Paycheck Protection Program

April 3, 2020 - 14 minutes read

Updated 2/24/21

Note: The implementation of COVID-19 relief programs is a fluid situation with new details released daily. We strive to keep this information as up-to-date as possible and will highlight important changes you should be aware of.

Updates as of 2/24/21

The U.S. Small Business Administration (SBA) will offer PPP loans to businesses with fewer than 20 employees and sole proprietors only from Wednesday, February 24 through Wednesday, March 10, 2021.

Learn more about how to apply.

 

The SBA has issued the following recent resources concerning PPP: 

Elimination of Certain 504 Loan Program Fees

The purpose of this Notice is to announce the temporary elimination of certain 504 fees in accordance with Section 327(b) of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), enacted December 27, 2020. 

 

Modifications to 7(a) Loan Program in the Economic Aid

 The purpose of this Notice is to inform SBA employees and 7(a) Lenders of modifications to the 7(a) Loan Program contained in the Economic Aid Act, including temporary higher guaranty percentages and fee reductions on eligible 7(a) loans, and an increase in the maximum SBA Express loan amount. 

 

PPP2 Application: Please review the PPP Second Draw Borrower Application Form (1.8.2021) and reach out to your local bank to apply.

If You’ve Already Received PPP Funds

  • New treatment of PPP expenses. Expenses used for PPP forgiveness are now TAX DEDUCTIBLE. When Congress passed the CARES act, they indicated that PPP funds should NOT be taxable. However, Treasury Secretary Mnuchin decided businesses could NOT deduct expenses used to qualify forgiveness—thus making an equivalent amount to PPP funds taxable. This legislation corrects Mnuchin’s actions.
  • Simplified Form for Forgiveness. If your PPP loan was for $150,000 or less, there will be a new, simple, one-page form to apply for forgiveness. Your lender should provide you a link to a form soon in the new year.
  • More expenses qualify for forgiveness. While you still need to use at least 60% of PPP funds on “payroll expenses,” qualifying non-payroll expenses are much broader, now including payment for software, cloud services, accounting & HR, property damage due to civil unrest, PPE and Covid-prevention equipment and, importantly— supplier costs that were contracted or ordered before you got the loan or costs of perishable goods ordered before or during the life of the loan. (All these had to be paid during the forgiveness period, of course.) This should help companies that have high, non-rent and non-utility expenses.

 

New Round of PPP Funds Whether or not You’ve Received PPP Before

You can apply for a new PPP forgivable loan, whether or not you received one before. This can be your first or second PPP loan. You cannot get more than two.

 

Eligibility:

  • Your Income—GROSS RECEIPTS—must have declined by 25% or more in any quarter of 2020 compared to 2019. While Senator Marco Rubio (R-FL), head of the Senate Small Business committee, wanted this number to be at least a 50% loss, others pushed back and successfully got the amount lowered to a more appropriate loss of 25% of gross revenues, meaning many more struggling small businesses will get help. Gross receipts are likely to exclude funds from PPP loans or other loans or grants. This loss must be measured by a quarter of 2020 (Jan-Mar, Apr-June, July-Sept, Oct-Dec) and not just a three-month period. All or some borrowers may also have to indicate that the loan is an economic necessity. There are also provisions for seasonal businesses to adjust the time periods.
  • You must have been in business prior to February 15, 2020.
  • You have used, or will use, all of your previous PPP loan if you received one.
  • You have fewer than 300 employees in any one location.
  • Qualified businesses can be corporations, LLCs, sole proprietors, self-employed, independent contractors.
  • No loan can be greater than $2 million.

This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organizations or 501(c)(19) veterans organizations affected by coronavirus/COVID-19.

Small businesses in the hospitality and food industry with more than one location could also be eligible at the store and location level if the store employs less than 500 workers. This means each store location could be eligible.

Additional Updates: 

  • Borrowers CAN have both PPP + EIDL, but CANNOT use other federal money (i.e. EIDL) on the same expenses
  • Self-employed and contractors can apply for themselves
  • For more information, read the SBA’s interim rule and the Treasury’s fact sheet

How much can you get? For most businesses, the amount you can apply for is, as before, the amount of your average monthly payroll in 2019 or the year before your loan times 2.5. This is the same as the previous round of PPP.

For accommodation and food service businesses, the amount you can apply for is your average monthly payroll in 2019 times 3.5. 

