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The Small Business Administration is offering loans to businesses during the COVID-19 pandemic. Businesses can apply for the Paycheck Protection Program through local lenders and the Economic Injury Disaster Loans on the SBA website.

The Paycheck Protection Program is designed to keep employees paid and businesses operating. The loans will cover 8 weeks of payroll, mortgage/rent, and utility costs between February 15, 2020 and June 30, 2020. These costs will be fully forgiven if businesses retain full employment, maintain wages at near-normal levels, or re-hire employees laid off after February 15, 2020.

SBA Releases New Guidance on PPP Loans Following PPP Flexibility Act

6/16/20 With Alex Ayers

SBA’s new guidance is the first of what we expect to be several new rules to account for changes in the law. This rule primarily deals with new loans and the basic changes in the program. Read on for more…

PPP Loan Forgiveness: How to Apply and What Changes Might Be Coming

6/4/20 With Talbot Gee & Alex Ayers

The Small Business Administration has released the Payroll Protection Program forgiveness application detailing what expenses businesses can apply for forgiveness. We go through the application, instructions, and any guidance released by SBA and fill you in on the bipartisan Paycheck Protection Flexibility Act that would make changes supported by the business community.

SBA Releases Loan Forgiveness Application Form and Instructions

5/18/20 By Alex Ayers

Late Friday the Small Business Administration released the application form and instructions for businesses to apply for PPP loan forgiveness. Read on for important questions answered and highlights of the form…


Check back soon, as some answers will change due to the Paycheck Protection Program Flexibility Act and new guidance from SBA.

*Questions in orange have updated guidance


Q: Can you apply to more than one bank?

A: Yes, but only one loan can be accepted, once the lender files the form that a business has accepted the loan, they will not be able to receive funds from any other bank. The interest rates and repayment terms are set by the SBA, so no lender will have better terms than another bank.


Q: What businesses are eligible?

A: Businesses with fewer than 500 employees in the US including sole proprietors; Independent contractors, or self-employed individual


Q: What will banks ask for?

  1. Was the business in operation before February 15, 2020?
  2. Did the business pay salaries and payroll taxes, or pay independent contractors?
  3. Borrowers must self-certify that:
    1. The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
    2. The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
    3. Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
    4. From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)
  4. Sole proprietors, independent contractors and self-employed individuals may need to show additional documents to prove the business is active


Q: What documents will banks ask for to certify payroll costs?

  1. 2019 IRS Quarterly 940, 941 or 944 payroll tax reports
  2. Last 12 months of Payroll Reports beginning with your last payroll date and going backwards 12 months
  3. Payroll report must show the following for the time period above:
    1. Gross wages for each employee, including the officer(s) if paid W-2 wages
    2. Paid time off for each employee
    3. Vacation pay for each employee
    4. Family medical leave pay for each employee
    5. State and Local taxes assessed on the employee’s compensation for each employee
  4. Documentation showing total of all health insurance premiums paid by the Company Owner under a group health plan
    1. Include all employees and the company owners
  5. Document the sum of all retirement plan funding that was paid by the Company Owner (do not include funding that came from the employee’s out of their paycheck deferrals)
    1. Include all employees, including company owners
    2. 401K plans, Simple IRA, SEP IRAs
  6. Additional paperwork to verify other payroll costs


Q: What will banks not ask for or consider for the loan?

  • If the business sought credit elsewhere and was denied
  • Will not require a personal guarantee
  • Cannot require collateral to cover the loan
  • Lenders will not charge businesses any fees for the loan


Q: How much can a business borrow?

A: PPP loans can be up to 2.5 times the business’s average monthly payroll costs, but cannot exceed $10 million.


Q: How do I calculate the average monthly payroll?

  1. Sum of INCLUDED payroll costs of the year prior to loan date (minus) sum of EXCLUDED payroll costs for year prior to loan date (divide) 12 = average monthly payroll costs
  2. Included payroll costs:
    1. salary, wage, commission, or similar compensation
    2. cash tip or equivalent
    3. vacation, parental, family, medical, or sick leave
    4. allowance for dismissal or separation
    5. payment required for the provisions of group health care benefits, including insurance premiums
    6. any retirement benefit
    7. state or local tax assessed on the compensation of the employee
    8. For sole proprietors, independent contractors, and self-employed individuals: wage, commission, income, net earnings from self-employment or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period (Feb. 15 – June 30)
  3. Excluded payroll costs:
    1. Any compensation of employees in excess of $100,000, prorated for February 15, 2020 – June 30, 2020 (total salary – $100,000 x .373)
    2. Payroll taxes, railroad retirement taxes, and income taxes
    3. Compensation for workers with their principle place of residence outside the United States
    4. Wages reimbursed for paid sick leave or paid family leave under the Families First Coronavirus Response Act
  4. Special circumstances:
    1. For businesses not operational in 2019:
      1. Average total monthly payroll for January and February 2020
    2. For businesses with seasonal employees
      1. Average total monthly payroll for the 12-week period beginning February 15, 2019 or March 1, 2019 (borrower to decide which date)


Q: I’m a self-employed individual with no employees, do I qualify?

