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What Is the Paycheck Protection Program?

 

The Paycheck Protection Program provides federally-guaranteed loans to eligible small businesses. Loans can be up to $10 million and may be partially forgivable. These loans are intended to help small businesses retain employees throughout and after the Coronavirus (COVID-19) crisis.

Is Your Small Business Eligible for PPP Round B?

The program is open to both first-time borrowers and borrowers looking for a second loan. Please note that the requirements for first-time borrowers and second time borrowers are different. Continue reading below for a non-exhaustive list of eligibility requirements and other helpful information. Please be advised that qualifying as an eligible business does not guarantee a PPP loan will be offered.

The Federal Government recently allocated additional funding to reopen the US Small Business Administration (SBA) Paycheck Protection Program (PPP). While applications may not be submitted until the Program rules are finalized by the SBA, there are steps you can take to prepare. Get a head start now by completing a preliminary application at the link below.

Once you complete the preliminary application, you will begin to receive notifications with program updates and useful information to help ensure that your application can be completed and submitted to the SBA.

Please note the information on this page as well as the required information in the preliminary application are subject to change pursuant to guidance published by the SBA. In addition, approval during a previous round of the Paycheck Protection Program does not guarantee approval during the next round of the Program. Eligibility and availability are determined on a case-by-case basis by our sponsor bank and subject to guidance published by the US Small Business Administration.

Additional information about the Paycheck Protection Program is available from the US Department of the Treasury and the US Small Business Administration (SBA).

How Can You Use Your Paycheck Protection Program Loan?

  • Payroll costs and employee commissions or similar compensations

  • Insurance premiums and group healthcare benefits during paid sick, family, or medical leave

  • Mortgage interest payments (but not prepayment or payment of mortgage principal)

  • Commercial space rent and utilities

  • Interest on any other debt obligations incurred before the covered period

How is the 25% reduction in revenues calculated?

 

Business owners will compare gross receipts of the business before expenses are subtracted. They will compare those for any quarter in 2020 to the same quarter in 2019 to determine if revenues decreased by at least 25%. 

What if you weren’t in business all of 2019?

1.  Your business must have been in operation by Feb. 15, 2020 to be eligible.

 

2.  If you were not in business during the first or second quarter of 2019 but you were in business in the third and fourth quarter of 2019, then you may compare any quarter in 2020 with the third or fourth quarter of 2019 to determine whether gross receipts were reduced by at least 25%. 

3.  If you were not in business during the first, second or third quarter of 2019, but you were in business in the fourth quarter of 2019, then you may compare any quarter in 2020 with the fourth quarter of 2019 to determine whether gross receipts were reduced by at least 25%. 

4.  A business that wasn’t in business in 2019 but was in business before February 15, 2020 will compare gross receipts from the second, third or fourth quarter of 2020 to that first quarter of 2020 to determine whether gross receipts were reduced by at least 25%. 

In addition, there is a simplified calculation that allows the business to compare annual revenue losses. If you were in business for all four quarters of 2019 you will be eligible to compare your annual receipts from 2019 to 2020 to demonstrate the 25 percent revenue reduction, and you will provide annual tax return forms as documentation.

The legislation or subsequent guidance do not define “quarter” and some business owners that operated on a fiscal basis have asked about using non-calendar quarters. This is not addressed in the current guidance.

According to the legislation, for loans of up to $150,000 you can simply certify your revenue loss when you apply, but on or before you apply for forgiveness you will have to produce documentation of that revenue loss. We won’t know exactly what the SBA will consider acceptable until it provides guidance. 

Nonprofits and veteran’s organizations, the term gross receipts has the same definition as gross receipts under section 6033 of the Internal Revenue Code of 1986. 

What are gross receipts?

The guidance from the SBA defines gross receipts as follows:

“All revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms.

 

Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.” 

The amount of any forgiven first draw PPP Loan is not included in a borrower’s gross receipts.

Also note that for nonprofits and veteran’s organizations, the term gross receipts has the same definition as gross receipts under section 6033 of the Internal Revenue Code of 1986. 

How much can I get with a second draw PPP loan? 

 

The maximum loan amount for second draw loans is $2 million. In all the examples below, the loan amount caps out at $2 million. Businesses that are part of a single corporate group can’t receive more than $4,000,000 of Second Draw PPP Loans total. An eligible entity may receive only one second draw loan.

As before, a business may qualify for up to 2.5 times average monthly payroll costs.  (To get the average gross monthly payroll cost you’ll total each month’s payroll costs and divide by 12.)

