America CARES Act Paycheck Protection Program: Your Guide to Navigating COVID-19 Relief for Small Businesses

The COVID-19 pandemic has presented unprecedented challenges for businesses across America, and small businesses, the backbone of the US economy, have been particularly hard-hit. Recognizing this critical need for support, the U.S. government launched the America Cares Act Paycheck Protection Program (PPP). This program, administered by the Small Business Administration (SBA), was designed to provide vital financial assistance to small businesses, helping them keep their employees on payroll and cover essential operating expenses during these turbulent times.

This comprehensive guide, brought to you by the experts at obdcarscantool.store, aims to demystify the Paycheck Protection Program. We understand that navigating government programs can be complex, so we’ve broken down the key aspects of the PPP to help you understand your eligibility, how to apply, and how to maximize the benefits available to your business.

Understanding the agencies behind the Paycheck Protection Program: The Small Business Administration and the Department of the Treasury.

Understanding the Paycheck Protection Program (PPP)

The Paycheck Protection Program is a loan program established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Its primary objective is to provide direct incentives for small businesses to keep their workers on the payroll. Loans obtained through the PPP are 100% guaranteed by the SBA, meaning lenders face significantly reduced risk, encouraging them to participate actively in the program.

A crucial feature of the America CARES Act Paycheck Protection Program is the potential for loan forgiveness. If borrowers use the loan proceeds for eligible expenses, specifically payroll costs and certain non-payroll costs, and maintain their employee and compensation levels, the loan can be forgiven – effectively turning it into a grant.

The program has been updated and extended through subsequent legislation, most notably the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. These updates have brought important changes, including the reauthorization of lending, revisions to eligibility criteria, and clarifications on loan forgiveness rules. This guide incorporates these key amendments to provide you with the most current information.

Eligibility: Is Your Business Eligible for a PPP Loan?

Determining eligibility is the first step in accessing the benefits of the America CARES Act Paycheck Protection Program. The program is designed to be broad, encompassing a wide range of small business types. Here’s a breakdown of who is generally eligible:

Generally Eligible Entities:

Small Businesses: This includes businesses that meet the SBA’s size standards, typically based on employee count or annual revenue. For many industries, the standard is 500 employees or fewer. However, some industries have higher size standards.
Independent Contractors and Self-Employed Individuals: If you operate as an independent contractor, freelancer, or are self-employed, you are eligible to apply for a PPP loan.
Sole Proprietorships: Businesses owned and run by one person where there is no legal distinction between the owner and the business entity.
Non-profit Organizations: Tax-exempt non-profit organizations described under section 501(c)(3) or 501(c)(19) of the Internal Revenue Code are eligible, provided they meet the employee size standards.
Housing Cooperatives: Organizations operating for the benefit of residents, not for profit, and resident-governed, with 300 employees or less.
Section 501(c)(6) Organizations: Certain tax-exempt business leagues, chambers of commerce, real estate boards, etc., with 300 employees or less, are now eligible under specific conditions related to lobbying activities.
Destination Marketing Organizations: Non-profit entities promoting tourism and travel, with 300 employees or less, also become eligible under similar lobbying activity restrictions as 501(c)(6) organizations.
News Organizations: Under specific conditions, news organizations that are majority-owned or controlled by a NAICS code 511110 or 5151 business or a non-profit public broadcasting entity with a trade or business under NAICS 511110 or 5151, with 500 employees or less per location, can qualify.

Key Eligibility Requirements:

In Operation on February 15, 2020: Your business must have been operational on or before February 15, 2020.
Impacted by COVID-19: While not explicitly stated as a strict requirement, the program is intended for businesses facing economic hardship due to the pandemic. The loan application requires a certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
Employee Thresholds: Meet the employee size standards relevant to your business type (generally 500 or 300 employees, including affiliates).

Specific Eligibility Scenarios:

Seasonal Businesses: Even if your business was not fully operational on February 15, 2020, if it operated for any 12-week period between February 15, 2019, and February 15, 2020, you are considered to have been in operation for eligibility purposes.
Businesses Owned by Lender Directors/Shareholders: Businesses owned by directors or shareholders of PPP lenders are permitted to apply through that lender under certain conditions, ensuring fair processing and avoiding favoritism.
Hospitals Owned by Governmental Entities: Hospitals that are otherwise eligible are not disqualified solely due to government ownership if they receive less than 50% of their funding from state or local government sources (excluding Medicaid).
Businesses with Legal Gaming Revenue: Receipt of legal gaming revenue does not automatically disqualify a business, although businesses with illegal gaming revenue remain ineligible.
Electric and Telephone Cooperatives: These cooperatives, though tax-exempt, are considered “business entities organized for profit” for PPP eligibility.
Non-profit and Tax-Exempt News Organizations: Eligible if they meet employee size standards and certify that loan proceeds will support locally focused or emergency information production.
Destination Marketing Organizations and 501(c)(6) Organizations: Eligible if they meet employee size limits and adhere to restrictions regarding lobbying activities.

