PPP Loans: We Answer Your Questions

The Paycheck Protection Program, part of the CARES Act, grants loans to businesses under generous terms. Even better, the government will forgive your loan if you meet certain conditions.

Keep in mind, however, that regulations and future adjustments can tweak certain provisions and that there are more details that a qualified professional can help you interpret.

I heard that the PPP loans had run out of money—has Congress replenished it?

Yes. A new $480 billion package contains over $300 billion to revive the popular Paycheck Protection Program. This amount includes $60 billion earmarked for smaller lending institutions, to better serve small companies that have had trouble getting loans.

The Economic Injury Disaster Loan program received another $60 billion. Separate from the PPP, this loan advance program provides up to $10,000 of economic relief to businesses that are currently experiencing temporary difficulties. Businesses can be eligible for either program or both, but they have to be carefully coordinated.

The PPP loans are for small businesses. How do I know if mine is considered small?

You have to be a business or charity with fewer than 500 employees. However, some businesses with more employees may still qualify. For example, in the restaurant and hospitality industries, the 500-employee cap is waived as long as there are no more than 500 employees at any one physical location. The SBA goes into further detail, noting that even businesses with 500+ employees qualify as long as they satisfy the existing statutory and regulatory definition of a "small business concern" under Section 3 of the Small Business Act, 15 U.S.C. 632. Official guidance lists a full range of exceptions.

The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that include benefits?

No. This refers only to cash compensation. You do not have to count any of the following toward the $100,000 ceiling: contributions to retirement plans, insurance premiums to group health plans, or state and local payroll taxes the business has to remit.

Are we eligible even though we're a seasonal business?

Yes. A lender may consider whether a seasonal borrower was in operation on February 15, 2020, or for an 8-week period between February 15, 2019, and June 30, 2019.

We work through a PEO. Are we still eligible?

Yes. Payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower's employees will be considered acceptable PPP loan payroll documentation. For purposes of the PPP, employees of the eligible borrower will not be considered employees of the eligible borrower's payroll provider or PEO.

We make payments to independent contractors and sole proprietors. Are these payments included in calculations of our payroll costs?

No. Those payments are not considered payroll. However, the independent contractors or sole proprietors may themselves be eligible for their own PPP loans.

Do companies have to apply for the loan in person?

No. Major banks like Bank of America and Chase, for example, have created an online process.

Can my loan be forgiven?

Yes. To turn the loan into a grant, you must spend at least 75% as payroll. You are allowed to use PPP loan proceeds for various other expenses, but that portion of the loan will not be forgiven. (As long as you meet the 75% floor, however, the entire loan will be forgiven.) If the full amount is forgiven, you owe no interest. Any unforgiven portion will accrue interest at an annual 1% rate and mature in 2 years with a 6-month deferment.

It's also essential to keep an eye on your staffing to be eligible for forgiveness: Your loan forgiveness will be reduced if (1) you decrease your full-time employee headcount or (2) you decrease salaries and wages by more than 25% for any employee who made less than $100,000 annualized in 2019. You have until June 30, 2020, to restore your full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.

Are there implications to both employer and employee if the company, thanks to a PPP loan, wants to rehire a laid-off employee?

Yes. Everyone has to play this one carefully, thanks to recent guidance from the SBA. An employer may want to rehire a laid-off employee to keep their numbers up and thus take advantage of the loan forgiveness provision. But the employee, thanks to temporarily boosted unemployment benefits, may actually be earning even more by not working, at least for a while, and may refuse to come back. However, if the company has made a bona fide written offer to the employee to come back at the same wages for the same hours, and the employee has refused, the company can exclude that employee from its employment calculations—it will not be penalized. But any employees who turn down such an offer may make themselves ineligible for continued benefits.

Is the SBA making it easier for small borrowers to prove the necessity of their loan requests?

Yes. When submitting a PPP application, all borrowers must certify in good faith that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.