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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 $2 million and may be partially forgivable. These loans are intended to help small businesses retain employees throughout and after the Coronavirus (COVID-19) crisis.

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Is Your Small Business Eligible for PPP Round B?

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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.

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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.

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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.

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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.

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

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How Can You Use Your Paycheck Protection Program Loan?

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• 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

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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%. 

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

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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%. 

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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%. 

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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%. 

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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.

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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.

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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. 

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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. 

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What are gross receipts?

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The guidance from the SBA defines gross receipts as follows:

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“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.” 

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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. 

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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.

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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.)

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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): 

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

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

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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.)

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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: 

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

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

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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.)

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There is also a separate calculation for farmers and ranchers. 

 

What is a seasonal employer?

 

A seasonal employer is defined as one that: 

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

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• 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’’.

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