The Paycheck Protection Program Borrower Application Form, crucial for initiating your loan request.

Ineligibility: Businesses and Individuals That Do Not Qualify

While the America CARES Act Paycheck Protection Program aims to be inclusive, certain businesses and individuals are deemed ineligible. Understanding these ineligibility criteria is crucial to avoid wasted application efforts. You are ineligible for a PPP loan if:

Engaged in Illegal Activities: If your business is involved in any activity that is illegal under federal, state, or local law, you are not eligible.
Household Employers: Individuals who employ household staff, such as nannies or housekeepers, are not eligible.
Owner with Criminal History: If an owner with 20% or more equity has a recent felony conviction (fraud, bribery, embezzlement, false statement in loan application within the last five years or any other felony within the last year), or is currently incarcerated or facing felony charges, the business is ineligible.
Prior Government Loan Delinquency/Default: If you or any business you control have a currently delinquent or defaulted federal government loan (including SBA loans) within the last seven years that caused a loss to the government, you are ineligible.
Not in Operation on February 15, 2020: Businesses that commenced operations after February 15, 2020, are not eligible for this round of PPP funding.
Recipient of Shuttered Venue Operator Grant: If your business has received or will receive a Shuttered Venue Operator Grant, you cannot receive a PPP loan. This is to avoid double-dipping in federal relief funds.
Controlling Interest Held by Government Officials: If the President, Vice President, head of an Executive Department, or Member of Congress (or their spouse) directly or indirectly holds a controlling interest in your business, you are ineligible. This is to prevent potential conflicts of interest.
Publicly Traded Companies: Businesses that are issuers of securities listed on a national securities exchange are ineligible.
Permanently Closed Businesses: Businesses that have permanently ceased operations and do not intend to reopen are ineligible.
Businesses in Bankruptcy: If the applicant or owner is currently in bankruptcy proceedings (either at the time of application or before loan disbursement), they are ineligible.
Hedge Funds and Private Equity Firms: These firms, primarily engaged in investment and speculation, are not eligible for PPP loans.

Affiliation Rules: Understanding Business Relationships

The SBA’s affiliation rules are a critical aspect of PPP eligibility. These rules determine whether your business is considered part of a larger organization, which can affect your eligibility based on employee size standards.

General Principle of Affiliation:

In most cases, when assessing eligibility for the America CARES Act Paycheck Protection Program, a borrower is considered together with its affiliates. This means the employee count of your business and its affiliates are combined to determine if you meet the size standards.

Factors Determining Affiliation:

Affiliation can be triggered by various factors, including:

Stock Ownership: Ownership of a controlling equity stake in another business.
Overlapping Management: Common management, including common directors, officers, or management agreements.
Identity of Interest: Shared economic interests, such as familial ties or substantially identical business operations.

How Affiliation Rules Apply to PPP:

If your business is deemed affiliated with another entity, the total number of employees across all affiliated businesses is considered when determining eligibility based on employee size limits (e.g., the 500-employee threshold).

Waivers and Exceptions to Affiliation Rules:

The CARES Act and subsequent rules provide specific waivers and exceptions to the affiliation rules in certain situations:

Businesses in NAICS Code 72 (Accommodation and Food Services): For businesses in the hospitality and food service industries (NAICS code starting with 72) with 500 or fewer employees, affiliation rules are waived. This is intended to support hotels, restaurants, and similar businesses significantly impacted by the pandemic.
Franchises: For businesses operating as franchises that are assigned a franchise identifier code by the SBA, affiliation rules are waived. This recognizes the unique structure of franchise businesses.
Companies Receiving SBIC Investment: Businesses that have received financial assistance from a company licensed as a Small Business Investment Company (SBIC) are exempt from affiliation rules.
Faith-Based Organizations: Faith-based organizations are generally exempt from SBA affiliation rules where applying those rules would substantially burden their religious exercise. This ensures religious freedom protections.
News Organizations: Certain news organizations, under specific conditions, have waivers related to affiliation, particularly regarding ownership by entities that are issuers of securities.

Employee Stock Ownership Plans (ESOPs):

Importantly, for PPP purposes, participation in an Employee Stock Ownership Plan (ESOP) does not automatically trigger affiliation between the business and the ESOP itself.

Understanding affiliation rules is crucial for accurate eligibility determination and application under the America CARES Act Paycheck Protection Program. If you are unsure about your business’s affiliation status, it is recommended to consult with legal or financial advisors for clarification.

