The Small Business Administration has posted the Interim Final Rule for the Paycheck Protection Program (“PPP”) outlining the key provisions and providing some formal guidance. This rule is being issued to allow for immediate implementation of PPP. The Small Business Administration may provide further guidance, if needed, through notices and a program guide which will be posted on sba.gov. Below are some specific points that deserve attention.
- To calculate the maximum amount you can borrow, the following methodology will be most useful for many applicants:
Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).
- Independent contractors do not count as employees for purposes of PPP loan calculations or loan forgiveness calculations since they have the ability to apply for a PPP loan on their own.
- Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. Also note that although not included on the attached application, the Interim Final Rule states that borrower will be required to certify in good faith that not more than 25% of loan proceeds will be used for non-payroll costs.
- The interest rate on the loan will be 1% and the maturity is two years.
- E-signatures or e-consents can be used.
- You will not have to make any loan payments for six months following the date of disbursement of the loan; however, interest will continue to accrue during this six-month deferment.
- To apply for a PPP loan, you must submit Form 2483, “Paycheck Protection Program Borrower Application Form,” and payroll documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship.