Paycheck Protection Program (PPP) loan instructions and tips

April 8, 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27 provides $349 billion in funding for the Small Business Administration (SBA) in an effort to provide assistance and relief to America’s small businesses struggling under the weight of COVID-19. The Act includes a paycheck protection provision for small businesses by providing additional funding to the SBA for specific areas of need and expanding the SBA’s 7(a) loan program.

Knowing what to expect before starting the loan process will help prevent unnecessary errors and rework. Completing the application process quickly and accurately will be key as there will be high demand and processing times will likely increase. We’ve put together the following summary of what business owners and individuals can expect when applying for the Paycheck Protection Program 7(a) loan.

Before you get started, you will want to:

Determine eligibility. 

Those eligible for the paycheck protection program include small businesses, nonprofit organizations, veteran organizations, and tribal businesses with less than 500 total employees (including full-time, part-time, and any other status) in operation on Feb. 15, 2020. For the hospitality and food industries where multiple locations may result in over 500 employees, an exception was made to allow for up to 500 employees per physical location. Sole proprietors, independent contractors, and eligible self-employed individuals are also covered under this provision. Limitations apply for those making more than $100,000. For more on eligibility, read our article: Understanding the Paycheck Protection Provision (SBA 7(a) Loan Program)

Businesses: Gather your information. You will need:

Applying for your loan will require certain information. While each lender may have different information, below is a summary of some of the information you may be asked to provide.

  1. Average monthly gross payroll. Many major payroll providers are providing reports. If you manage the payroll yourself, you will need to go through all of your payroll reports and calculate your monthly averages. You may use either the previous 12 months or calendar year 2019. Be sure to exclude compensation in excess of $100,000. For seasonal business, the applicant may average monthly payroll for the period between Feb. 15, 2019, or March 1, 2019, and June 30, 2019. Any business that was not in business during that timeframe may use Jan. 1, 2020, through Feb. 29, 2020.
  2. Average monthly employee headcount. You will use the same time periods referenced above.
  3. Payments for group health care coverage for employees, including insurance premiums.
  4. Employer contributions to defined benefit plans or defined contribution retirement plans.
  5. Calculate your benefits to employees. This may include costs for employee vacation, parental, family, medical, and sick leave.
  6. If you fall under the affiliation rules, be prepared to provide information related to your affiliated entities, including what is mentioned above and more. Under PPP, you may only receive one loan, and your lender will likely ask for additional documentation on affiliated businesses regarding your eligibility.

Self-Employed: Gather Your Information

Applications are anticipated to open on April 10, 2020, for those who are self-employed. This includes sole proprietors with or without employees as well as independent contractors. While there hasn’t be a lot of information or guidance released for contractors and sole proprietors, below is information we anticipate you will want to have handy.

You will want to have your most recent (2019 ideally) tax return with a Schedule C. Your salary will most likely be determined by your net profit and this is reported through your Schedule C or on your Income Statement. If you don’t have current bookkeeping, contact us today and we can help you get caught up.

Your monthly average payroll expenses will be your annual net profit divided by 12. If your annual net profit is over $100,000, you may only claim up to $100,000.

Your lender will want proof of your income. Documentation that you may want to collect includes:

  • Earning reports
  • Pay stubs
  • Invoices
  • 1099s

Set Your Expectations.

  • Application process and times vary by lender. While the program overall opened on April 3, 2020, not all banks were prepared to accept applications.
  • Many lenders are requiring that you have a previous relationship with the lender in order to apply for the loan.

We are available to answer questions and help gather information as needed that will help you in your loan application process. Please contact our office for more information.