PPP Loans for Small Business

Is there a catch for the 100% forgivable loans?

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by Jun 5, 2020Tax

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What are PPP Loans?

The CARES Act also established new loans through the Small Business Administration (SBA), called Payroll Protection Program, PPP loans for short. The primary purpose is to help businesses retain their existing staff, meet payroll, pay benefits and other necessary expenses.

The loans can be 100% forgiven, however, there are certain criteria that need to be met. PPP funds are “first-come, first-served”

PPP Features

  • Loan Amount: up to $10 million

  • 75% used for Payroll Costs

  • Expenses covered: insurance premiums, rent, mortgage interest, other interest, employee benefits,

  • Businesses w/ 500 or fewer employees, nonprofits, sole proprietors, and independent contractors.

  • Independent Contractors don’t count as employees

  • Employees with annual compensation of $100,000 or less

PPP Terms

  • There is no personal guarantee or collateral required.

  • No minimum FICO required and there are no fees paid by the borrower.

  • Through June 30, 2020

  • The loan is due in 2 years

  • Payments are deferred for 6 months

  • Interest rate is fixed at 1% APR

  • 2.5 X business’s average monthly payroll

  • Employees are kept on the payroll for 8 weeks 

Documents Needed

  • Payroll records for 2019

  • Tax Returns for 2019

  • 6 months of Bank Statements

  • 1099-Misc

  • Copy of Driver License

  • Voided Check

  • Borrower Application Form

The forgiveness amount can be reduced if your average number of employees changes or you cut compensation for employees who make under $100k by more than 25%.

However, you won’t be penalized if you rehire your employees and restore wages by June 30, 2020. 

Rounds

1sth round – $349 billion – until April 15, 2020

2nd round –$659 billion – resumed April 27, 2020

PPP Loan Calculators

The forgiveness amount can be reduced if your average number of employees changes or you cut compensation for employees who make under $100k by more than 25%.

However, you won’t be penalized if you rehire your employees and restore wages by June 30, 2020. 

  • Intuit loan eligibility assessment tool, PPP and loan forgiveness amount calculator
  • Simple SmartAsset calculator using the 2.5x payroll cost amount and EIDL loan information
  • Small Business Advice (not associated with SBA) has a good PPP loan and forgiveness amount calculators

Free PPP Loan Assitance

  • Divvy’s application assistance – free to all
  • Intuit Aid Assistance Tool – free to all

PPP Loans through Banks

The caveat is that many major banks require the small business applicant to have a business account with them as of February 15, 2020, in order to apply for the PPP loans through them.

PPP Application Process

PPP App Process AStepinska small 1

Who Gets the PPP Loans?

SBA released two PPP Reports for the 1st and 2nd round of lending. The first round report has data through April 16, 2020, and the second round report has data through July 31, 2020. SBA will most likely release another report when the entire $659 billion of funding is exhausted.

The main contrast between the first and second rounds are more loans below $150,000 being approved. There are 3,196,240 more loans under that amount in the second round than there were in the 1st round. The main criticism about the first round of PPP loans was that many larger businesses received loans and not, as the PPP loans program was supposed to do, small companies.

During the second round, the dollar amount of funding for the below $150k loans is much higher than it was before. However, the time period covered by the second round is much longer. A good way to compare the two rounds is by looking at the loan amounts as a percentage of the total (see the pie charts below). The pie charts show that the smaller loans accounted for a much large size of the pie – 27.9% for the second round vs. 17.0% for the first round.

It is important to note that the data for the 1st round was divided into loans of $150k and lower, while the report for the second round separated the $150k into three groupings ($50k & under; $50k-$100k, $100k-$150k), which are combined for our analysis. 

References

KMK Law – PPP Interim Regulation

US Dept. of the Treasury: – Small Business PPP

US Dept. of the Treasury – PPP Information Sheet for Borrowers

US Dept of the Treasury — PPP FAQs

US Small Business Administration (SBA) – PPP Report First Round (through 4/16/20), and PPP Report Second Round (4/27/20-7/31/20)

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