A: Yes, self-employed individuals and independent contractors qualify for PPP. SBA released special rules for these applicants with additional guidance to help determine loan forgiveness. These funds can be used to replace owner compensation.

Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). If this amount is over $100,000, reduce it to $100,000. If this amount is zero or less, you are not eligible for a PPP loan.

Step 2: Calculate the average monthly net profit amount (divide the amount from Step 1 by 12).

Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.

Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid).

The funds must be used for qualified purposes including payroll/owner compensation, mortgage interest/rent, and utility costs. However, if you do not have mortgage interest/rent or utility costs on your 2019 Schedule C, it will be harder to apply for forgiveness for these costs. SBA will not allow new rents or mortgage interest made after February 15th to qualify. These funds are not meant for business expansion.

For applicants with a 2019 1040 Schedule C, loan forgiveness will be equal to 8/52nds of net profit from 2019, not compensation paid to owners during the 8-week period. This is to ensure the additional funds are not used as windfall.


Q: If I plan to use the loan for 100% payroll. How does the loan have to be distributed amongst employees? Can I pay some people more than or less than usual?

A: A business can pay employees more than usual, however pay cannot decrease by more than 25% compared to the previous quarter.


Q: Do you have to keep every employee on payroll after getting the loan?  I heard that you only have to keep 75% of your headcount.  Which is correct?

A: A business’s average number of employees over the 8-week period must match the average from one of the previous periods (either Feb. 15 – June 30, 2019 or Jan. 1 – Feb. 29, 2020). However, there are exceptions for employees offered to be re-hired but refuse, see this post for more information.


Q: Regarding maintaining employee numbers at Feb 15 numbers – what if you have an employee who went out on disability for a non-COVID-19 reason, and has not yet returned, but you are holding their position for them – no replacement hired?

A: If the employee is out on medical/paid sick leave they are still counted as an employee; however, we do not yet have guidance for employees out on disability.


Q: If an employee refuses to come back to work because they are nervous about safety — can you replace them with a short-term hire and have it count in your total employee count.

A: An employer is not required to replace a worker who refuses to return to work, see this post for more information.


Q: Do previously FTE’s who qualify for the FFCR payments count as FTE’s for the 8-week period?

A: We don’t have guidance on how they will treat FFCRA recipients, however based on their exclusion of FFCRA payments from payroll costs, they will not reduce forgiveness because an employee is using emergency paid sick or family leave.


Q: Is it just head count or do you have to bring back the same employees you laid off? What if you hire a new employee to replace one that was laid off?  How does that work? What if you had employees retire or quit? Can you take them out of the FTE Calc?

A: Maintaining the number of employees is based on the total number of full-time equivalent employees not keeping the same specific employees. The loan forgiveness application includes exemptions for any employees who leave voluntarily, are fired for cause, or voluntarily request a reduction in hours.


Q: If you have 3 less people but total compensation for the covered people (< $100K) is equal to or greater, do the dollars decide or the number of employees or both?

A: Each of the three tests works independently of the other, failing one will reduce forgiveness.

  1. 75% of loan is used for payroll, total forgiveness capped by this ratio
  2. Maintaining full average number of employees, reduced by ratio of maintained employees to previous period
  3. Not reducing wages/salary by more than 25%, any excess reduction will reduce forgiveness


Q: My employees are hourly.  Do I need to worry about if they work less hours if I keep pay rate steady or do I need to be worried about overall wages for each employee?

A: Overall wages, SBA will compare wages paid in the 8-week period to the previous quarter.


Q: When looking at the number of FTEs over the prior months, do you have a specific date to get back to that number, or must you retain that same FTE number over the 8-week period?

A: PPP has a safe harbor that allows a business to rehire employees to reach the same number of employees as were employed on February 15, 2020. The Paycheck Protection Program Flexibility Act changed the rehiring date to December 31, 2020 from June 30, 2020.


Q: FTE is only calculated on part-time employees not full-time employees?

