Paycheck Protection Program and All Its Revisions
Updated June 19, 2020
There have been numerous changes to the Paycheck Protection Program (PPP). We’ve created a timeline of the PPP’s evolution with expanded details in the article below.
Just Released from SBA
Ready to start your PPP loan forgiveness application or want to know what’s needed for forgiveness? Revised and more borrower-friendly PPP loan forgiveness applications, including a new EZ version which requires fewer calculations and less documentation for eligible borrowers, are now available.
Both applications give you the option to use the original 8-week covered period (if your loan was made before June 5, 2020) or an extended 24-week covered period.
Click below to access the updated applications and instructions.
- Revised Full PPP Loan Forgiveness Application (includes details on loan calculations)
- Revised Full PPP Loan Forgiveness Application Instructions
- EZ Loan Forgiveness Application
- EZ Loan Forgiveness Application Instructions
Timeline of Paycheck Protection Program (PPP)
March 27, 2020 – Original PPP enacted as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)
- The CARES Act created the PPP which offers forgivable loans to small for-profit businesses, tax-exempt not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors in amounts equal to 2.5 times their monthly payroll costs, subject to restrictions on forgiveness based on time constraints for use of funds and employee retention requirements.
April 3, 2020 – Applications open for small businesses and sole proprietorships
April 10, 2020 – Applications open for independent contractors and self-employed individual
April 15, 2020 – Initial $349 billion of PPP funding was exhausted, and processing of applications ceased
April 24, 2020 – Paycheck Protection Program and Health Care Enhancement Act (the “PPP & HCE Act”) was passed to add $310 billion in additional funding to PPP
April 29, 2020 – Joint Statement re: SBA Review of all PPP Loans in Excess of $2 Million; Treasury Secretary Mnunchin and SBA Administrator Jovita Carranza issued a Joint Statement that read, in part:
- To further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.
May 15, 2020 – Loan Forgiveness Application Form and Instructions issued by SBA and Dept. of Treasury
June 5, 2020 – The Paycheck Protection Program Flexibility Act of 2020 (PPPF Act) was passed into law to clarify and expand upon the PPP.
- Details of the modifications to the PPP are highlighted in the summary of terms below.
- There are still questions and concerns that will need to be addressed through additional rulemaking by the Small Business Administration (SBA) and the Department of the Treasury (Treasury).
- The SBA, in consultation with Treasury, will “promptly” issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing the amendments to the PPP made in the new law.
June 30, 2020 – FINAL DATE ON WHICH PPP APPLICATIONS MAY BE APPROVED.
- Keep applying – The SBA reports that more than $130 billion is still available under PPP funding. Read the following articles for more information on available PPP funds:
Summary of PPP Terms
At this time, businesses may only receive one installment of the PPP, so if your business has already applied for or received PPP funds, you should not apply again.
- Credit Elsewhere Requirements: The SBA’s guidelines require PPP Borrowers to certify with their lender that they need the loan and cannot access the money from other sources. See Question #46 in SBA’s PPP Loans FAQs, link here. (UPDATED 4/25/20)
- Permissible PPP Fund Request Amount: The lesser of $10 million or 2.5 months of payroll cost per small business (based on trailing 12 months payroll costs)
- No Loan Guarantees or Collateral Required
- Use of Loan Amount: Loan proceeds may pay the following costs:
- Payroll support (such as: paid sick leave*, medical, family and costs related to continuation of group health care benefits during periods of leave)
- Employee salaries, commissions, and other compensation
- Mortgage interest
- Rent on real and personal property (including rent under a lease agreement)
- Utilities (service in place before 2/15/2020)
- Telephone (landline and cell phone service)
- Transportation (fuel for business vehicles, not sure anything else is covered)
- Mortgage interest payments on real or personal property if mortgage incurred before February 15, 2020
- Not Intended for Highly Compensated Employees/Payroll Cap: Payroll costs are capped at $100,000 per employee
- Interest Rate for PPP Funds turned PPP Loans/Amounts Not Forgiven: 1% percent
FOLLOWING ARE UPDATED PPP TERMS FROM JUNE 5, 2020 PPPF ACT
- Deferral of Payroll Taxes: PPP Borrowers may defer a portion of payroll taxes on an equal basis as other businesses under the CARES Act
- Deferral of Social Security Taxes: The original PPP prohibited employers from deferring employer Social Security taxes after any portion of the PPP loan was forgiven. The PPPF Act allows employers who receive PPP loan forgiveness to continue deferring payment of the employer’s share of the Social Security tax under the Cares Act through December 31, 2020.
- Payment on half of the deferred amount is due to the Internal Revenue Service (IRS) by Dec. 31, 2021, and the remaining half is due by Dec. 31, 2022.