Loan Amount: Calculating Your Maximum PPP Loan

Once you’ve determined your eligibility for the America CARES Act Paycheck Protection Program, the next crucial step is calculating the maximum loan amount you can request. The PPP loan amount is primarily based on your payroll costs. The maximum First Draw PPP Loan amount is capped at $10 million.

General Calculation Methodology:

The most common method for calculating your maximum loan amount involves the following steps:

Aggregate Payroll Costs: Sum up your payroll costs from either 2019 or 2020 (you choose which year to use) for employees whose primary residence is in the United States. “Payroll costs” are defined specifically under the PPP (see detailed definition below).
Cap Individual Employee Compensation: For each employee, cap their compensation at $100,000 on an annualized basis. This means any portion of an employee’s salary exceeding $100,000 annually is excluded from the payroll cost calculation.
Calculate Average Monthly Payroll Costs: Divide the total qualifying payroll costs (from Step 2) by 12 to arrive at your average monthly payroll costs.
Multiply by 2.5: Multiply your average monthly payroll costs by 2.5. This forms the base loan amount.
Add EIDL Refinance (If Applicable): If you are refinancing an Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020, you can add the outstanding amount of that EIDL (excluding any EIDL advance, which doesn’t need to be repaid) to the amount calculated in Step 4.

Examples of Loan Amount Calculation:

Example 1 (No High Earners):
- Annual Payroll: $120,000
- Average Monthly Payroll: $10,000
- Multiply by 2.5: $25,000
- Maximum Loan Amount: $25,000
Example 2 (Employees Earning Over $100k):
- Annual Payroll: $1,500,000
- Payroll after capping at $100k per employee: $1,200,000
- Average Monthly Qualifying Payroll: $100,000
- Multiply by 2.5: $250,000
- Maximum Loan Amount: $250,000
Example 3 (EIDL Refinance):
- Maximum loan amount calculated as $25,000 (as in Example 1)
- Outstanding EIDL Loan (for refinance): $10,000
- Maximum Loan Amount: $25,000 + $10,000 = $35,000

Loan Amount Calculation for Specific Business Types:

Self-Employed Individuals (Schedule C Filers) with No Employees: Calculate based on your 2019 or 2020 IRS Form 1040 Schedule C line 31 net profit (capped at $100,000), divided by 12, then multiplied by 2.5.
Self-Employed Individuals (Schedule C Filers) with Employees: Calculation involves a combination of your Schedule C net profit (capped at $100,000), gross wages and tips paid to employees (capped at $100,000 per employee), and employer contributions for benefits.
Farmers and Ranchers (Schedule F Filers) with No Employees: Based on 2019 or 2020 IRS Form 1040 Schedule F line 9 gross income (capped at $100,000), divided by 12, then multiplied by 2.5.
Farmers and Ranchers (Schedule F Filers) with Employees: Similar to self-employed with employees, calculation combines Schedule F income, employee wages, and employer contributions.
Partnerships: Calculation considers net earnings from self-employment for general partners (capped at $100,000 per partner), employee wages, and employer contributions.
Seasonal Employers: Calculate based on average monthly payroll costs for any 12-week period you choose between February 15, 2019, and February 15, 2020.

What Qualifies as “Payroll Costs” for PPP?

“Payroll costs” under the America CARES Act Paycheck Protection Program encompass a broad range of employee compensation elements:

Salaries, Wages, Commissions, and Similar Compensation: This includes standard forms of employee pay.
Cash Tips or Equivalents: Based on employer records or a reasonable good-faith estimate.
Payment for Leave: Vacation, parental, family, medical, or sick leave pay.
Allowance for Separation or Dismissal: Severance payments.
Employee Benefits: Costs related to group health care, group life, disability, vision, or dental insurance (including premiums), and retirement contributions.
State and Local Taxes: Taxes assessed on employee compensation.
For Self-Employed/Independent Contractors: Wages, commissions, income, or net earnings from self-employment (capped at $100,000).
Compensation to Crewmembers of Fishing Boats: Payments reported on IRS Form 1099-MISC (Box 5) to certain crewmembers.

Items Expressly Excluded from Payroll Costs:

Compensation to Non-US Residents: Payments to employees whose primary residence is outside the United States.
Excess Compensation Over $100,000: The portion of any individual employee’s compensation exceeding $100,000 annually.
Federal Employment Taxes: Employer and employee shares of FICA, Railroad Retirement Act taxes, and withheld income taxes.
Qualified Sick and Family Leave Wages: Wages for which a credit is claimed under the Families First Coronavirus Response Act.

Important Considerations for Loan Amount Calculation:

Documentation is Key: You will need to provide documentation to substantiate your payroll costs, such as payroll records, payroll tax filings, Form 1099-MISC, Schedule C or F, or bank records.
Choose Your Base Year Wisely: Decide whether using 2019 or 2020 payroll data is more advantageous for your calculation.
Consult with Your Lender: Your PPP lender can provide guidance and assistance in accurately calculating your maximum loan amount.