A: FTE will be calculated for all employees with a full-time employee who works an average of more than 40 hours being a 1.0, part time employees can be calculated one of two ways, all part times in a simplified method are considered a .5 or take the average number of hours worked and divide by 40 and rounded ot the nearest tenth, example: an employee works an average of 30 hours per week divided by 40 equals .75, that is rounded to .8.


Q: Is there a penalty to a company that takes the loan and does not use it for payroll or any other forgivable expense, but intends to use the loan and pay it back with the 1% fee?

A: Yes, the loan must be used for approved uses, including those approved for normal 7(a) loans. See the SBA’s 7(a) loan page for more info.


Q: Can an owner pay themselves hazard pay if they are working in the field?

A: No, owner-employee pay is capped. With the Paycheck Protection Program Flexibility Act extending the covered period to 24 weeks we are unsure how they will change the cap. Assuming it stays the same as previous guidance the cap will be 24/52 of 2019 compensation or 24/52 of $100,000 whichever is smaller.


Q: Are the weekly salary checks distributed to employees’ tax free? Or do standard federal, states, etc. taxes apply?

A: Normal withholdings still apply to salary checks; however, the forgiven portion of the loan will not be considered income to the business for income taxes.


Q: Let’s say I use 25% of PPP to pay my building lease for 2 months.  If Loan is forgiven and not taxed.  Does that mean I only get to deduct 10 rent payments from 2020 P&L?

A: Under current law the deduction is not allowed, however Congress is planning to pass legislation allowing the deduction for rents and wages paid.


Q: If your employee refuses to come back to work because they are making more on UI be hired back at a later time.

(Context): For instance, we are closed now and will be until the 8 weeks is over.  Can I still hire them back at a later time but still be able to use the documentation of refusal to reduce FTE’s for forgiveness?

A: Yes, however according to the Department of Labor, once you offer to rehire the employee, they will no longer qualify for unemployment benefits. See this post for more information.


Q: If you have laid off an employee who made 5k/month. This reduces your headcount. Then you hire a new employee at 3k/month, this increases your headcount. Will this satisfy the headcount requirement?

A: Guidance from SBA gave an exception for any employee fired for cause from the headcount requirement.


Q: We are self-insured for medical insurance.  Do we take the payments made for actual claims during the 8-week period even though the date of service could have been prior to the PPP loan period?

A: No guidance has been released on how this will work yet. We will request guidance for self-insured businesses.


Q: Does the 8-week period begin when you receive an SBA loan # or when your loan is funded by the financial institution? Or does it depend on whether you received approval in round 1 or round 2?

A: The 8-week period begins on the day the business receives the funds from their financial institution/lender.


Q: How much of the loan can be forgiven?

  • Borrowers are eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 24-week period beginning on the date of the origination of the loan:
    1. Payroll costs, (At least 60% of the forgiven amount must be used for payroll costs using the same calculation as loan amount, i.e. includes health insurance costs)
    2. Interest on mortgages incurred during the course of business (mortgage must begin prior to Feb. 15)
    3. Rent (least must begin prior to Feb. 15)
    4. Utility payments
    5. Loan forgiveness cannot exceed the original loan amount
  • Reasons loan forgiveness is reduced:
    1. Reduction in the number of employees (view our post on employees refusing return to work offer)
    2. Reduction in wages paid to any employee greater than 25% (except reductions in wages of employees over $100,000)
    3. Not returning to work or restoring wages to levels on February 15, 2020 (if the employee is laid off or furloughed, or wages are reduced prior to April 26, 2020)


Q: When does the unforgiven portion of the loan need to be repaid and at what interest?

  • 2-year repayment
  • Interest rate is capped at 1%
  • Payments and interest are deferred until any forgiveness amounts are paid by SBA. Business must submit application within 10 months of the end of the covered period or deferment ends.
  • New loans originated after PPP Flexibility Act was signed have a 5-year maturity, existing borrowers can renegotiate the term with their lender.


Q: Rent is a forgiven expense, what if the rent is paid to a related party?

A: Rent payments are forgiven as long as there is documentation of the lease existing prior to February 15, regardless of the owner of the building. One exception is for home offices of self-employed individuals, if the expense was not previously reported on a Schedule C it is not a forgiven expense to help prevent fraud.


Q: If the 8-week window ends before the employee’s next pay period, are those costs forgiven?

A: The CARES Act defines forgiveness for payroll as costs incurred during the 8-week period, this means that even if the date the paychecks go out is after the end of the 8-week period, any part of that pay period that was within the 8-week window is included in forgiveness. We expect guidance from SBA on how to calculate this will come soon.


