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COVID-19: Paycheck Protection Program (PPP Loan)

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The PPP Loan was signed into law on March 27, 2020, as part the CARES Act. Although guidance on the PPP Loans are evolving, here is a summary of what you need to know.
April 8, 2020

The PPP Loan was signed into law on March 27, 2020, as part the CARES Act. Although guidance on the PPP Loans are evolving, here is a summary of what you need to know.

What is the Purpose of a PPP Loan?

The purpose of these loans is to provide cash for businesses and not-for-profit organizations to continue to pay payroll, group health insurance (including premiums), rent, utilities, and interest payments on existing debt.

When obtaining the PPP loan, you need to certify, among other things, that your business has been economically affected or that economic uncertainty makes the loan necessary.

Who Qualifies?

PPP Loans are available to employers with less than 500 employees (with some exceptions) through Small Business Administration approved lenders.

If your business is part of an affiliated group there are specific rules and exceptions for businesses with more than 500 employees. These rules are complex and will require review of each specific circumstance.

In addition, on the evening of April 6th, the SBA released additional guidance allowing organizations to qualify as a small business regardless of the number of employees when meeting both tests in the SBA’s “alternative size standard.” The two criteria for the “alternative size standard” are:

  • Maximum tangible net worth of the organization is not more than $15 million, and
  • The average net income (after federal income taxes) for the last two fiscal years is not more than $5 million.

What are the terms?

The final terms of the PPP Loans provide up to a $10 million loan, with a 2 year term and interest rate of 1%.

Loan payments are deferred for the first six months. There is no pre-payment penalty and no collateral or personal guarantees are required.

These loans may be eligible for a tax free forgiveness up to 100% of the loan value if certain criteria is met.

How much do I get?

At a high level, the calculation is 2.5 times the average monthly payroll cost for the last year prior to the loan, for all employees with a $100,000 per employee annualized wage cap.

Businesses will need to consult with their SBA approved lender to find out exactly how that specific lender is handling the variables of the calculation. On the evening of April 6th, the SBA released the following additional guidance:

  • Amounts paid to independent contractors on Form 1099 do NOT qualify as payroll costs to the payor.
  • The applicant can use either 2019 payroll costs or the last 12 months, whichever they prefer (most will use 2019).
  • Only the salary/wages of an employee is capped at $100,000. The additional payroll costs may be included.
  • Wages are gross. They are not reduced by federal income tax withholding or the employee’s share of payroll taxes. Payroll costs are also not increased by the employer’s share of payroll taxes.
  • An applicant can count costs paid to leased employees.

How do I apply?

PPP Loans are available from SBA approved banks and credit unions.

When can I apply?

Sole proprietors, independent contractors and eligible self-employed business are scheduled to start applying for PPP Loans on April 10, 2020. All others are eligible to apply now.

How fast will I receive proceeds from the PPP Loan?

Once the loan is submitted and approved, RubinBrown has seen funding happening very quickly for some borrowers. Some even as often as same day funding.

How do I get the loan forgiven?

Once the loan has been funded there is information and calculations that are necessary to determine what portion, if any, of the loan will be forgiven. These rules are likely to change and future guidance will be provided to assist with this aspect of the PPP Loan. Here is what we know right now:

After the loan is funded, in order to qualify for the loan forgiveness there is a two-step process.

  1. Businesses will need to aggregate the total payments for the next eight week period, after funding, for payroll costs, interest payments, rent payments and certain utilities.
  2. Then, determine the full amount of forgiveness based on current workforce by dividing the average number of full-time equivalent employees during the same eight week period mentioned above by either the average number of full time equivalent employees from February 15, 2019 through June 30, 2019, or the average number of full time equivalent employees from January 1, 2020 through February 29, 2020.

Those applying should note that the SBA has stated that no more than 25% of forgiveness can be from non-payroll costs. The SBA has also clarified that any interest that accrues before the loan is forgiven or paid will be at the borrower expense.

Full forgiveness will not be available if you:

  • Reduce FTEs during the covered period, or
  • Reduce pay of an FTE making less than $100,000 by more than 25%.

Your lender will determine the loan forgiveness amount and upon receipt of the forgiveness request and necessary documents, will have 60 days to approve or deny the forgiveness.

Who do I contact for more help?

If you have additional questions or need assistance navigating the CARES Act, please contact your RubinBrown team member.


Readers should not act upon information presented without individual professional consultation.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.


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