The Paycheck Protection Program could bring relief for eligible organizations, but many lenders and borrowers need additional clarity around the loan program details.
Key insights
- Lenders and borrowers have had questions regarding the Paycheck Protection Program loan eligibility requirements.
- The Department of Treasury provided additional guidance to bring clarity on key questions.
- Review PPP loan application details before proceeding.
The CARES Act was passed March 27 and established the Paycheck Protection Program (PPP), which was designed to provide temporary relief to eligible organizations. With the PPP came some confusion and room for interpretation. Guidance is being released quickly and changing daily. The Department of the Treasury and the Small Business Administration (SBA) have both issued guidance to continue to clarify answers to key questions that borrowers and lenders have.
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Clarification on key questions
- Organizations with fewer than 500 employees or that meet the SBA size standard qualify without regard to revenue standards. Before this clarification, some banks were disallowing applications when revenues exceeded the SBA revenue size standards.
- An organization may also qualify as a “small business concern” if the maximum tangible net worth of the business is not more than $15 million and the average net income of the business, after federal income taxes (excluding carry-over losses), for two full fiscal years before the date of application is not more than $5 million.
- Only U.S. employees are used in counting employees for eligibility.
- The exclusion of wages/salaries in excess of $100,000 annually applies only to cash compensation (salaries and wages) and not to non-cash benefits.
- Employees leased from a Professional Employer Organization (PEO) qualify for inclusion in payroll.
- Gross payroll is used to calculate loan sizing, forgiveness, and allowable uses of the PPP loan. In addition, the Treasury clarified that the employer portion of FICA and other federal payroll taxes should be excluded, not the employee portion.
- The period used to determine average monthly payroll costs can be either the trailing 12 months or the full year 2019. Considerations continue to exist for seasonal employees and new organizations.
- Payments to independent contractors and sole proprietors are excluded from the payroll cost calculation of businesses. Independent contractors and sole proprietors may, however, be eligible to submit their own PPP application.
How we can help
We’re here to help you during these challenging times. We will work with you to understand your situation, identify important questions to ask your banker, and help you to pull together the information necessary for you to submit your financing application.