Q: Forgiveness is based on “costs incurred and payments made” during the 8-week period, where does this language come from?

A: Please see the webinar on PPP forgiveness from June 2 to see a full explanation of how costs incurred and payments made are forgiven.


Q: Are “costs incurred and payments made” intended to be cash or accrual basis? Seems as though it mixes terminology.

A: Please see the webinar on PPP forgiveness from June 2 to see a full explanation of how costs incurred and payments made are forgiven.


Q: How is the forgiveness amount calculated?

A: Please see the webinar on PPP forgiveness from June 2 to see a full explanation of how costs incurred and payments made are forgiven. We are also awaiting guidance from SBA based on passage of the PPP Flexibiltiy Act.


Q: The slide says payroll must be greater than 75% of total forgiven amount.  Not 75% of total loan amount?

A: The Paycheck Protection Program Flexibility Act reduced the requirement to 60% or more of the loan must be spent on payroll costs for forgiveness.


Q: If we pay out accumulated vacation and PTO during the 8 weeks, will that be forgiven?

A: Any payment for use of vacation or PTO is an allowed cost. PPP Flexibility Act extended the covered period to 24 weeks.


Q: Owners’ salaries are not included?

A: Owner’s salaries are included in forgiveness; however, guidance may include extra limitations to prevent windfalls.


Q: What is the maximum amount of forgiveness for those making more than $100,000 per year?

A: We are waiting on what the new cap will be after passage of the PPP Flexibility Act, however the explanation below is still accurate other than the $15,385 cap which will likely change.

PPP loans can be used to pay all employees including highly compensated employees; however, loan forgiveness will be capped for employees making more than $100,000 annually, in a similar manner to how the lender calculated payroll costs using 2019 payment information. SBA will cap forgiveness at $15,385 per employee during the 8-week period, example below:

Five employees were paid:
Total: $78,000

The lender will add up the amount that can be forgiven:
Total: $70,770

Employees can be paid more than $15,385, however, forgiveness will be capped at that amount. Forgiveness is also only limited to their salary/wage/commission/bonus payments, amounts over this from other benefits are not limited for forgiveness.


Q: My loan was funded on 5/1/20. Eight weeks runs to 6/26/20. My payroll is bi-monthly. Over eight weeks I will have only 3 payrolls not 4. Can the payroll on 6/30/20 be included?

A: The forgiveness will be based on payments made and costs incurred during the covered period. The covered period is now 24 weeks long.


Q: Can you get forgiveness on the full amount of the loan or just 8 weeks’ worth of the loan since the loan is based on 2.5 months.

A: The PPP Flexibility Act extended the covered period to 24 weeks.

Forgiveness is based on 8-weeks of payroll, the loan amount is 2.5 months of payroll with the expectation the half month will cover other expenses such as rent, mortgage interest, and utilities.


Q: If I bring back 25% of my employees now-management and the other 75% during week 8, will I qualify on the FTE’s for full forgiveness of the amount I’ve used for payroll during the 8-week period.

(Context): I’m still shut down due to the government and will not be open at any point during my 8-week period. My employees are making a lot more per week on unemployment than if I paid them. I want to spend 70,000 on payroll and 30,000 on rent and the rest be a loan….if I have everyone back to I meet the requirements to get the 70,000 spent fully forgiven?

A: The PPP Flexibility Act changed how the law will be interpreted due to government lockdowns and we are waiting on guidance from SBA.


Q: If you have Line of Credit available, you do not qualify for the loan or forgiveness?

A: SBA/Treasury have targeted publicly traded companies with excess liquidity as not eligible for PPP but have not mentioned what excess liquidity means. The CARES Act specifically suspended the requirement that employers seek credit elsewhere before applying for the loan, which leads us to believe having a line of credit will not affect loan forgiveness.


Q: When you are talking about payroll costs, are you referring to all or just the net pay to employees for forgiveness purposes?

A: SBA has said they will use gross pay to the employee, including benefits, for forgiveness, however total costs from the employer will not, such as the employer share of payroll taxes do not count towards forgiveness.


Q: Has the date to return the money without penalty, been extended from May 7th?

A: Yes, the date is now May 14th.


Q: Funding received on April 20. Employees paid on April 23 for the preceding week. The payment was made within the 8-week period. Does this count?

A: Based on how we read the CARES Act, only the payroll costs incurred from April 20-23 will be forgiven and the same will be true for the beginning portion of the last payroll period within the 8-week period.


