage derived from the number generated in section a.
c. A business may re-hire employees before June 30, 2020, to avoid this reduction.
(2) A significant reduction in an employee’s salary or wages before June 30, 2020.
a. For employees paid $100,000 or less in annual compensation, any 25% or greater reduction in salary or wages.
b. This amount is aggregated for all employees and forgiveness will be reduced by that total.
c. A business may reinstate wages before June 30, 2020, to avoid this reduction.
(3) Sick or family leave wages for which a tax credit is claimed on the employer portion of payroll taxes under Section 7001 or Section 7003 of the Families First Coronavirus Response Act.
(4) The amount of any “emergency grant” made under the EIDL program.
When will I receive loan forgiveness?
Business may apply for loan forgiveness immediately upon the conclusion of the 8-week period following the PPP loan, and the lender must make a determination within 60 days.
What documents do I need to submit to receive loan forgiveness?
For the 8-week period following the loan as well as for any baseline period (see, “What will reduce the amount of forgiveness?”), all payroll processor records, payroll tax filings (Form 941), Form 1099-MISC, or income and expenses from a sole proprietorship. The business should also provide all evidence of payments made for mortgage interest, leases and utilities for the 8-week period following the PPP loan. The lender may require additional documentation depending on the circumstances, such as evidence of an EIDL “emergency grant.” Any documentation must be the same as submitted to the IRS.
How is the loan forgiveness treated?
Amounts forgiven under a PPP loan are excluded from gross income.
For an estimate of your business’ potential loan forgiveness, please visit our PPP Loan Forgiveness Calculator.
