Paycheck Protection Program: How to Apply, Loan Calculation, and More

I was up until midnight last night poring over the Treasury Department’s Interim Final Rule for the PPP loans, and I’m going to share with you what I learned. Go to 3:35 to go directly to my PPP analysis.

➡️ Get Matched with a PPP Lender: http://go.moneydoneright.com/PPP

➡️ EIDL Disaster Loan Video: https://youtu.be/phAOCfxZqUE

The first thing you need to know about PPP loans is that they are not direct loans from the feds. They’re more like an SBA 7(a) loan.

SBA is guaranteeing 100% percent of these loans, but they will be made through SBA-approved lenders.

And your SBA lender will service your loan.

Also, PPP loans are in fact “first-come, first-served”.

PPP Basics:
- Terms of up to 2 years
- 1% interest rate. 0.5% was thrown around earlier this week, but Treasury came out with this and said 1%.
- No payments for six months.
- Forgivable in whole or in part

You can get both EIDL disaster loan and PPP paycheck protection program loans, but their proceeds can’t be used for the same purpose. You can refinance your EIDL loan into a PPP loan.

The CARES Act said that the the full principal amount of the loan and any accrued interest can be forgiven if you use all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained.

Remember, payroll is the priority here — it’s called the Paycheck Protection Program. The whole point of these loans is to keep the lights on in your business and to keep people working.

In light of this, the SBA and the Treasury Department have said that no more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.

The first day to apply for a PPP is today, April 3, and this program is running through June 30 or until funds are exhausted, that’s what they’re saying right now.

Now although today is the official “start date” for PPP, most SBA lender banks are not ready, especially the old school brick and mortar banks.

Here are the eligibility requirements for PPP Loans:

- You must be a small business, meaning 500 or fewer employees whose principal residence is in the U.S. There are exceptions for some businesses in certain industries with greater than 500 employees, but if you own such a business, I assume you have in-house legal and/or financial counsel to consult with about this.

- You had to be in operation on February 15, 2020, and you either had employees to whom you paid salaries and payroll taxes, or you paid independent contractors, reporting their income on Form 1099-MISC. If you yourself are a sole proprietor or independent contractor, meaning even if you’re a one-man or one-woman show and you file Schedule C, you’re eligible, as long as you were in operation on February 15.

- You cannot be incarcerated, on probation, or parole, or have been formally charged with a crime or been convicted of a felony within the last five years.
You or your business cannot have ever been delinquent or defaulted on an SBA loan or any other government-backed loan.

To calculate your maximum loan amount, take your payroll costs from the last twelve months for employees whose principal place of residence is the United States.

Subtract any compensation paid to an employee in excess of an annual salary of $100,000. If you’re a one-man or one-woman show who doesn’t have payroll but just has self-employment income, subtract any of your earnings that are in excess of $100,000 for the last twelve months.

Then you have that number, those total payroll costs less amounts greater than $100,000. Divide that number by 12.

Multiply that new number by 2.5.

Add the outstanding amount of any EIDL disaster loan that you received between January 31, 2020 — that’s when the “disaster” began — and April 3, 2020. This is EIDL received, not applied for. I doubt many of you have actually received an EIDL right now.

The definition of payroll costs for PPP purposes is broad, including:

- W-2 wages paid to employees whose principal place of residence is within the U.S., including wages paid to yourself
- Tips
- Severance
- Benefits, including health insurance coverage, insurance premiums, retirement contributions
- State and local taxes assessed on compensation of employees (but note that FICA taxes — Social Security and Medicare taxes you pay for your employee — do not count)

If you’re a one-man or one-woman show, your payroll costs are your net income from self-employment.

Payroll costs do not include payments to independent contractors on pay on 1099.

PPP loan proceeds can be used for:

- Payroll costs as defined previously, and at least 75% of the PPP loan proceeds must be used for payroll costs
- Costs related to the continuation of group health insurance
- Mortgage interest payments.
- Rent payments
- Utility payments
- Interest payments on pre-existing debt (pre-existing meaning incurred before February 15, 2020)
- Refinancing an EIDL loan into a PPP loan