Your Guide to the CARES Act: Paycheck Protection Program (PPP) Loans

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The programs offered by the recently-passed Coronavirus Aid, Relief, and Economic Security (CARES) Act will serve as a valuable lifeline to businesses in need as they cope with the growing impacts of the COVID-19 pandemic. VBSR is here to provide clarity on what options are available to you and will be updating this page as new information becomes available. 

Paycheck Protection Program (PPP) Loans

These loans are meant to help small businesses with fewer than 500 employees with payroll support, employee salaries, mortgage payments, rent, utilities, and any other debt obligations incurred between February 15 and June 30. Loans are available up to $10 million per business and may be forgiven, provided employers keep their workers on at their current salary levels through the end of June. Ideally, this will keep working Vermonters employed and allow our businesses and local economies recover more quickly when this crisis subsides. That said, if your business is forced to layoff employees then you will be responsible for paying off a larger portion if not all of your loan, so take a long look at your overhead and fixed expenses before applying.

Do I qualify for a PPP Loan? 

You’re eligible for a PPP Loan if you are:

  • A business that has been in operation since February 15, 2020 or earlier.
  • A business with less than 500 employees (this includes full time, part time, or other staff.) There some exceptions to the rule, You can find the size standards for your industry here.
  • A 501(c)(3) nonprofit, a 501(c)(19) veterans organization, or Tribal business that has fewer than 500 employees (again this includes all staff.)
  • An individual working as a sole proprietor or independent contractor.
  • Self-employed and regularly operating your business or trade.
  • A business that employs less than 500 people per physical location and is assigned a NAICS code beginning with 72. This applies namely to those in the hotel and food service sectors.

How much money can I receive? 

Borrowers can receive up to 250% of their average monthly payroll costs, up to $10 million. This is calculated differently depending how long you’ve been in business.

If your business was open in 2019 then your maximum loan is 2.5x your average monthly payroll costs between February 15, 2019  through June 30,2019. If you’re one of the many Vermont businesses who employ seasonal workers, you can use March 1, 2019 as your start date instead.

For our newer businesses who weren’t operational at that time, your maximum loan would be 2.5x your average monthly payroll costs between January 1, 2020 and February 29, 2020. Lenders will be looking for documents such 1099-MISC forms, payroll tax filings, and income and expenses from the sole proprietorship. 

What counts as payroll? 

For employers:

  • Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent) 
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for dismissal or separation
  • Payment required for the provisions of group health care benefits, including insurance premiums
  • Payment of any retirement benefit
  • Payment of State or local tax assessed on the compensation of employees

For contractors, sole proprietors, and the self-employed, payroll includes wages, income, commission, net earnings from self-employment, or similar compensation.

What doesn’t count as payroll? 

  • Individual employee and/or owner compensation over $100,000 as prorated for February 15-June 30, 2020.
  • Income taxes, payroll taxes, and railroad retirement taxes.
  • Compensation to employees who live outside of the U.S.
  • Qualified sick and family leave wages for which a tax credit is allowed under the Families First Coronavirus Response Act.

What can I use PPP loans for? 

Allowable uses include:

  • Payroll costs (see above)
  • Costs of continuing group health care benefits during paid sick, medical, or family leave, and insurance premiums
  • Employee salaries, commissions, or similar compensation (see above)
  • Interest payments on any mortgage obligation (principal payments to not apply)
  • Interest on any other debt obligations taken on before the February 15, 2020
  • Rent
  • Utilities

Can my PPP loan be forgiven? 

Yes! This is arguably one of the most attractive parts of payroll protection loans. Borrowers are eligible for forgiveness equal to the total amount they spent on the following during the 8-week period beginning on the date the loan was given–

  • Payroll costs (see above)
  • Interest payments on mortgage obligations associated with the business
  • Rent payments
  • Utility payments including electricity, gas, water, transportation, phone, and/or internet.
  • Additional wages paid to tipped employees

Because so many businesses are applying for PPP loans, the U.S. Department of  the Treasury anticipates that no more than 25% of the forgiven amount will be for non-payroll costs.

It’s important to note that your total loan forgiveness can be reduced if you lay off anyone during the first eight weeks following the loan. If you reduce wages of employees who make less than $100,000 per year by 25 percent or more you will also have the forgivable amount reduced. If you’ve already let employees go or reduced wages between February 15, 2020 and April 26, 2020, you can avoid reductions by rehiring or returning wages to their original levels by June 30, 2020.

To have your loan forgiven, you’ll need to apply through your lender. Applications must include:

  • Documentation confirming the total number of employees you have on payroll and their pay rates. This includes IRS payroll tax filings as well as state income, payroll and unemployment insurance filings.
  • Documentation of payments made on mortgage and lease obligations as well as utilities.
  • Verification from someone from your business or organization that the materials provided are true and that the amount that is being forgiven was used for the approved purposes outlined above.

Any loans that aren’t forgiven will be due within 2 years at a fixed interest rate of 1%. Interest payments will be deferred for 6 months after the loan is given but interest will still accrue during that time.

How do I apply for a PPP Loan?

You can apply for a PPP loan with your local Small Business Administration lenders beginning on April 3, 2020 for small businesses and sole proprietorships, and April 10, 2020 for independent contractors and those who are self-employed. No personal guarantees or collateral are required and applications are due by June 30, 2020. The Treasury is encouraging employers to apply as soon as possible, as funding is limited and lenders will need time to process your application. Click HERE for the application.