By carefully calculating your maximum loan amount under the America CARES Act Paycheck Protection Program, you can ensure you request the appropriate level of funding to support your business’s needs during the COVID-19 crisis.

Loan Terms and Conditions: What to Expect

The America CARES Act Paycheck Protection Program loans come with very favorable terms designed to ease the burden on small businesses during the COVID-19 pandemic. Key loan terms and conditions include:

Interest Rate: The interest rate is fixed at 1%. This is a very low rate, significantly below market rates for comparable loans. The interest is calculated on a non-compounding, non-adjustable basis.
Maturity: The loan term is five years. This longer maturity period helps reduce the immediate repayment burden on borrowers.
No Collateral Required: Borrowers are not required to pledge any collateral to secure the PPP loan. This removes a significant barrier for many small businesses that may lack substantial assets.
No Personal Guarantees: Lenders cannot require personal guarantees for PPP loans. This protects the personal assets of business owners.
No Lender or SBA Fees: There are no upfront guarantee fees, annual service fees, or subsidy recoupment fees associated with PPP loans.
Loan Deferment: If you apply for loan forgiveness within 10 months after the end of your loan forgiveness covered period, you are not required to make any payments of principal or interest until the SBA remits the forgiveness amount to your lender (or notifies them that no forgiveness is granted). This provides significant breathing room for businesses to recover before starting loan repayments.
One First Draw PPP Loan: Generally, a borrower can only receive one First Draw PPP Loan. However, there are provisions for loan increases in specific circumstances (see section on Reapplication and Loan Increases). Businesses that received a PPP loan in 2020 are not eligible for another First Draw PPP Loan but may be eligible for a Second Draw PPP Loan (separate program with different eligibility criteria).

Important Note on Loan Deferment:

Your “loan forgiveness covered period” is a period you select, starting from the date your lender disburses the PPP loan and lasting between 8 and 24 weeks after disbursement. If you do not apply for forgiveness within 10 months after your chosen covered period ends, you will need to start making principal and interest payments. Interest continues to accrue during the deferment period.

These highly favorable terms underscore the government’s commitment to providing accessible and affordable financial relief to small businesses through the America CARES Act Paycheck Protection Program.

Using PPP Loan Funds: Eligible Expenses

Understanding how you can use the funds from your America CARES Act Paycheck Protection Program loan is crucial, especially for maximizing loan forgiveness. PPP loan proceeds are intended to be used for specific categories of expenses to support business operations and employee retention.

Eligible Uses of PPP Loan Proceeds:

Payroll Costs: As defined in the CARES Act (see detailed definition in the “Loan Amount” section), payroll costs are the primary eligible use and encompass a wide range of employee compensation.
Costs Related to Continuation of Benefits: Payments for continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and insurance premiums for these benefits.
Mortgage Interest Payments: Interest payments on business mortgage obligations for real or personal property (mortgage prepayments and principal payments are not eligible). The mortgage must have been in place before February 15, 2020.
Rent Payments: Rent payments for business leases dated before February 15, 2020.
Utility Payments: Payments for business utilities for services that began before February 15, 2020.
Interest Payments on Other Debt Obligations: Interest payments on any other debt obligations that were incurred before February 15, 2020.
Refinancing SBA EIDL Loan: Proceeds can be used to refinance an SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020.
Covered Operations Expenditures: Payments for business software or cloud computing services that facilitate business operations, product/service delivery, payroll processing, HR, sales, billing, inventory tracking, etc.
Covered Property Damage Costs: Costs related to property damage due to public disturbances in 2020 that were not covered by insurance.
Covered Supplier Costs: Expenditures to suppliers for goods essential to your operations, made under contracts/orders in effect before or during the covered period (or for perishable goods, contracts in effect before or during the covered period).
Covered Worker Protection Expenditures: Operating or capital expenditures to adapt business activities to comply with COVID-19 health and safety guidelines from HHS, CDC, OSHA, or equivalent state/local guidelines. This can include drive-through windows, ventilation systems, sneeze guards, expanded business space, health screening capabilities, PPE, etc.

60/40 Rule for Loan Forgiveness:

To achieve full loan forgiveness under the America CARES Act Paycheck Protection Program, a key requirement is the 60/40 rule. At least 60% of the loan proceeds must be used for payroll costs. No more than 40% of the forgiven amount can be attributed to non-payroll costs (rent, utilities, mortgage interest, etc., and the newly added eligible non-payroll costs).

Example of the 60/40 Rule:

If you receive a $100,000 PPP loan and spend:

$60,000 or more on payroll costs: You are eligible for full loan forgiveness (assuming other forgiveness criteria are met).
$59,000 on payroll costs: You will not receive full forgiveness. The maximum forgiveness amount will be capped so that payroll costs constitute 60% of the forgiven amount. In this case, the maximum forgiveness would be $98,333 ($59,000 / 0.60).