Q: How will the forgiven loan portion hit the P&L?

A: The forgiven loan will not be counted as taxable income by the federal government.


Q: FICA and Medicare taxes?

A: The CARES Act is unclear on this, but the expectation based on what SBA has said is that the employee share of payroll taxes will be forgiven, but the employer share is not. We will know more when guidance is released.

Q: Presumably group health would be a net number.  Meaning premiums paid less employee contributions.  Just want to get confirmation of that.

A: Yes, only the employer share, however this is when it is incurred as part of payroll costs.

Q: Is the $2M line [for SBA review] hard?  We received $1.94M, will we be reviewed?

A: Based on the released guidance, all loans greater than $2 million will be reviewed, however there are more than 33,000 loans over $2 million so most will receive very little review. Any loan below $2 million can be reviewed at the discretion of the Administrator.

Terminology & Clarifications

Q: Are “costs incurred and payments made” intended to be cash or accrual basis? Seems as though it mixes terminology.

A: The way the bill is written it does appear to mix cash and accrual basis, payroll costs incurred would be counted as accrual while payments made such as rent, mortgage interest, and utilities appear to be cash basis.


Q: What is a full-time employee and how do I calculate full-time employee equivalent? And what period is this compared to?

A: Any employee working more than 30-hours per week is considered full time, for part-time workers the federal government calculates the total number of hours worked over 4-weeks period divided by 120 to determine the equivalent, we are waiting on SBA guidance to confirm they are using a consistent calculation.

Employers can elect to compare the number of employees during the 8-week period to two different times:

  1. February 15, 2019 to June 30, 2019*, or
  2. January 1, 2020 to February 29, 2020

*This is a correction from the PPP forgiveness webinar which mistakenly said June 30, 2020.


Q: Will “hazard/hardship” bonuses be allowed in order to meet the minimum payroll-related spend of PPP funds?What about lost commission or reduction in commission due to slow sales?

(Context): Can an employer use the PPP money to pay what commission should have been? Do discretionary bonuses that would have normally and historically paid during this time be included? Can you confirm that “bonuses” what I would consider makeup commissions, inside the 8 weeks are forgiven and not prorated?

A: The definition of payroll costs includes “salary, wage, commission, or similar compensation” and we would consider hazard pay/hardship bonus to be included in similar compensation. Because commission is tied to a sale, it would be harder to prove that is a cost incurred, therefore bonuses may be a better way to phrase the payment.


Q: Do retirement payments include 401(k) match and employee 401(k) deferrals?

A: Payroll costs include “Payment of any retirement benefit” which would include 401(k) match, but guidance hasn’t confirmed this yet.


Q: How are union payroll costs calculated?

A: According to SBA, “Payroll costs are determined by the previous twelve (12) months, and can include salaries, employee benefits, payments for vacation or leave, payment of retirement benefits, and certain state and local taxes assessed on employee compensation.” This means that payroll costs are based on previous payroll paid including union dues and benefits that come from employee compensation.

If a business normally pays overtime based on union contracts and slow demand does not require overtime work, that business may have to pay back unused portions of the PPP loan because it was not paid as wages. Remember, 75% of the loan must go towards payroll costs to be forgiven.


Q: Does the $100,000 cap include base salary and commission?

A: The $100,000 cap is on cash or cash equivalent payments, their wages, salary, commissions, and bonuses.

Update: New PPP Funding

An agreement for additional funding the Paycheck Protection Program and Economic Injury Disaster Loans has been reached between Congress and the Administration. The agreement includes:

  • $310 billion for PPP, of which $60 billion is allocated to smaller lenders and the community financial institutions.
  • $10 billion for EIDL advance/grant program
  • $50 billion Disaster Loans Program Account to remain available until extended
  • $75 billion for hospitals
  • $25 billion for testing
    • Of which $11 billion is for “states, localities, territories, and tribes to develop, purchase, administer, process, and analyze COVID-19 tests, scale-up laboratory capacity, trace contacts, and support employer testing. Funds are also made available to employers for testing.”

The Small Business Administration expects the lender portal to be reopened on Monday morning to accept applications. The Consumer Bankers Association expects the new funds to be exhausted in 48-72 hours.

Anyone seeking PPP funds should work with their lenders over the weekend to be ready for the lender portal reopening. 

It is very important for HARDI members and their customers to talk to their banks today about PPP loans and submit applications to receive funding from this tranche. Congress is not expected to authorize any additional funding until they return the week of May 4th, and negotiations for the next bill could take several weeks.