You can arrive at this figure either by one of two methods— your choice (except businesses with a NAICS code beginning in 72 – see below): 

  • Multiply average gross monthly payroll cost for the 1-year period before the date the loan is made by 2.5 or

  • Multiply average gross monthly payroll cost for 2019 or 2020 (borrower’s choice) by 2.5.

New businesses (that were not in business for the 1-year period preceding February 15, 2020) will use a slightly different formula to arrive at the average monthly payroll costs. They will divide the payroll costs paid or incurred by the date they apply by the number of months in which those costs were incurred and multiply the result by 2.5 (or 3.5 for businesses with NAICS code starting with 72). Again, new businesses must have been in business by February 15, 2020 in order to be eligible. 

Seasonal businesses may apply based on the average monthly payroll costs for any 12-week period between February 15, 2019 and February 15, 2020. (See the definition of a seasonal business below.)

Businesses with a NAICS code beginning in 72 (generally hospitality businesses) may receive up to 3.5 times average monthly payroll cost using their choice of these two methods: 

  • Multiply average gross monthly payroll cost for the 1-year period before the loan is made by 3.5 or

  • Multiply average gross monthly payroll cost for 2019 or 2020 (borrower’s choice) by 3.5.

Note that all of these methods allow the business to use payroll costs incurred or paid during the applicable time period. (You may incur a payroll cost but not actually pay it until the pay period.)

There is also a separate calculation for farmers and ranchers. 

 

What is a seasonal employer?

 

A seasonal employer is defined as one that: 

  • “Does not operate for more than 7 months in any calendar year; or 

  • During the preceding calendar year, had gross receipts for any 6 months of that year that were not more than 33.33 percent of the gross receipts of the employer for the other 6 months of that year’’.

Frequently Asked Questions

Am I eligible for a PPP loan in this round if I did not receive a previous PPP loan?


Yes, the program will be open for both first-time borrowers and borrowers looking for a second loan. Please note that the requirements for first-time borrowers and second time borrowers are different. Continue reading below for a non-exhaustive list of eligibility requirements and other helpful information. Please be advised that qualifying as an eligible business does not guarantee a PPP loan will be offered. In addition to the businesses that were eligible in the initial round of PPP (including but not limited to small businesses, nonprofit organizations, veterans organizations, Tribal business concerns, small agricultural cooperatives that meet the SBA size standards, sole proprietors, self-employed individuals or independent contractors), during this round the program includes entities that are 501(c)(6)s, destination marketing organizations (DMOs), housing cooperatives, newspapers, broadcasters, and radio stations. Additionally, for first-time borrowers to qualify for eligibility, the entity may employ no more than 500 employees. In order to be eligible for a loan, first-time businesses must have been in operation on February 15, 2020. The absolute maximum cap on loans (both first-time applicants and second draw borrowers) for PPP is $2,000,000. In your application you will be requested to submit certain documentation as proof of eligibility that will determine the amount your business is eligible for under the program. Please be advised that borrowers are not guaranteed the full amount requested in their application.




When can I apply?


By providing the requested information and filling out the first two pages of the application will assist in streamlining the application process ahead of time. By beginning to submit basic information for the application now, applicants will have more time to prepare for and focus on other steps of the application process prior to the launch of the PPP. Upon completing the initial two pages, applicants will receive an email confirmation along with a unique link to their application to pick up right where they left off when the SBA officially launches the program.




I received a PPP loan in the previous round, what do I need to show to be eligible for a second draw?


Eligible businesses that received a prior loan must: Have 300 or fewer employees, Have sustained a 25 percent drop in revenue in any quarter of 2020 when compared to the same quarter in 2019, and A borrower must have used the full amount of its first PPP loan to apply for a second.




My business is ineligible for SBA funding due to the affiliation rules.  Are those rules waived for this program?


With a few exceptions, the typical SBA affiliate rules remain in force for the Paycheck Protection Program. Those exceptions include: - Operates in food services or hospitality industry (NAICS industry code beginning with “72”) and employs fewer than 500 employees - Any business operating as a franchise that is assigned a franchise identifier code by the Administration - Any business that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 681)




Are nonprofits eligible for the Paycheck Protection Program?


Yes, both public and private nonprofits are eligible. However, nonprofit entities will not be eligible for this loan if those entities are eligible for payment for items or services furnished under a State plan under title XIX of the Social Security Act (42 U.S.C. 1396 et seq.) or under a waiver of such plan, other than a nonprofit entity for which the primary service provided by the nonprofit entity is substance abuse treatment and counseling.




