CARES Act 6 Most Frequently Asked Questions (FAQ) Answered
July 31, 2020
July 31, 2020
As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
The US is nearly four months into the distribution of Paycheck Protection Program (PPP) loans to small businesses, with funding reaching more than 4.5 million businesses and disbursing over $518 billion in aid. But many business owners have questions on the loan programs, loan forgiveness, a potential second round of COVID-19 relief, as well as payroll cost and employee requirements. To help understand the CARES Act and coronavirus relief, we compiled some frequently asked questions (FAQ) and answers for business owners looking at aid options and PPP loan forgiveness.
Yes, the PPP Loan Forgiveness Application Form has been simplified. As of June 11, and revised on June 16, the PPP Loan Forgiveness Application Form 3508EZ is available through the Small Business Administration (SBA) and the Treasury Department. The EZ application can be used by borrowers that:
The EZ form offers participating businesses a simpler application in three pages by focusing on payroll costs, business mortgage interest payments, business rent or lease payments, and business utility payments against the initial PPP loan amount. As a reminder, borrowers are eligible for 100 percent loan forgiveness; however, to be eligible, businesses must adhere to guidelines for full-time equivalent (FTE) employees and payroll:
Businesses can fail to receive the full amount of loan forgiveness, and instead get partial loan forgiveness or a forgiveness reduction, based on their full-time employeeâ€™s status â€“ i.e. if they reduce employees or wages. More information on equivalent employees’ status and exemptions under the new Paycheck Protection Program Flexibility Act of 2020 (PPPFA) can be found here and below.
According to existing documentation, businesses should wait until the end of their covered periods before applying for PPP loan forgiveness. Depending on when the borrower received the loan, the covered period is either:
The SBA, on June 12, 2020, said borrowers do not have to pay during the loan â€ścovered periodâ€ť and for the 10 months after that period ends. If a PPP borrower is going to apply for loan forgiveness within that 10-month time period, they may continue deferment on payments on their PPP funds until the SBA forgives the loan or declines forgiveness.
Criteria and documentation needed to meet forgiveness are those related to proof of eligible expenses. On or before June 4, 2020, eligible expenses include 75% payroll requirement and up to 25% eligible non-payroll expenses. On June 5, 2020, or later, following the PPP Flexibility Act (see below for more information), eligible expenses include 60% payroll requirement and up to 40% eligible non-payroll expenses. Borrowers will apply for forgiveness with their lending institutions and lenders will need to verify information on the business. It is recommended that businesses have with them:
Borrowers can apply for loan forgiveness at the end of their current period. They will need to prove that they have kept on FTE employees or rehired FTE employees by December 31, 2020, or the end of their covered period, whichever comes first. As stated above, to ensure that borrowers receive a loan forgiveness amount equivalent to 100 percent of their PPP loan, businesses must make every effort to retain or rehire FTE employees and commit to wage expenses.
Yes, you may still be eligible for forgiveness even in the case that an employee leaves for reasons unrelated to COVID-19. Businesses should document the reason for an employee leaving and any attempts to rehire. The business should also be prepared to show that proof as supporting documentation to lenders and SBA.
As a reminder, to be eligible for full 100 percent loan forgiveness, businesses must use the PPP loan funds to keep FTE employees on the payroll and not their reduce their wages by more than 25 percent (if the employee makes $100,000 or less). However, it is important to note that for FTE employee reductions and wage reductions there can be exemptions:
It is important that all businesses keep records of any wage or employee reductions during the COVID-19 pandemic so that they have documentation when applying for loan forgiveness. Any FTE employee reductions or wage reductions that are not documented exemptions may lead to partial loan forgiveness.
Yes, there are plans in both the House of Representatives and the Senate that would extend the second round of aid to businesses in need. One plan is being called Prioritized Paycheck Protection Program or P4, which is a new PPP loan available to businesses that have already received and used their initial amount of the loan. You can learn more here about the proposed P4 legislation to help small businesses.
So far, neither the House nor Senate bills have been approved. According to Senator Collins, the goal is to make the second round of aid available by the end of July. As the bill has yet to be passed, there are few details available. Small businesses, restaurants, and medical practitioners continue to be a top priority for legislators in Washington.
The P4 Act would authorize a second loan, using the $120 billion of PPP funding remaining in the program, for eligible small businesses. Recipients can receive up to $2 million in a P4 loan, which is determined based on average monthly payroll costs multiplied by 2.5, the same formula as the original PPP loan. Publicly traded companies cannot apply for this loan. The proposed application deadline is October 1, 2020, however, there may be flexibility with the deadline based on the SBA Administratorâ€™s discretion.
One recent modification to the CARES Act and PPP loans was the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) that was signed into law by President Donald Trump on June 5, 2020. It modified loan forgiveness provisions for small businesses under the Paycheck Protection Program. The bi-partisan bill provides “businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as we safely reopen our country,â€ť SBA Administrator Jovita Carranza and U.S. Treasury Secretary Steven Mnuchin said in a statement. The PPPFA made key modifications to the original Paycheck Protection Program:
Additionally, approximately $129 billion is remaining in the CARES Act for PPP loans, and loan applications are still being accepted. PPP loans are still fully forgivable and backed by a 100 percent government guarantee. Borrowers must certify in â€śgood faithâ€ť with the SBA that their PPP application is necessary to support their operations due to the coronavirus pandemic. On June 25, 2020, the SBA and Treasury Department determined that a safe harbor will apply to borrowers who received principal funds less than $2 million will be deemed to be in good faith for their loan due to economic uncertainty.
The Small Business Association has disaster assistance and has specifically been using the Economic Injury Disaster Loan program (EIDL) during the coronavirus pandemic. Small businesses and non-profit organizations, with no more than 500 employees that are experiencing revenue loss, are eligible to apply for a low-interest loan that is not forgivable. Loans up to $2 million are available, with interest rates from 3.75 percent for small businesses and 2.75 percent for non-profits, and payments are deferred for one year. Businesses can apply directly with the SBA until December 21, 2020.
Businesses are not expected to return to a pre-coronavirus level of business activity until safety guidelines in their area allow them to operate with customer safety requirements including PPE and social distancing. Until then, many businesses are relying on PPP loan proceeds to keep their businesses afloat and employees on the payroll.