Paycheck Protection Program (PPP) Loans are here to take the pressure off of businesses to lend a hand in obtaining working capital to meet payroll and other expenses.

The SBA administers this streamlined process under 7(a) lending program with $350 billion in new lending available to small businesses! Under the CARES Act, the “covered period” runs from February 15, 2020, through June 30, 2020. The Paycheck Protection Program intends to assist businesses in paying for near-term operating expenses and incentivize employers to retain their employees.

You are eligible for this program if you are a small business that employs less than 500 employees, or if your business is in an industry that has an employee-based size standard through the SBA that is higher than 500.

To determine the 500-employee threshold, applicants should include full time, part-time, and other basis employees.

The federal government fully guarantees these loans. No personal guarantee required!

The maximum amount of the loan a small business will be permitted to apply for will equal 2.5 times your average monthly payroll cost, not to exceed $10 million. Speculate payroll costs to include wages, salaries, commissions, payment of cash tips, vacation pay, retirement contributions, healthcare benefits, covered leave, and other expenses.

There’s been a last-minute change; the SBA has taken the position that amounts paid by an applicant to independent contractors cannot be included in the computation of average monthly payroll costs. The reason for the change is an independent contractor can individually apply for a PPP loan.

Payroll costs will not include the following:

• The compensation of any individual employee in excess of an annual salary of $100,000
• FICA Payroll taxes
• Any compensation of an employee whose principal place of residence is outside the US
• Any qualified sick leave or family medical leave for which a credit is allowed under the new Coronavirus Relief Act

It appears the cap on payroll costs are limited to salary or wages if the employee’s wages and salary exceed $100,000. The cap on payroll costs is also $100,000 for an employee making below the cap but includes wages, salary, and “fringe benefits”.

SBA-approved financial institutions will handle applications and underwriting for Paycheck Protection Program loans.

They will most likely request the following information to determine your potential maximum loan amount:

• Gross average wages paid to employees for the past 12 month period with amounts exceeding $100,000 per employee excluded
• Non-Federal payroll taxes: this includes PAUC, Pgh ET-1
• Documents proving medical and medical-related group plan benefits paid for employees – this should be net of employee contributions
• Last 12 months of payroll reports
• 2019 Quarterly IRS payroll tax forms
• Documentation of 401k match and profit-sharing contribution paid by the Company
• IRS Forms 1099 for 2019 for independent contractors
• Personal and business tax returns
• The 2020 year to date and 2019 financials
• Personal financial statement

The loans are available for up to a 2-year term at an interest rate of 1%.  The repayment period is a minimum of six months and up to one year of deferral of principal and interest payments. There will be no early payment penalty fees.

Loan Forgiveness

Businesses are eligible for loan forgiveness on covered expenses for eight weeks within the 2/15-6/30/2020 period. Expenses include payroll, rent, utilities, and mortgage interest obligations. To qualify for maximum forgiveness, employers must maintain their pre-COVID-19 shutdown level of full-time equivalent employees. Otherwise, there is a reduction in loan forgiveness proportional to the reduction in headcount. If businesses re-hires employees to pre-crisis levels by June 30, 2020, the businesses are eligible for loan forgiveness.

Consider leaning on your Accountant for cash flow guidance, tax deadlines, completing SBA and CWCA loan applications, Family First tax credit calculations, and interpreting the CARES Act. Our accountants are available, and we have the knowledge, skill, and information that you need right now to address your financial needs in a timely fashion adequately.

Maria D. Stromple, CPA, MST and Nichole M. Feller, MS

Maria is a partner at Wilke & Associates servicing closely-held businesses in manufacturing, real estate, transportation/logistics, and technology industries as well as high net worth individuals and executives in delivering effective tax strategies.

Nichole is a General Ledger and Tax Manager for Wilke & Associates. Her areas of expertise include tax planning & preparation, software training & implementation, and CFO/Controller services.