Posted on April 3 2020
Coronavirus Update 4/3/20 — PPP application revised
EMERGENCY UPDATE — Friday, April 3 —
To our clients:
Late last evening, the Small Business Administration (SBA) released a 31-page document which changes or clarifies some of the criteria of the Paycheck Protection Program (PPP) – one of the loan programs for which many businesses are currently applying.
We have just learned that, as a result, the PPP application has been revised, and many of the applications that have already been submitted will have to be changed.
The following items have been taken directly from the SBA’s latest release (our comments are in italics). Pay particular attention to items 6 and 7, which represent significant changes to any portion of the PPP loan that is not forgiven.
- Your business can apply for a PPP through June 30, 2020, or until funds made available for this purpose are exhausted.
- For loans made under the PPP, SBA will not require the lenders to comply with section 120.150 “What are SBA’s lending criteria?.” SBA will allow lenders to rely on certifications of the borrower in order to determine eligibility of the borrower and use of loan proceeds and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for loan forgiveness.
- You are eligible for a PPP loan if you are an individual who operates under a sole proprietorship or as an independent contractor or eligible self-employed individual.
- Qualifying payroll costs (the basis for determining the amount of the loan) include state and local taxes assessed on compensation of employees (as well as state unemployment taxes).
- The following are specifically excluded from the definition of payroll costs – federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of social security taxes and income taxes required to be withheld from employees.
- The Administrator, in consultation with the Secretary, determined that a one percent interest rate is appropriate. Previous guidance provided for an interest rate of .5%.
- The Administrator, in consultation with the Secretary, determined that a two-year loan is sufficient in light of the temporary dislocations caused by the coronavirus. Previous guidance provided for a 10-year loan.
- No eligible borrower may receive more than one PPP loan. This means that if you apply for a PPP loan, you should consider applying for the maximum amount.
- PPP loans are available on a first-come, first-served basis.
- Regarding PPP loan forgiveness, not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. Hence, consistent with the payroll protection aspect of the PPP loan, 75% of the forgivable costs must “focus on keeping workers paid and employed.” The SBA will issue additional guidance on loan forgiveness.
- Contrary to what you may have heard in the last day or two, you can apply for both an Economic Injury Disaster Loan (EIDL) and a PPP. Per last night’s SBA release, if you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Observation – strict interpretation of the April 3, 2020 date could mean that applying for an EIDL after April 3, 2020 could preclude you from applying for a PPP loan. We suggest you contact your banker for clarification in this regard.
- If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud.
Our previous updates regarding these SBA programs urged you to apply early, as we anticipated that banks would be overwhelmed by the number of applications being submitted. Such is the case. To reiterate the importance of applying now rather than later, consider the following. As you probably know, Congress authorized $349 billion for this program. To put that into perspective, if each successful applicant borrows an average of $100,000, there is enough to provide loans to about 3.5 million small businesses. The problem is that there are about 30 million small businesses in the United States. Because the maximum loan under this program is $10 million, the reality is that far fewer than 3.5 million businesses will receive a PPP loan.
In all likelihood, there will be more changes coming. We will continue to monitor this and other COVID-19 matters, and issue updates as warranted.
Download a PDF copy of the Paycheck Protection Program revised loan application by clicking the ‘Download File’ button above.
MillerSearles LLC | Certified Public Accountants | Advisors