- Timeframe by which to Use PPP Funds: 8 week period that begins upon receipt of the PPP loan funds may be extended by PPP Borrowers to the earlier of (i) 24 weeks from the loan funding date or (ii) Dec. 31, 2020. However, only PPP Borrowers that obtained a PPP loan prior to the enactment of PPPF Act (which was June 5, 2020) have the option to select their original 8 week period.
- New PPP Borrowers will have a 24 week covered period, but the covered period cannot extend beyond Dec. 31, 2020.
- This flexibility is designed to make it easier for more PPP Borrowers to reach full, or almost full, forgiveness of the PPP funds they received.
- Determination of Forgiveness Based on Use of PPP Funds**:
- Payroll costs must constitute at least 60% of the forgiven amount (decreased from initial requirement of 75%); and
- SBA and Treasury clarified on June 8, 2020 that the 60% threshold is not a cliff and that partial forgiveness is available under 60%.
- Non-payroll costs, which are qualifying mortgage interest, utility costs and rent, may constitute no more than 40% of the forgiven amount (decreased from initial requirement of 25%)
- Payroll costs must constitute at least 60% of the forgiven amount (decreased from initial requirement of 75%); and
- Employee Headcount Requirements: In order to obtain full forgiveness of the PPP funds they received , the PPP originally gave PPP Borrowers a safe harbor date of June 30, 2020 to re-establish the same full-time-equivalent (FTE) headcount as used in their loan applications. The PPPF Act extended the safe harbor to December 31, 2020. The PPPF Act also allows an exemption from loan forgiveness reduction if an employer documents the following:
- It is not able to hire individuals who were employees as of Feb. 15, 2020,
- It could not find qualified employees to backfill its FTE workforce reduction, or
- It could not restore its business to the "same level of business activity" as prior to February 15, 2020, due to new standards for sanitation, social distancing, or any other safety requirements– issued between March 1, 2020 and Dec. 31, 2020 – by the secretary of Health and Human Services (HHS), the director of the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) related to worker or customer safety requirements related to COVID-19.
- This new relief does not include an inability to hire employees due generally to decreased economic activity.
- Deferral of PPP Loan Payments: Deferral period for PPP Borrower payments of principal, interest, and fees on PPP loans shall be the date that the SBA remits the PPP Borrower’s loan forgiveness amount to the lender (or, if the PPP Borrower does not apply for loan forgiveness, 10 months after the end of the PPP Borrower’s loan forgiveness covered period)
- Length of PPP Loan: 5 years
- The PPPF Act increased to five years from 2 years the maturity of PPP loans that are approved by the SBA on or after June 5, 2020 (based on the date the SBA assigns a loan number) with a maximum term of 10 years.
- This applies only to new PPP loans and for any amount not forgiven.
- For existing PPP Borrowers with a 2-year term on their PPP loan, the lender and PPP Borrower must mutually agree in writing to change to the loan’s term as it is not automatic. There is language within section 1109 of the CARES Act that may support a borrower's request to have a lender amend the maturity date of the Note.
*If employers provide leave through the Emergency Family Medical Leave Expansion Act or the Emergency Paid Sick Leave Act and receive the available tax credit reimbursement, the EIDL funds cannot also be used to cover this cost.
**If a PPP Borrower accepts any portion of the grant under the Economic Injury Disaster Loan Emergency Advance (up to the $10,000) through the EIDL, the amount of the advance received will count against the forgivable amount through PPP.
PPP Forgiveness Process and Guidance (UPDATED 5/15/2020 and 6/5/2020)
To receive forgiveness of its received PPP funds, a PPP Borrower must complete and submit the Loan Forgiveness Application (SBA Form 3508 or lender equivalent) to its lender (or the lender servicing its loan).
PPP Borrowers should submit their Loan Forgiveness Application as soon as PPP funds have been exhausted. Businesses do not have to wait until after the 24 week covered period to submit their loan forgiveness application.
Failure to apply for loan forgiveness within 10 months of the end of the PPP Borrower’s covered period will result in payments being due.
- The American Institute of CPAs (AICPA) has issued valuable guidance for businesses to calculate the amount of the PPP funds eligible for forgiveness, see: https://future.aicpa.org/resources/article/forgiveness-calculation-steps
A nonpayroll cost is eligible for forgiveness if it was: (i) paid during the covered period; or (ii) incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.
The lender has 60 days from receipt of a complete application to issue a decision to SBA.
- If only a portion of the received PPP fund amount is forgiven, or if the forgiveness request is denied, any remaining balance due becomes a PPP loan and must be repaid by the PPP Borrower on or before the 5-year maturity of now created PPP loan.
- A PPP Borrower may seek forgiveness for payroll costs for its covered period beginning on either: (i) the date of disbursement of the PPP Borrower’s PPP loan proceeds from the Lender (i.e., the start of the covered period); or (ii) the first day of the first payroll cycle in the covered period (this will be referred to as the “alternative payroll covered period” by the SBA and lender).
Ineligibility or Denial of PPP Forgiveness or PPP Loan
If loan documentation submitted to SBA by the lender or any other information indicates that the PPP Borrower may be ineligible for a PPP loan or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the PPP Borrower, SBA will require the lender to contact the PPP Borrower in writing to request additional information.
If SBA determines that a PPP Borrower is ineligible for the PPP forgiveness, SBA will direct the lender to deny the loan forgiveness application.
Additional Guidance Still to Come
- The U.S. Senate is still seeking additional “technical fixes” to the PPP.
- The Small Business Administration and the Department of the Treasury should provide further guidance on the implementation of the new provisions in the PPPF Act. Issues requiring further clarification include:
- How will the SBA and the Dept. of Treasury interpret the minimum amount spent on payroll costs?
- How will the new expanded 24 week covered period work for PPP Borrowers that seek to spend the proceeds of the loan over a period less than 24 weeks?
How to Calculate your PPP Fund Requested Amount:
Have questions? See also the SBA’s guidance on how to calculate the requested PPP amount: https://www.sba.gov/sites/default/files/2020-06/How-to-Calculate-Loan-Amounts-508.pdf
Is your business eligible to receive PPP funds?
The basic eligibility requirements for PPP Borrowers are these:
- Borrower was in operation on February 15, 2020, including small for-profit businesses, tax-exempt not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors,
- Borrower has fewer than 500 employees (however, PPP Borrowers with more than 500 employees can also apply for loans in certain situations),
- Borrower must have been harmed by the COVID-19 pandemic, and
- Borrower must submit the required documentation along with PPP application.
Agricultural enterprises have always been eligible to apply under PPP.
What’s Included in Payroll Costs:
Payroll costs include ALL of the following expenses:
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee in cash compensation (not for non-cash benefits, such as retirement contributions, employee health benefits or taxes);
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation; and
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
NOTE: FICA cannot be included in the payroll cost calculation for reimbursement by the PPP.
Where to Find a Lender:
PPP funding, while backed by the SBA, is made available through SBA 7(a) lenders.
- The U.S. federal administration’s PPP program guidelines can be found at: http://www.treasury.gov
- The U.S. Small Business Administration's search tool to find a bank that offers PPP loans can be found at: www.sba.gov/paycheckprotection/find
Banks are required to fund the PPP loans within 10 days of approval. Most borrowers have reported receipt of their funds within 1-5 days of approval. Each bank may provide updates directly to their individual customers.
Applying for this PPP funding does NOT bind a company to accepting it. You can turn it down.
SBA’s Guidance and “Fact Sheets”
- Sample PPP Application: https://www.sba.gov/sites/default/files/2020-03/Borrower%20Paycheck%20Protection%20Program%20Application_0.pdf
- Borrower Fact Sheet: https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf
- Lender Fact Sheet: https://home.treasury.gov/system/files/136/PPP%20Lender%20Information%20Fact%20Sheet.pdf
Equitable Treatment Amongst Small Businesses
Approximately $60 billion of the additional funding for PPP under the PPP & HCE Act is set aside for "underbanked" business (i.e., small businesses owned by minorities, women and those in rural areas).
Credit Elsewhere Certification
The SBA’s issued guidelines requiring companies to certify with their lender by May 19, 2020 that they needed the PPP loan and could not access the money from other sources. For details, see Question #46 in SBA’s PPP Loans FAQs, link here.
Based on the Dept. of Treasury’s guidance provided on April 24th, some companies must return funds they received under the PPP.
“Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.”
Small and Mid-Sized Lenders
The $310 billion of additional PPP funding under the PPP & HCE Act designated $60 billion be funneled to small and mid-size lenders. This new feature of the funding should ensure that borrowers applying to small and mid-size lenders won’t be disadvantaged because larger lenders are dominating the SBA submission process. The hope is this additional restriction will help smaller businesses that are more likely to seek aid and funding from small and mid-size lenders.
SBA UPDATES: With the updates and changes to law coming rapidly and often, you may sign up to receive updates from the SBA directly at: https://www.sba.gov/updates.
The information above is intended to act as a general resource and therefore does not address all considerations and jurisdiction-specific analyses that may need to be undertaken prior to taking action. Thus, employers should seek specific counsel.