Eligible Uses for Self-Employed Individuals (Schedule C Filers):

For self-employed individuals filing Schedule C, eligible uses are more specifically defined and tied to deductible expenses:

Owner Compensation Replacement: Based on your 2019 or 2020 net profit (as used to calculate the loan amount).
Employee Payroll Costs: If you have employees.
Business Mortgage Interest, Rent, and Utilities: Only for expenses you claimed or were entitled to claim as deductions on your 2019 or 2020 Schedule C.
Interest on Other Debt Obligations (Incurred Before Feb 15, 2020): Not eligible for loan forgiveness.
EIDL Refinance: Same as for other businesses.
Covered Operations, Property Damage, Supplier, and Worker Protection Expenditures: To the extent they are deductible on Form 1040 Schedule C.

Prohibited Uses:

Lobbying Activities: PPP funds cannot be used for lobbying activities, expenditures related to state or local elections, or efforts to influence legislation.

Consequences of Misusing PPP Funds:

If you use PPP funds for unauthorized purposes, the SBA will require you to repay those amounts. Knowingly misusing funds can lead to additional liabilities, including fraud charges.

Careful allocation of PPP loan proceeds to eligible expenses, especially payroll costs, is essential to maximize loan forgiveness under the America CARES Act Paycheck Protection Program.

Loan Application Process: Steps to Apply for a PPP Loan

Applying for an America CARES Act Paycheck Protection Program loan involves a straightforward process, primarily handled through participating lenders. Here are the key steps:

Gather Required Documentation: Before contacting a lender, assemble the necessary documentation to support your loan application and loan amount calculation. This typically includes:
- Paycheck Protection Program Borrower Application Form (SBA Form 2483): You can obtain this form from the SBA website or your lender.
- Payroll Documentation: For most businesses, this will include IRS Form 941s, payroll tax filings, state quarterly wage unemployment insurance tax reporting forms, and payroll records for 2019 or 2020 (depending on the year you choose for calculation).
- Documentation of Employee Benefits: Evidence of payments for employee health insurance and retirement contributions.
- For Self-Employed Individuals (Schedule C): Your 2019 or 2020 Form 1040 Schedule C.
- For Farmers and Ranchers (Schedule F): Your 2019 or 2020 Form 1040 Schedule F.
- For Partnerships: Your 2019 or 2020 IRS Form 1065 (including Schedule K-1s) and relevant payroll documentation if you have employees.
- Other Supporting Documents: Depending on your business type and lender requirements, you may need to provide additional documents, such as articles of incorporation, operating agreements, licenses, or proof of operation on February 15, 2020 (e.g., payroll statement, bank statement, invoice).
Find a Participating Lender: PPP loans are made by private lenders, including banks, credit unions, and other financial institutions, and are then guaranteed by the SBA. You can:
- Contact Your Existing Bank or Credit Union: Start with the financial institution you already have a relationship with.
- Use the SBA Lender Match Tool: The SBA website has a Lender Match tool to help connect you with participating lenders in your area.
- Check the SBA Website: The SBA provides lists of active PPP lenders.
Complete the Borrower Application Form (SBA Form 2483): Fill out the application form accurately and completely. This form requires you to provide business information, calculate your requested loan amount, and make several certifications regarding your eligibility and the necessity of the loan. You can use e-signatures or e-consents even if your business has multiple owners.
Submit Application and Documentation to Lender: Provide your completed application form and all required supporting documentation to your chosen lender. Follow the lender’s specific submission instructions.
Lender Review and SBA Loan Number: The lender will review your application and documentation to verify your eligibility and loan amount. Lenders have delegated authority to approve PPP loans based on borrower certifications and documentation. Once approved by the lender, they will obtain an SBA loan number for your PPP loan.
Loan Disbursement: Upon final approval and documentation, the lender will disburse the PPP loan funds to your business account. Lenders are generally required to make a one-time, full disbursement of the loan within ten calendar days of loan approval.

Lender Responsibilities in Underwriting:

Lenders have specific responsibilities in the PPP loan process:

Confirm Receipt of Borrower Certifications: Lenders must ensure they receive the borrower certifications in the SBA Form 2483 or equivalent lender form.
Verify Operation on February 15, 2020: Lenders need to confirm that the borrower was in operation on or around February 15, 2020.
Confirm Payroll Cost Amount: Lenders must verify the borrower’s average monthly payroll costs based on submitted payroll documentation.
BSA Compliance: Lenders are required to comply with Bank Secrecy Act (BSA) requirements, including customer identification and anti-money laundering protocols.

