What Small Businesses Should Know About the Paycheck Protection Program

4 MIN READ

Updated April 7, 2020 at 12:30 PM MT

With the advent of the $2.2 trillion (yes, that’s a t, not a b) government stimulus package in light of the novel coronavirus, there is a specific program—the Paycheck Protection Program (PPP)—we feel may be beneficial to many of our valued clients. This is a $349 billion allocation of the aforementioned funds specifically designed to aid employers in keeping their employees on the payroll and covering their operational expenses to keep the proverbial "doors" open.

Admittedly, we didn’t read all 800 pages of the stimulus package. But from what we understand, the majority of small businesses and employers in the U.S. are able to and encouraged to apply. If that's all you needed to know, you can reach out to your local banker to get your hands in the pot and get started filling out an application here. If you're hungry for more details, read on.

Rarely do the words "free" and "money" occur in the same sentence. But in a few more words here, the PPP says that if a borrower is approved for a loan, the proceeds will be forgiven so long as:

• Proceeds are used to cover payroll costs, most mortgage interest, rent and utility costs during the 8-week period following receipt of loan funds
• Employee and compensation levels are maintained

Those two bullets probably bring a lot of questions to mind. After reading through the program details, we too had many questions. So we called a local banking institution that has been approved by the SBA to offer these forgivable loans. The many rules, regulations, stipulations and interpretations of the program can be found on this PPP FACT SHEET.

Summarized below are our findings & interpretations:

Apply early. High participation in this program is expected and there is a funding cap. It also takes time for lenders to process loans, so get it done well before you need the funds.

You may only take out one loan. Get it right the first time!

The program dictates that in addition to payroll costs, funds can be used to pay for rent, mortgage interest, and utilities for the 8-week period. But at a later point in the document, there is a caveat that basically says, "because we are expecting a large volume of applications, non-payroll related expenses will likely only be forgiven at 25%," which means 75% of the rent that you paid using the PPP funds will need to be repaid. 

If used exclusively for payroll costs, the loan will be forgiven given the following:

• Your number of staff DOES NOT decrease.
• Salaries paid to employees DO NOT decrease more than 25% for any employee who made less than $100,000 annualized in 2019.
  • To clarify, the $100,000 annualized refers to your actual compensation, NOT including non-cash benefits.
• If you preemptively made staffing and salary decisions before applying for this loan (and knowing the circumstances for forgiveness), you have until 6/30/2020 to restore your full time employment and salary levels for changes made 2/15/2020 – 4/26/2020.

You must request forgiveness from the lender you received the funds from. They will require verification of the above staffing and salary requirements.

If not forgiven in its entirety, loan payments need not be made for six months, but must be paid in full within two years. The loan accrues interest at a 1% fixed rate and accrues over the entire period, whether or not loan payments are being made. 

Loans may be given for up to two months of your average monthly payroll costs from the last year, plus an additional 25% of that amount subject to a $10 million cap.

So what exactly makes up payroll costs? And what if you don’t have employees and therefore no payroll?

Payroll costs are not limited to just the wages and salaries you pay your employees. Think about the entire cost of having an employee, including but not limited to:

• Salary, wages, commissions, tips
• Retirement matching benefits
• Medical, dental and vision insurance
• Vacation pay, sick pay, family leave, maternity/paternity leave, allowances for separation or administration of such group benefits
• State and local taxes 

Employee’s tax withholdings, whether their portion of FICA, federal income taxes, or their state’s income taxes, are not to be considered payroll costs.

You might be thinking, “Well I don’t have employees, but I ‘pay’ myself through owner draws or by moving funds from my income/deposit account to my owner’s pay account.” In short, you’re not an employee of your business unless you are a S Corporation. But when reading about the PPP, our initial interpretation is that if you are a sole proprietor, self-employed, or a more complex business entity structure, you can use the SBA loan funds to not only help defray payroll costs, but also to pay rent for your business, interest on your mortgage, or utilities for your office.

Exploring the application led to a different discovery. One required field asks for total monthly payroll costs. If you don’t have employees, how can you have payroll costs?

So we picked up the phone again and called our banker. He said that at this time, if you don’t have employees, you are better suited for the Economic Injury Disaster Loan (EIDL).

Now back to the PPP.

You know you have payroll, but what is needed to prove your payroll and how do you know where to find the necessary information?

Many of the payroll providers, including Gusto, the payroll provider we recommend, have created a separate area in your payroll login that has all necessary reports for you. If that’s not available, find a monthly payroll summary report and total up the sum of all payroll costs (excluding the employees deductions from gross pay) and enter that on the loan application. 

If you don’t know where to start, you’re not alone. Luckily, we’re here for you whether you need bookkeeping help, someone to talk to, or a hand in finding info for and filling out these loans. 

Updates:
The Small Business Association is regularly updating requirements for the Paycheck Protection Program (PPP). We will continue to update this blog as new information becomes available.

• April 7, 2020 at 12:30 PM MT: The employer portion of FICA taxes is no longer used to calculate total payroll costs