Paycheck Protection Program
Frequently Asked Questions
As part of the CARES Act, the Paycheck Protection Program (“PPP”) is a $349 Billion program intended to help small businesses retain employees by providing eight weeks of cash-flow assistance in the form of forgivable, 100% Small Business Administration (SBA) guaranteed loans.
When certain criteria are met, PPP loans provides eight weeks of certain, verifiable expenses that can be forgiven and essentially turned into a non-taxable grant.
What is the process?
PPP loans are made directly through local lenders, like First International Bank & Trust, to eligible small businesses.
- Small business owner applies to a local bank for a loan to cover eligible operating costs and maintain payroll
- After an 8-week period from loan origination, some or all of the loan may be forgiven
- Borrower provides the lender documentation of certain hard costs paid with loan proceeds as application for loan forgiveness
- Any remaining balance will roll into a two year term loan
Is my business eligible, and when can I apply?
Starting April 3, 2020: Small businesses with fewer than 500 employees (including full-time and part-time), small businesses that otherwise meets the SBA’s size standard, 501(c)(3) with fewer than 500 employees, sole proprietors, tribal business concern, and 501(c)(19) veterans organizations may apply.
Starting April 10, 2020: Independent contractors and a self-employed individuals may apply.
Special exceptions to the 500 employee cap have been put in place for franchise restaurants and hotels. Calculation of number of employees for hotels and restaurants is based on a per-location basis.
The 500 employee threshold includes all types of employees; full-time, part-time, etc.
Applications accepted through June 30, 2020.
What’s required of the borrower?
In addition to certain employment documentation found in the attached checklist, borrowers must make a good-faith certification that:
- Uncertainty of current economic conditions necessitate the loan request to support ongoing operations
- Funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments
- The borrower has no duplicative SBA loans under this program
How much can I borrow?
2.5 times the average monthly payroll cost for the 12 months prior to funding, up to $10 Million.
For small businesses not in operation in 2019, the maximum amount is determined by 2.5 times the average total monthly payroll cost for January & February 2020.
For seasonal small businesses, the maximum amount is determined as 2.5 times the average total monthly payroll costs for the 12-week period beginning February 15, 2020, OR March 1, 2020 and ending June 30, 2019.
Payroll costs include, salaries (up to $100,000), wages, commissions, tips, PTO, sick, medical, or family leave, health insurance benefits, retirement benefits, and state & local taxes employment taxes paid.
What can funds be used for?
- Payroll costs (as defined above)
- Interest (not principal) on mortgage obligations signed before February 15, 2020
- Rent or lease payments – leases in effect before February 15, 2020
- Utilities including electricity, gas, water, transportation, phone, or internet
- Interest (not principal) on other debts incurred before February 15, 2020
- Refinancing any outstanding SBA Economic Injury Disaster loan made on or after January 31, 2020
What part of the loan can be forgiven?
The following documented expenses incurred during an 8-week period beginning the date of loan origination may be forgiven:
- Payroll costs (must amount to 75% of forgiven sum)
- Interest (not principal) on debt held by mortgage incurred before February 15, 2020
- Rent or lease payments
- Utilities, including electricity, gas, water, transportation, phone, or internet
What if I already let people go or cut workers’ pay?
The PPP wants employers to maintain employment. As a result, the forgivable amount may be reduced proportionally if there is a reduction in the number of employees or if wages paid to employees are reduced by more than 25%. The PPP encourages employers to rehire and restore pay to those that were let go or took a pay cut.
Employment or wage reductions that occurred between February 15, 2020 and March 26, 2020 will not reduce the forgivable amount if the borrower eliminates the employment or wage reductions by June 30, 2020.
If the business hires its employees back and restores any pay cuts by June 30, 2020, it qualifies for the full forgivable amount.
What documentation do I need for forgiveness?
To apply for loan forgiveness, Borrowers will need to provide the following, at minimum, to Lenders:
- Documentation verifying the number of Full Time Equivalent employees on payroll and pay rates, including payroll tax filings to the IRS, and state income, payroll, and unemployment insurance filings
- Documentation including; cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on mortgages, leases, and utilities
- Certification from the borrower that the information is true and the loan was used for the required purpose
- Anything else later-required by SBA
What are the loan terms?
Any amount not forgiven will remain 100% SBA guaranteed with a maximum maturity of 2 years with a fixed 1.0% interest rate.
No fees paid by the small business. No prepayment penalty. No personal guarantee requirement. No collateral requirement. No “credit elsewhere” requirement.
Repayment (principal and interest) will automatically be deferred for all participating borrowers for six months, and deferred payments could be extended for up to one year. Extended deferral will determined on a case-by-case and will be worked out between borrower and lender.