Lender Fees:

The SBA pays lenders fees for processing PPP loans, based on the loan amount. These fees are not paid by the borrower and are designed to incentivize lender participation.

Secondary Market for PPP Loans:

PPP loans can be sold in the secondary market after full disbursement. This allows lenders to manage their portfolios and liquidity.

By following these steps and working closely with a participating lender, you can navigate the application process for the America CARES Act Paycheck Protection Program and access crucial financial support for your small business.

Loan Forgiveness: Turning Your PPP Loan into a Grant

One of the most attractive features of the America CARES Act Paycheck Protection Program is the potential for loan forgiveness. If you meet specific requirements, all or a portion of your PPP loan can be forgiven, effectively turning it into a grant that you don’t have to repay.

Conditions for Loan Forgiveness:

To be eligible for loan forgiveness, you must meet the following key conditions:

Use Loan Proceeds for Forgivable Purposes: You must use the PPP loan proceeds for eligible expenses, primarily payroll costs and allowable non-payroll costs (see “Using PPP Loan Funds” section).
Maintain Employee and Compensation Levels: Generally, you need to maintain your average monthly full-time equivalent (FTE) employee count during the covered period and maintain salary and wage levels for employees. Reductions in FTEs or significant wage/salary cuts can reduce the forgiveness amount.
60/40 Rule Compliance: At least 60% of the loan forgiveness amount must be attributable to payroll costs.

Loan Forgiveness Covered Period:

Your “loan forgiveness covered period” is a period you choose, starting on the date your PPP loan is disbursed and ending on any date between 8 and 24 weeks after disbursement. You select the length of your covered period within this range.

Calculating Loan Forgiveness Amount:

The actual amount of loan forgiveness will depend on your eligible expenses incurred and documented during your chosen covered period. It will be the sum of:

Payroll Costs: Payroll costs paid or incurred during the covered period (capped at $100,000 annualized per employee).
Eligible Non-Payroll Costs: Payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures, incurred and paid during the covered period (limited to 40% of the forgiveness amount).

Reductions in Loan Forgiveness:

The loan forgiveness amount can be reduced in two primary scenarios:

Reduction in Employee Headcount: If you reduce your FTE employee count during the covered period compared to a reference period (either February 15, 2019 – June 30, 2019, or January 1, 2020 – February 29, 2020 – you choose which period to use), your forgiveness amount may be reduced proportionally.
Reduction in Salary/Wages: If you reduce the salary or wages of any employee by more than 25% compared to their pre-loan period salary (for employees earning less than $100,000 annually), the forgiveness amount attributable to that employee may be reduced.

Safe Harbors and Exemptions from Forgiveness Reduction:

There are safe harbors and exemptions that can protect you from forgiveness reductions even if you reduce FTEs or salaries:

FTE Reduction Safe Harbors: If you reduced FTEs but meet certain criteria for restoring FTE levels by specific deadlines or were unable to rehire employees or hire similarly qualified employees, you may qualify for a safe harbor and avoid forgiveness reduction.
Salary/Wage Reduction Exemption: If you restored salary/wage reductions by certain deadlines, you may avoid forgiveness reduction related to those reductions.

Simplified Forgiveness for Loans of $150,000 or Less:

Borrowers who received PPP loans of $150,000 or less are eligible for a simplified loan forgiveness application process. They are not required to submit extensive documentation beyond certifications and basic information. However, they must retain records for 3-4 years to prove compliance with PPP requirements in case of audit.

EIDL Advance and Loan Forgiveness:

The Economic Aid Act repealed the provision that required the SBA to deduct EIDL Advance amounts from PPP loan forgiveness. EIDL Advances will not reduce your PPP loan forgiveness amount. Any EIDL Advances previously deducted will be remitted back to lenders.

Independent Contractors and Loan Forgiveness:

Payments made to independent contractors are not considered payroll costs for purposes of your loan forgiveness. Independent contractors can apply for PPP loans on their own and their payroll costs are considered for their own loan forgiveness, not yours.

Documentation for Loan Forgiveness:

To apply for loan forgiveness, you will need to submit a loan forgiveness application to your lender, along with documentation to verify your payroll costs and eligible non-payroll costs during your covered period. Specific documentation requirements are detailed in the loan forgiveness application forms and related SBA guidance.

Lender Role in Loan Forgiveness:

Lenders are responsible for reviewing your loan forgiveness application and documentation. They do not need to independently verify all borrower-reported information if you submit supporting documentation and attest to its accuracy. Lenders make decisions on loan forgiveness applications, subject to SBA review.

The loan forgiveness feature of the America CARES Act Paycheck Protection Program is a powerful tool to help small businesses recover from the economic impact of COVID-19. By understanding the eligibility criteria, eligible expenses, and documentation requirements, you can maximize your chances of achieving full loan forgiveness.

