The Paycheck Protection Program has been successfully issuing potentially forgivable loans to millions of small businesses (those with less than 500 employees) over the last few weeks to help them cover their payroll and other fixed costs during these challenging times. But, unfortunately for many, the program has created more questions than answers.
In its haste to get the legislation out the door, Congress left open some details and left many specifics up to the Small Business Administration, the federal agency in charge of administering the program, and the Treasury Department to provide. Here are some of the most common questions I’ve received just over the last week and the guidance I’m providing.
Can the PPP loan help with any of the loss of my income over the last six weeks?
The PPP forgivable loan program is meant to help employers keep their employees on their payroll (and not unemployment) as well as to provide a little extra funding for some fixed costs such as rent and utilities. It is not designed to replace lost income.
I haven’t applied for PPP yet. Do I still have time?
According to the SBA, as of last Friday the $310 billion authorized by Congress in its second funding round has resulted in $187 billion in loans approved through more than 5,400 lenders with an average loan size of about $73,000. That means that there still remains $123 billion to be lent. But the money is going fast, so if you’re still interested in participating you should act soon.
How long will it take to receive funding? I applied two weeks ago and still haven’t heard.
The process is taking longer than expected due to the enormous number of applications. The SBA is trying to even out the flow between big and small lenders in an effort to make sure funding is distributed fairly. You should expect to wait anywhere from one to three weeks.
Can I apply to more than one place for a PPP loan?
Yes, but you can get only one loan, which will be matched to your company’s Federal Tax ID or Social Security Number. However, be on notice that some lenders may prohibit you from applying elsewhere.
I’m a nonprofit organization. Can I still apply for a PPP loan?
What documentation will I need to provide to apply for the loan?
The SBA has issued guidance to its lending institutions that are acting as the intermediaries in the process. Some lenders are asking for more information than others but be prepared to represent that your business has been “affected” (the definition is not clear) by COVID-19 and to provide your articles of incorporation, tax identification numbers, payroll records, tax returns, invoices and bank statements, as well as 1099 data if you’re an independent contractor or sole proprietor.
I’m an independent contractor but I don’t have contracts or 1099s — only a cash intake. What are my options?
Your best bet may be to apply for unemployment. States are now required to cover independent contractors. However, be prepared to show banks statements and tax returns to back up your compensation requests.
Can I apply for the PPP and also apply for unemployment?
I’ve been telling my clients who are independent contractors and sole proprietors to apply for both but to be careful not to overlap the benefits. The PPP is only for eight weeks so theoretically you should be able to apply for and receive unemployment from the state for before or after that period. Be prepared to wait for your application to be processed and to provide evidence of your earnings like a 1099.
Is it OK to co-mingle my PPP funds with other cash in my regular business account?
There’s no rule against it, but I’ve been recommending that a separate bank account be set up for your PPP funds and that you make all disbursements for which you intend to apply for forgiveness out of that account in order to make the accounting easier and give more clarity to your audit trail.
When does the eight-week clock start for PPP forgiveness?
As soon as the funding hits your bank account, the eight-week period begins. The lender needs to make the distribution of funds within 10 calendar days of the SBA approving the loan.
What if my eight-week period goes beyond June 30?
The program will not accept applications after June 30 (unless Congress extends). However, if the eight-week period extends past that date, the costs incurred during that period will still be eligible for forgiveness.
Can I get forgiveness if I also took advantage of the Employee Retention Tax Credit?
No. You cannot take the tax credit — which is 50 percent of up to $10,000 of each employee’s wage per quarter for those businesses affected by COVID-19 — while you are participating in the Paycheck Protection Program.
I received PPP funding but I can’t open because of the state lock downs. What are my options?
You can ask your lender to push back funding for as long as possible (10 calendar days from the date of approval) but that’s your only option, other than refusing the loans. If you’ve received the loan and don’t think you’ll want it then you can return the money to your lender by May 14. Otherwise, you may not get full forgiveness.
What if I don’t get full forgiveness?
Whatever amounts are not forgiven will remain outstanding as a loan, due two years from the time of funding at an interest rate of 1 percent. Your first payment would not be due until six months from the time of funding.
What documentation will I need to provide to get forgiveness?
You will provide very similar documentation that you provided when applying for the loan. Expect to submit payroll records and invoices supporting all the payments you made.
Do I have to hire back all my employees?
The rules are not entirely clear, but I am advising my clients that, to get full forgiveness, you will need to rehire all of the full-time equivalent employees that you employed and used as the “baseline" for your original loan, which means the compensation and headcount levels that you included in the formula to determine your loan availability when applying.
What if I can’t rehire all my employees? Do I still get forgiveness?
You can still get forgiveness, but it will be less and based on the pro rata number of employees and compensation you’re paying as of the end of your eight-week forgiveness period as compared to the baseline you used.
I’m told that, to get forgiveness, 75 percent of the PPP money must go to compensation. Can it more?
There is nothing in the rules that forbids you from claiming more than 75 percent of your payroll costs for forgiveness. If an employee decides not to show up for work after the company receives the PPP loan, is the company still on the hook for this employee as far as having to continue to pay their wages?
No. Also, if you ask an employee to return to work and the employee refuses you still may be able to waive the headcount and compensation requirements for full forgiveness. I am telling my clients to document these efforts.
I got approved for PPP. I am self-employed, no payroll. I don’t take specific salary and live off what business brings in. What will a lender want to qualify me for forgiveness?
The rules are still forthcoming on this, but if you used your self-employment income from your Schedule C as compensation for purposes of determining your loan availability you will have to make a similar calculation — and show documentation such as bank statements, invoices, 1099′s — in order to get forgiveness.