Do the loan proceeds need to be used for specific purposes?


Yes. There are several uses of funds allowed under this program, and anyone seeking funds under this program will need to certify that funds will be used for an allowable purpose. Those purposes include: - Payroll costs - Payments of interest on any mortgage obligations - Payments of interest on any other debt obligations - Rent - Utilities - Must be in force prior to February 15, 2020 to be allowable. Funds used for allowable purposes will be eligible for forgiveness once proper documentation of the expenses has been provided to the lender. For allowed debt payments, only the interest portion of payments will be eligible for forgiveness.




Are seasonal employers eligible to participate in the PPP program?


Yes, seasonal employers are eligible for PPP loans. Seasonal employers are defined as businesses that do not operate for more than seven months in a calendar year or earned no more than one-third of their receipts in any six months in the prior calendar year. As defined by section 315 of the Economic Aid Act, a borrower is a seasonal employer if it does not operate for more than 7 months in any calendar year or, during the preceding calendar year, it had gross receipts for any 6 months of that year that were not more than 33.33 percent of the gross receipts for the other 6 months of that year. Under section 336 of the Economic Aid Act, a seasonal employer must determine its maximum loan amount for purposes of the PPP by using the employer's average total monthly payments for payroll for any 12-week period selected by the seasonal employer beginning February 15, 2019, and ending February 15, 2020.




What is and is not considered payroll costs for the purpose of this loan?


The definition of “payroll costs” for the Paycheck Protection Program includes the following expenses: - Salary, wage, commission, or similar compensation - Payment of cash tip or equivalent - Payment for vacation, parental, family, medical, or sick leave - Allowance for dismissal or separation - Payment required for the provisions of group health care benefits, including insurance premiums - Payment of any retirement benefit - Payment of State or local tax assessed on the compensation of employees The sum of payments of any compensation to a sole proprietor or independent contractor that is a 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 Payroll costs, however, do not include the following expenses: - The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period - Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period - Any compensation of an employee whose principal place of residence is outside of the United States - Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–127) - Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–127)




Is the loan forgivable? How do I seek forgiveness for the loan?


Yes, up to 100% of the loan principal amount may be forgiven. Borrowers may seek forgiveness for the loan after loan proceeds have been spent on one of the allowable purposes (see "Do the loan proceeds need to be used for specific purposes?"). Only the principal portions of the loan spent on an allowed purpose during the 8 weeks after loan origination will be forgiven, and any remaining balance of the loan must be repaid according to the loan terms. However, the amount of loan proceeds eligible for forgiveness will decrease if the average number of people employed by the business per month decreases after accepting the loan or if the salary or wages to an employee are reduced by more than 25%, even if the proceeds were used for an allowable purpose. Loan forgiveness will be subject to verification of proper documentation, as determined by the SBA standards.




How is average employees calculated for purposes of loan forgiveness?


The sum total of expenses eligible for forgiveness will be multiplied by one of the the following ratios to determine the final amount of loan forgiveness: Average number of full-time equivalent employees per month for the 8-week period beginning on the date of origination of the loan Divided By Average number of full-time equivalent employees per month from 2/15/2019 to 6/30/2019 OR Average number of full-time equivalent employees per month for the 8-week period beginning on the date of origination of the loan Divided By Average number of full-time equivalent employees per month from 1/1/2020 to 2/29/2020 The average number of full-time equivalent employees is determined by calculating the average number of full-time equivalent employees for each pay period falling within a month. Seasonal employers (as determined by SBA guidelines) will be required to use the second calculation, but all other employers may use whichever calculation they choose. This calculation can only decrease, not increase, the amount of loan forgiveness.




If I accept this loan can I still take out an additional loan?


Yes. With one exception, borrowers who accept this payroll loan may still seek additional funding as needed. The usual SBA requirement that the borrower be ineligible to obtain credit elsewhere is waived for this loan program. The one exception pertains to economic injury disaster loans for the same purpose. Anyone seeking funds under the payroll loan program must certify that the entity applying has not already received an economic injury disaster loan for the same purpose (i.e. for payroll). If an economic injury disaster loan was used for payroll that loan could still be refinanced under the Paycheck Protection Program.




Will I be approved for a PPP loan if my business is in bankruptcy?