Forgiveness. You can get forgiveness for this PPP loan by spending at least 60% on payroll expenses (wages, salaries, retirement, group health insurance, etc.) and a maximum of 40% on qualifying expenses during an 8- or 24-week period.

 

PPP Set Asides for Certain Small Businesses

Because the smallest businesses and those located in low and moderate income areas were often shut out of the first round of PPP funding, this bill includes set-asides for small businesses with fewer than 10 employees, those in low/moderate income areas, and funds for small community banks, credit unions and community-based lenders. This will hopefully level the playing field, making it easier for smaller, needier businesses to get these forgivable loans.

 

Grants for Cultural, Arts, Live Events, Theaters, Smaller Cultural Providers

$15 billion in grants, not loans were included for certain live event, movie theatres, museums, and other cultural providers.

Small cultural providers, artists, etc. should MOVE FAST. This appears to be designed primarily as a bailout for large movie theatre chains, that will also be eligible for these funds and can get grants of tens of millions of dollars. Smaller venues and cultural providers theoretically go to the front of the line, but if you’re not ready to apply as soon as these are available, you’re probably going to get left behind. PAY ATTENTION!

  • Eligibility: live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate at least a 25 percent reduction in revenues.
  • Smaller providers: $2 billion was set aside for those with 50 full-time employees or fewer, but set aside only for 60 days. After that, those monies are available to larger businesses as well. (So it will be easy for smaller businesses to get left out.)
  • In the initial 14-day period, grants will be awarded to eligible entities that have faced 90 percent or greater revenue loss. This may include large chains.
  • In the 14-day period following the initial 14-day period, grants will be awarded to eligible entities that have faced 70 percent or greater revenue loss.
  • After these two periods, grants shall be awarded to all other eligible entities.
  • Grants to be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment.
  • Initial grant can be up to $10 million, and a second grant could be up to 50% of the first grant. In other words, a large chain could get $15 million in GRANTS.
  • The amount of grant appears to be up to 45% of your 2019 revenue or 85% of 2019 operating expenses, but I am not clear on that yet.

Loan Amount:

The loan amount is equal to 2.5 times the average monthly payroll costs from the previous 12 months PLUS any outstanding EIDL loan amount for a maximum loan of $10,000,000.

The amount of “Payroll related costs” is defined as the sum of payments of any compensation with respect to employees that is a salary, wage, commission, tip, vacation, parental, family, medical leave, sick leave, allowance for dismissal or separation, group health care benefits, retirement benefits and state or local taxes. The PPP loan has a 1.00% fixed rate. Loan payments will be deferred for 6 months. Interest will accrue during the deferment period.

Forgiveness:

Only funds used during the first 8 weeks after the loan is closed can be forgiven. Other criteria include: 

  • At least 75% of the loan proceeds are used to cover payroll costs 
  • The remaining 25% (or less) must be used only on mortgage interest, rent, and utility costs that began before February 15th, 2020 AND
  • Employee and compensation levels from the previous 12 month average are maintained 

Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. 

Forgiven amounts will include any accrued interest. Any amounts not eligible for forgiveness will be subject to loan terms above.

Download the PPP Loan Forgiveness Application Here

What counts as payroll costs?

Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Does the PPP cover paid sick leave?

Yes, the PPP covers payroll costs, which include employee benefits such as costs for parental, family, medical, or sick leave. However, it is worth noting that the CARES Act expressly excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116–127). Learn more about the FFCRA’s Paid Sick Leave Refundable Credit online.

How does PPP work with other programs?

  • Economic Injury Disaster Loan (EIDL): You can have both loans, but cannot overlap use of funds
  • EIDL Emergency Grant: Deduct any amount forgiven from your PPP loan from what may be forgiven from your EIDL advance
  • Unemployment: You may have employees on unemployment, and you may also be on unemployment and receive a PPP loan. However, you may not pay yourself or employees payroll while also receiving unemployment benefits. 
  • You may NOT receive tax credits from Families First Coronavirus Response Act on payroll costs forgiven through PPP
  • You may NOT use employee retention credits on payroll costs forgiven through PPP

How to Apply

Paycheck Protection Program loans are only available through your local SBA certified bank or credit union. If you already applied, check with your lender on the status.

The State of Michigan has launched MIPaycheckProtection.com as a comprehensive resource for both lenders and small business owners.

Want to discuss your funding options with a business consultant (at no cost to you)? Request a virtual appointment with the Michigan SBDC!