Paycheck Protection Loan Frequently Asked Questions
How do I calculate the maximum amount I can borrow?
The following methodology, which is one of the methodologies contained in the Act, will be most useful for many applicants.
- Step 1: Aggregate payroll costs (defined in detail below) from the last twelve months for employees whose principal place of residence is the United States.
- Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
- Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
- Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
- Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).
What qualifies as “payroll costs?”
Payroll costs consist of:
- compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation.
- cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
- payment for vacation, parental, family, medical, or sick leave;
- allowance for separation or dismissal;
- payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
- payment of state and local taxes assessed on compensation of employees;
- and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
Is there anything that is expressly excluded from the definition of payroll costs?
Yes. The CARES Act expressly excludes the following:
- Any compensation of an employee whose principal place of residence is outside of the United States
- The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary;
- Federal employment taxes paid by the employer;
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
How do I treat employees I pay via 1099 as opposed to W-2?
If you have payroll costs paid via 1099, you may include them in your overall payroll if the person is considered your employee. Anyone who received multiple 1099s from various sources (i.e. independent contractor, consultant etc.) would be eligible to apply for the PPP on their own, but you would not count those expenses for your application.
For my ministry, how are pastoral housing allowances treated?
The SBA Final Rule does not exclude pastoral housing allowances. If you consider any such allowance as part of overall compensation, it would be acceptable to include in the payroll figure.
What pro-rata part of compensation over $100,000 annually is excluded?
Per the SBA Final Rule, only the portion of salaries and wages that on an annualized basis would be over $100,000 is excluded.
For what time period am I to provide payroll information?
Per the SBA Application, information from 2019 is required. Exceptions to this are for:
1) seasonal may use 2/15/19-6/30/19
2) New business established before 2/15/19 may use on January and February 2020 information.
See Page 3 of the Application for additional details.
What is the interest rate on a PPP loan?
The interest rate will be 100 basis points or one percent.
What will be the maturity date on a PPP loan?
The maturity is two years.
Is the PPP “first-come, first-served?”
When will I have to begin paying principal and interest on my PPP loan?
You will not have to make any payments for six months following the date of disbursement of the loan.
Can my PPP loan be forgiven in whole or in part?
Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes described below and employee and compensation levels levels are maintained. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan.
However, not more than 25 percent of the loan forgiveness amount may be attributable to nonpayroll costs. While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage interest, rent, and utilities, the Administrator has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll.
How can PPP loans be used?
The proceeds of a PPP loan are to be used for:
- payroll costs (as defined in the CARES Act - see above);
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
- mortgage interest payments (but not mortgage prepayments or principal payments);
- rent payments;
- utility payments;
- interest payments on any other debt obligations that were incurred before February 15, 2020; and/or
- refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.
However, at least 75 percent of the PPP loan proceeds shall be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.
What happens if PPP loan funds are misused?
If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
May I obtain both a PPP loan and an Economic Injury Disaster Loan (EIDL) loan?
As of today, you will only be able to have one of these loans outstanding. However, any EIDL funds previously advanced to the borrower may be rolled into the PPP loan.
I have additional questions. Who should I contact?
If you have additional questions, please contact your loan officer directly by email, or if you don’t have one, send an email to email@example.com. We will return your communication and answer your questions just as soon as we can.