No. If the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan. If the applicant or the owner of the applicant becomes the debtor in a bankruptcy proceeding after submitting a PPP application but before the loan is disbursed, it is the applicant's obligation to notify the lender and request cancellation of the application. Failure by the applicant to do so will be regarded as a use of PPP funds for unauthorized purposes. The Borrower Application Form for PPP loans (SBA Form 2483), which reflects this restriction in the form of a borrower certification, is a loan program requirement. Lenders may rely on an applicant's representation concerning the applicant's or an owner of the applicant's involvement in a bankruptcy proceeding.




What qualifies as "payroll costs?"


Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation.




Is there anything that is expressly excluded from the definition of payroll costs?


Yes. The Act expressly excludes the following: Any compensation of an employee whose principal place of residence is outside of the United States; The compensation of an individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred; Federal employment taxes imposed or withheld during the applicable period, including the employee's and employer's share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116-127).




When will I have to begin paying principal and interest on my PPP loan?


If you submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you will not have to make any payments of principal or interest on your loan before the date on which SBA remits the loan forgiveness amount on your loan to your lender (or notifies your lender that no loan forgiveness is allowed). Your "loan forgiveness covered period" is the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement. Your lender must notify you of remittance by SBA of the loan forgiveness amount (or notify you that SBA determined that no loan forgiveness is allowed) and the date your first payment is due. Interest continues to accrue during the deferment period. If you do not submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you must begin paying principal and interest after that period. For example, if a borrower's PPP loan is disbursed on January 25, 2021, the 24-week period ends on July 12, 2021. If the borrower does not submit a loan forgiveness application to its lender by May 12, 2022, the borrower must begin making payments on or after May 12, 2022.




What are the loan terms and conditions?


Second Draw PPP Loans are generally subject to the same terms, conditions and requirements as First Draw PPP Loans. These terms include: The guarantee percentage is 100 percent. No collateral will be required. No personal guarantees will be required. The interest rate will be 100 basis points or one percent, calculated on a non-compounding, non-adjustable basis. Maturity is five years. All loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower in order to determine eligibility of the borrower and the use of loan proceeds.




If I submit my information for the pre-application now, does that mean I have been/will be approved?


No, submitting the requested information does not automatically approve an applicant's PPP Round B loan nor does it guarantee the applicant's loan will be approved once the program is officially open. By starting an application now, applicants are providing us with some of the required information about themselves and their business that we know will be required for the next round. There are still additional requirements which must be submitted and approved by the SBA, including but not limited to, payroll calculations, tax forms, and e-signatures in order to submit a completed application for consideration to receive a PPP Round B loan. Providing this information only assists in beginning the initial stages of the application process to help save time once the program is officially open. Providing this information will not automatically result in an approval decision of an applicant's loan.




What happens if PPP loan funds are misused?


If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.




Can a borrower take multiple draws from a PPP loan and thereby delay the start of the covered period?


No. The lender must make a one-time, full disbursement of the PPP loan within ten calendar days of loan approval; for the purposes of this rule, a loan is considered approved when the loan is assigned a loan number by SBA. If the tenth calendar day is a Saturday, Sunday, or legal holiday, the period continues to run until the end of the next busines day. Notwithstanding this limitation, lenders are not responsible for delays in disbursement attributable to a borrower's failure to timely provide required loan documentation, including a signed promissory note. Loans for which funds have not been disbursed because a borrower has not submitted required loan documentation within 20 calendar days of loan approval shall be cancelled by the lender. When disbursing loans, lenders must send any amount of loan proceeds designated for the refinance of an EIDL loan directly to SBA and not to the borrower.




What businesses are NOT eligible to participate in the PPP?


The following businesses are NOT eligible to receive PPP loans: Entities listed in 13 C.F.R. 120.110 and subsequent regulations except for entities from that regulation which have otherwise been made eligible by statute or guidance, and except for nonprofits and religious organizations; Entities involved in political and lobbying activities including engaging in advocacy in areas such as public policy or political strategy or otherwise describes itself as a think tank in any public document; Entities affiliated with entities in the People's Republic of China; Registrants under the Foreign Agents Registration Act; and Entities that receive a grant under the Shuttered Venue Operator Grant program. Publicly traded companies





IMPORTANT NOTE: SBA program details are subject to change. Eligibility rules and amount are both subject to change. Ivy Lender is a financial technology company, not affiliated with the SBA, Dept. of the Treasury, or any government agency.

This site is for informational purposes only. It is not intended to constitute professional advice, including legal, financial, or tax advice, nor is Ivy Lender providing advice on any particular situation. Not a loan offer or a commitment to lend.