Further Clarifying Guidance on Paycheck Protection Program

COVID-19 Business Update

The Treasury recently released clarifying guidance on the new Paycheck Protection Program (“PPP”), a program from the Small Business Administration (“SBA”) which includes potentially forgivable loans under the Coronavirus, Aid, Relief, and Economic Security Act (“CARES”). The loan for qualifying businesses and self-employed individuals is designed to provide funding for payroll and other costs that can be potentially forgiven based upon employee retention.

The loan borrowing base is based on certain payroll costs, including wage compensation, health insurance premiums paid by the business, fringe benefits, pension benefits paid by the business, among a few other items. The recently released guidance clarifies certain provisions that were recently unclear and is better explained below:

  • Payroll costs are supposed to be aggregated for the last 12 months from the date of application. This would mean the borrower is to aggregate payroll costs for the period April 1, 2019 through March 31, 2020 for purposes of determining the loan amount. However, the guidance indicates that most applicants will use the average monthly payroll for 2019. Accordingly, it seems appropriate to use 2019 payroll costs – much easier to compile and document – for purposes of determining the loan amount.
  • Payroll should only be for employees whose principal place of residence is the United States.
  • Payroll limits ($100,000) are after you consider all forms of compensation including health insurance costs and pension benefits.
  • Reduce payroll costs for Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020 including employees and employers share of FICA and income taxes.
  • Reduce payroll costs for qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.
  • Independent contractors do not count in the determination of payroll costs as they can apply for this benefit themselves under the self-employed portion of this program.

In addition, there are further clarifications as follows:

  • The borrowing rate on the loan is 1%.
  • The loan maturity is two years. No payments will be due for six months following the date of disbursement of the loan. However, interest will continue to accrue during the six-month deferment period.
  • The PPP program is first come, first served. Get your application in soon.
  • Application parts include the SBA Form 2483, payroll documentation (941’s or other reports) and the lender must submit SBA Form 2484.

For review of the forgiveness computation, spending must be at least 75% of the eight-week spending subsequent to the loan funding. 25% can constitute other costs such as group health insurance, mortgage interest payments, rent payments, utility payments, interest on other debt incurred before February 15, 2020. For purposes of forgiveness, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.