Important Certifications: What You Need to Attest To

When applying for an America CARES Act Paycheck Protection Program loan, you are required to make several critical certifications on the Borrower Application Form (SBA Form 2483). These certifications are legally binding and it is essential to understand them fully before signing the application. Key certifications include:

Operation Status and Payroll: You must certify that your business was in operation on February 15, 2020, has not permanently closed, and had employees, paid independent contractors, or was operating as a self-employed individual, independent contractor, or sole proprietorship.
Necessity of Loan Request: You must certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” This certification has been a subject of much discussion, and the SBA has provided guidance and a safe harbor (see below).
Use of Funds: You must certify that the funds will be used for eligible purposes, such as retaining workers, maintaining payroll, and covering mortgage interest, rent, utilities, and other eligible expenses. You acknowledge that knowingly using funds for unauthorized purposes can lead to legal liability, including fraud charges.
Loan Forgiveness Understanding: You acknowledge your understanding that loan forgiveness is based on documented eligible expenses and that at least 60% of the forgiven amount must be for payroll costs.
No Other PPP Loan: You certify that you have not received and will not receive another First Draw PPP Loan.
No Shuttered Venue Operator Grant: You certify that you have not received and will not receive a Shuttered Venue Operator Grant.
No Controlling Interest by Government Officials: You certify that the President, Vice President, heads of Executive Departments, and Members of Congress (and their spouses) do not hold a controlling interest in your business.
Not a Publicly Traded Company: You certify that your business is not an issuer of securities listed on a national securities exchange.
Accuracy of Information: You certify that the information provided in your application and supporting documents is true and accurate in all material respects. You understand that knowingly making false statements to obtain a guaranteed loan is punishable under law, with potential penalties including imprisonment and fines.
Acknowledgement of Lender Verification and SBA Access to Tax Information: You acknowledge that the lender will verify your eligible loan amount using submitted documents, and you agree that the lender can share your tax information with the SBA for program compliance and reviews.

Limited Safe Harbor for Loan Necessity Certification:

Due to concerns about the “necessity” certification, the SBA has provided a limited safe harbor. Any PPP borrower, together with its affiliates, that 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. This safe harbor provides significant reassurance to the vast majority of PPP borrowers.

It is crucial to review and understand each certification carefully before submitting your PPP loan application. If you have any doubts or concerns about any certification, consult with legal counsel or your PPP lender.

Reapplication and Loan Increases: Opportunities for Additional Funding

The Economic Aid Act introduced provisions allowing certain PPP borrowers to reapply for a PPP loan or request an increase in their existing loan amount under specific circumstances. These provisions aim to provide further relief to businesses that may have initially underestimated their needs or experienced continued economic hardship.

Scenarios for Reapplication or Loan Increase:

Returned PPP Loan: If you returned the full amount of a PPP loan you previously received, you are eligible to reapply for a new PPP loan (First Draw) for an amount you are currently eligible for under the prevailing PPP rules.
Partially Returned PPP Loan: If you returned part of a PPP loan, you can reapply for a loan amount equal to the difference between the amount you retained and the amount originally approved.
Unaccepted Full Loan Amount: If you were approved for a PPP loan but did not accept the full amount, you can request an increase in your loan amount up to the amount you were originally approved for.
Partnership Loan Increase (Partner Compensation): If your partnership received a PPP loan that did not include any compensation for partners, you can request an increase to include appropriate partner compensation (up to $100,000 per partner annualized).
Seasonal Employer Loan Increase (Revised Calculation): If you are a seasonal employer and received a PPP loan before December 27, 2020, and would be eligible for a higher loan amount under the revised calculation method for seasonal employers introduced by the Economic Aid Act, you can request an increase based on the new calculation.
Farmer or Rancher Loan Recalculation: Farmers and ranchers who received a PPP loan before December 27, 2020, can request a recalculation based on gross income and potentially receive a loan increase.

Important Considerations for Reapplication/Loan Increases:

Deadline: Any requests for loan increases or reapplications under these provisions must be submitted electronically through the SBA’s E-Tran Servicing site on or before March 31, 2021. This is the final deadline for PPP loan approvals, and requests are subject to the availability of funds.
Documentation: You will need to provide your lender with any required documentation to support your request for a loan increase or reapplication, depending on the specific scenario.
Lender Submission: Your lender is responsible for electronically submitting the request for a loan increase or reapplication through the SBA’s E-Tran system.
Availability of Funds: Loan increases and reapplications are subject to the availability of remaining PPP funds.

If you believe you qualify for a loan increase or reapplication under these provisions of the America CARES Act Paycheck Protection Program, contact your PPP lender as soon as possible to discuss your eligibility and the necessary steps to submit your request before the March 31, 2021 deadline.

