A Quick Guide to the CARES Act Paycheck Protection Program

April 10, 2020 - minute read

Many small employers are interested in applying for a loan under the Paycheck Protection Program (PPP), which was created under the CARES Act (Coronavirus Aid, Relief and Economic Security Act), the $2 trillion stimulus package signed into law on March 27, 2020.

The purpose of the PPP is to help small businesses stay afloat—and keep their workers employed—while the country rides out the worst of the pandemic. PPP loans are intended to cover eight weeks of payroll and related expenses, and may be forgiven in their entirety if employers use the funds as intended. 

The CARES Act allotted $349 billion in assets to the program, and Congress is already considering additional funding. According to Treasury Secretary Steven Mnuchin, as of April 8, $100 billion in PPP loans has already been approved. As a result, employers who’d like to take advantage of the program are encourage to apply quickly.

However, there is still some confusion concerning the program, and the SBA has indicated it will continue to release more guidance. In the meantime, we’ve created a quick recap of the available information, based on the SBA’s Interim Final Rule, which was released on April 2, 2020.

What Small Businesses Are Eligible for PPP Loans?

PPP loans are available through the Small Business Administration’s existing SBA 7(a) lending program. As a result, eligible employers include small businesses with fewer than 500 employees based in the U.S.

In additional, hospitality and food service businesses with a NAICS Code beginning with 72 that have more than one physical location and employ less than 500 per location are also eligible. So are other businesses that meet SBA size standards, plus sole proprietors and certain nonprofits.

In order to be eligible, the business must have been in operation on February 15, 2020. That includes paying wages to employees or providing compensation to independent contractors.  

How Do PPP Loans Work?

Small businesses can borrow 2.5 times their average monthly payroll, up to $10 million maximum. Proceeds are to be used to fund payroll, some benefits, mortgage interest or rent, and utilities. How employers spend their funds will determine if the loan is forgivable.

Employers can only apply for one PPP loan, since the goal of the program is to help as many small employers as possible.

How Does PPP Loan Forgiveness Work?

Up to 100% of the PPP loan and any accrued interest can be forgiven, provided the employer uses the proceeds for:

  • Payroll costs, including group health insurance premiums, retirement benefits and state and local payroll taxes
  • Mortgage interest payments or rent payments
  • Utility payments
  • Interest payments on other debts incurred before February 15, 2020
  • To refinance SBA EIDL loans made between January 31 and April 3, 2020.

To be eligible for loan forgiveness, 75% of the loan amount must be spent on payroll and employee compensation levels must be maintained. Companies who laid off employees will be eligible for forgiveness if they rehire their workers by June 30.

Employers applying for loan forgiveness will be required to document how the funds were used, and funds used for other purposes will need to be repaid. (The SBA has emphasized that businesses that knowingly use the funds for unauthorized purposes may be charged with fraud.)

What Are the Terms of the PPP Loans?

According to the Interim Final Rules, unforgiven loan amounts are subject to a 1.00% interest rate and a two-year maturity. (This represents a change from earlier figures.) Loan payments will be deferred for six months following the date of disbursement, but interest will accrue during the deferment period. 

When Should Small Businesses Apply for a PPP?

Experts suggest that small businesses should apply as quickly as possible, because funding is limited and loans are granted in the order they are received—i.e., first come, first served. The PPP program officially launched on April 3, 2020 and will end on June 30, 2020, assuming funds remain available. 

What Is the Application Process?

Employers will need to complete the Paycheck Protection Program Borrower Application Form and submit it to an SBA-approved lender.

Among other things, employers will need to certify that:

  • They were in operation on February 15, 2020 and were paying employees or independent contractors.
  • The loan is required as a result of current economic conditions.
  • Funds will be used to retain workers and maintain payroll and possibly make mortgage interest, rent, or utility payments.

In addition, employers will need to provide documentation of:

  • The number of full-time equivalent employees on their payroll.
  • Their total payroll costs.
  • The total mortgage interest payments/rent payments and utility costs.

If you are an EPAY customer, you can obtain this information easily by running our Payroll Check Journal Report and Company 941 Data reports. If you aren’t an EPAY customer, ask if your payroll software provider can support you in this way. Because time appears to be of the essence, the faster you gather the needed information, the sooner you can apply.

Where Can Employers Apply for PPP Loans?

Employers can apply for PPP loans through existing SBA lenders, as well as participating federally-insured depository institutions and credit unions. However, some banks are limiting PPP loans to their existing corporate customers. We understand that more lenders will become available once they are approved by the SBA.

To find a lender near you, you can use the SBA’s PPP lender search tool. And for more detailed information, please visit the SBA website.

EPAY is committed to helping our customers and the greater business community navigate these uncertainties and protect their people. We will be continuously updating our Coronavirus Resource Center as new information and tools become available.

Filed Under: Payroll & Tax COVID-19