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Paycheck Protection Program – Application Process and Clarifying Questions

On Tuesday, March 31st, the SBA issued further guidance on the Payroll Protection Program and the application and process to be followed. Read on below for further clarification on matters related to this program and a link to the SBA application.

Earlier in the day, McKonly & Asbury presented a webinar entitled “The CARES Act and the Benefits for Small Businesses.” If you missed it, you can view the recap with full video presentation and a link to the slides here: https://macpas.com/covid-19-news/webinar-recap-the-cares-act-and-the-benefits-for-small-businesses/

Application

The application for the SBA Payroll Protection Program is now available. The application can be found at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf.

  • Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.

The SBA is encouraging all applicants to apply as quickly as possible because there is a funding cap.

How to Apply

Businesses, Non Profits, and other organizations that meet the employee count requirement as outlined in the Payroll Protection Program can apply through the following:

  • Any existing SBA 7(a) lender
  • Federally insured depository institution
  • Federally insured credit union
  • Farm Credit System institution that is participating

Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Applicants should consult with your local lender as to whether it is participating. All loans will have the same terms regardless of lender or borrower. A list of participating lenders as well as additional information and full terms can be found at www.sba.gov.

Lender Underwriting Requirements

Lenders will need to verify the following:

  • Borrower was in operation on February 15, 2020.
  • Borrower, as of February 15, 2020, had employees for whom the borrower paid salaries and payroll taxes.
  • Verify the dollar amount of average monthly payroll costs.
  • Lenders will need to follow applicable Bank Secrecy Act requirements.

Clarifying Questions and Answers from Issuance of Initial CARES Act

Some open questions have been addressed within the guidelines provided by the SBA since the enactment of the CARES Act on Friday, March 27, 2020. Below are some answers to better clarify the process, documentation, terms and conditions of these loans

Clarity on wages above $100,000

Per the guidance just released, salary, wages, commissions, or tips will be capped at $100,000 on an annualized basis for each employee. Therefore, when calculating your cost of payroll per employee, only compensation paid up to $100,000 can be used in the calculation of the maximum amount of the loan for an applicant.

How much of my loan will be forgiven?

Borrowers will owe money when your loan is due if proceeds of the loan are used for:

  • Anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.
  • The SBA will use the guideline that not more than 25% of the forgiven amount may be for non-payroll costs.

Borrowers will also owe money if they do not maintain staff and payroll defined more clearly as follows:

  • Number of Staff – Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of Payroll – Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-Hiring – You have until June 30, 2020, to restore your full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.

To receive loan forgiveness, the borrower can submit a request to the lender that is servicing the loan. The request will include:

  • Documents that verify the number of full-time equivalent employees and pay rates.
  • Payments on eligible mortgage, lease, and utility obligations.
  • Borrower must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.
  • The lender must make a decision on the forgiveness within 60 days.

Loan terms and conditions

Interest Rate – 0.50% Fixed

Length of loan – 2 years

There are no prepayment penalties and as discussed before no collateral or personal guarantee requirement.

Documentation needed for the loan

This is still somewhat vague at this time. According to the SBA requirements published, documentation needed for the loan is “payroll documentation” maintained by the borrower. The SBA goes on further to state:

“The Borrower acknowledges that the lender will calculate the eligible loan amount using the tax documents you submitted. The borrower affirms that the tax documents are identical to those submitted to the IRS. The borrower also understands, acknowledges, and agrees that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.”

Based upon the above, it would be safe to say that the loan documentation needed for the lender will be:

  • Payroll tax reports submitted to the IRS (940s and 941s) for the trailing 12 months from the date of the loan.
  • Other payroll matters such as employer paid benefits, retirement programs, and employee insurances are part of the payroll calculation. Providing details of this information either with proof of payment or internally generated financial statements will be necessary for the lender to verify total payroll cost submitted.

We will continue to provide updates as more details become available. If you have further questions regarding this information, please feel free to contact David Blain, CPA, CVA, Partner & Director of Entrepreneurial Services at McKonly & Asbury at dblain@macpas.com or by calling (717) 972-5722. And continue to check back to our COVID-19 Resource Center for information and updates.

Questions on submitting your PPP loan application or the forgiveness process?

Our team stands ready to assist you through the PPP loan application and forgiveness process. Do not go at it alone. Ensure you are submitting the right information and receiving the highest forgiveness amount possible. Visit our PPP Loan Consulting webpage by clicking here to request assistance or support.


This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although McKonly & Asbury has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

About the Author

David Blain

David is a Partner with McKonly & Asbury. He has a diverse background with experience in both private industry and public accounting, having worked for five years for an international public accounting firm and five years in private i… Read more

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