Lender Information: Key Details for Financial Institutions

For lenders participating in the America CARES Act Paycheck Protection Program, several key aspects are important to understand regarding eligibility, responsibilities, and reporting:

Eligible PPP Lenders:

A wide range of financial institutions are eligible to make PPP loans, including:

All SBA 7(a) Lenders: Automatically approved to make PPP loans on a delegated basis.
Federally Insured Depository Institutions: Banks and savings associations insured by the FDIC.
Federally Insured Credit Unions: Credit unions insured by the NCUA.
Farm Credit System Institutions: Certain institutions within the Farm Credit System.
Other Financing Providers: Depository or non-depository financing providers that meet specific criteria related to originating, maintaining, and servicing business loans, BSA compliance, and operational history.
Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), Women-Owned Lenders, Veteran/Military-Owned Lenders: Non-bank lenders meeting specific criteria and lower origination volume thresholds.

Lender Registration in SAM.gov:

All PPP lenders are required to register in SAM.gov (System for Award Management). Lenders have 30 days from the date of their first PPP loan disbursement after December 27, 2020, to complete SAM registration.

Lender Underwriting Responsibilities:

Lender underwriting obligations are streamlined under the PPP. Lenders are primarily responsible for:

Confirming Receipt of Borrower Certifications: Ensuring receipt of SBA Form 2483 or equivalent borrower certifications.
Confirming Operation on February 15, 2020: Verifying that the borrower was in operation on or around February 15, 2020.
Confirming Payroll Cost Amount: Reviewing borrower-submitted payroll documentation to confirm average monthly payroll costs.
BSA Compliance: Adhering to applicable Bank Secrecy Act requirements.

Lenders are permitted to rely on borrower certifications and documentation in good faith and are generally held harmless for borrower non-compliance or fraud if they act in good faith and satisfy other applicable requirements.

Lender Fees:

The SBA pays lenders processing fees for PPP loans, based on a tiered structure depending on the loan amount. These fees are intended to compensate lenders for their origination and servicing efforts.

Lender 1502 Reporting:

Lenders are required to electronically submit SBA Form 1502 information for each PPP loan within 20 calendar days of loan approval. This reporting is used for SBA loan guarantee processing and fee payment to lenders.

Promissory Notes and SBA Authorization:

Lenders can use their own promissory notes or SBA-provided forms. A separate SBA Authorization document is not required for PPP loans.

Pledging PPP Loans:

Requirements for loan pledges under 13 CFR 120.434 do not apply to PPP loans pledged for borrowings from a Federal Reserve Bank or Federal Home Loan Bank, simplifying the process for lenders to access liquidity.

By adhering to these guidelines and working in partnership with the SBA, eligible lenders can effectively participate in the America CARES Act Paycheck Protection Program and provide crucial financial support to small businesses in their communities.

Conclusion: Accessing Relief Through the Paycheck Protection Program

The America CARES Act Paycheck Protection Program represents a significant lifeline for small businesses navigating the economic challenges of the COVID-19 pandemic. By providing forgivable loans to cover payroll and other essential operating expenses, the PPP has helped millions of businesses stay afloat and retain their employees during these unprecedented times.

This guide has provided a comprehensive overview of the PPP, covering eligibility requirements, loan amount calculations, loan terms, eligible uses of funds, the application process, loan forgiveness, and key lender information. We hope this information empowers you to understand the program and determine if it is the right source of relief for your business.

Key Takeaways for Small Businesses:

The PPP offers potentially forgivable loans to help cover payroll and essential operating expenses.
Eligibility is broad, encompassing various types of small businesses, self-employed individuals, and non-profit organizations.
Loan amounts are primarily based on payroll costs.
Loan terms are highly favorable, with a 1% interest rate and five-year maturity.
Loan forgiveness is possible if you meet specific requirements, including using funds for eligible expenses and maintaining employee levels.
Deadlines exist for loan applications and reapplication/increase requests (March 31, 2021).

Take Action:

If you believe your business may be eligible for a PPP loan, we encourage you to:

Review your eligibility carefully using the criteria outlined in this guide.
Calculate your potential loan amount based on your payroll costs.
Gather necessary documentation.
Contact a participating PPP lender as soon as possible to discuss your application and the process.

The team at obdcarscantool.store recognizes the vital role small businesses play in our economy and communities. We hope this guide helps you access the resources available through the America CARES Act Paycheck Protection Program and navigate the path to recovery and continued success.

For Further Information:

SBA Paycheck Protection Program Website: www.sba.gov/ppp
Find a Local SBA Office: https://www.sba.gov/tools/local-assistance/districtoffices
Treasury Department PPP Information: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-small-businesses-and-workers/paycheck-protection-program

This information is for general guidance only and does not constitute legal or financial advice. Consult with qualified professionals for advice specific to your business situation.