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Payment Protection Loans Frequently Asked Questions (FAQ’s)

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It’s been 14 days since President Trump announced the CARES Act on March 27, 2020, a $2 trillion economic stimulus bill aimed to provide relief to small business owners and individuals.

American business owners are rightfully worried, and feeling uncertain about the future of their businesses. No one knows how long it will take the economy to recover. Those who have been impacted by Covid-19 have all been left with unanswered questions. It’s still unclear when people can expect payments from unemployment insurance. There’s a great deal of confusion, about the available loan programs, the eligibility requirements, to navigating the SBA loan process.

Bottlenecks within the system

Meanwhile lending institutions are completely overwhelmed by the amount responses from small business owners who need relief. Lenders have been working diligently to create internal processes that will enable them to start taking applications, which has delayed the application intake process. Banks are just simply not ready to take applications at this time. The chaotic release of the CARES Act, has exacerbated financial systems, causing frustration and delays on both sides.

Bank of America, recently reported the small business bank portal received 85,000 applications totaling $22 billion in loans.

At the end of the day, small business owners need funding, and quickly. Small businesses are looking for financial relief to maintain their workforce and remain open. Others are looking to return back to work after shutting down due to shelter-in place. The Payment Protection Program is one of the many programs to provide financial support to business owners. For some of the business owners we’ve spoken to, the application process and eligibility requirements have been difficult to both understand and navigate the process.

Here’s what I’ve learned so far about the program, based on research and feedback. Lenders are relying heavily on borrowers to provide both documentation and accurate data to facilitate in the PPP loan process. I created a Frequently Asked Question guide to help you better understand the Payment Protection Program, including eligibility requirements.

What is a small business?

A small business is defined by many factors, from the size of the organization to the number of employees, including industries. According to the SBA the importance of defining the size of a business is as follows:

Enables small businesses the ability to participate in contracting programs and compete for contracts reserved for small businesses

Determine if the for-profit business is a legal structure

If the entity is independently owned and operated

Determine if the business is physically located and operates in the U.S. or its territories

The SBA sets numerical definitions, or “size standards,” for every non-profit small business in the United States—based on the business’s number of employees and average annual receipts.

For most industries, the SBA defines “Small Business” in terms of

  1. Average number of employees over the past 12 months

  2. Average annual revenue over the past 3 years

  3. The SBA has a comprehensive table of standards, breaking down the acceptable sizes of small businesses by industry (and sub-industries, even). How does the SBA calculate number of employees. Click here for a summary of the size definition by larger industries. An example:

Research and Development in the Physical, Engineering, and Life Sciences standard employees are 1,000

Insurance Carriers 1,500, Wholesale clothing retailers 150, calculating gross receipts Water Supply and Irrigation Systems businesses with $27.5 million receipts. Beer, wine and liquor stores $7.5 million

What is Payment Protection Program?

The Payment Protection Program is an SBA loan program that helps businesses maintain their workforce during the Coronavirus (Covid-19) crisis. Congress authorized the SBA a guarantee of $349,000,000,000 to provide loans under a new SBA 7(a) program. The SBA is authorized to approve loans through June 30, 2020.

What is the CARES Act?

Coronavirus Aid Relief, and Economic Security, (CARES Act) is a $2 trillion economic stimulus bill, to provide financial relief for small businesses and individuals negatively impacted by the coronavirus pandemic. The law was enacted on Friday, March 27, 2020.

Is the Payment Protection Program a grant or a loan?

The Payment Protection Program is in fact a loan that may be forgiven up to the full principal amount on qualifying loans guaranteed under PPP.

What is the covered period for PPP?

February 15, 2020 to June 30, 2020

Who qualifies for the PPP?

Independent contractors, micro businesses, small businesses with 500 or less employees. Small businesses with more than 500 employees must meet the SBA employee-based or revenue based sized standard corresponding to its primary industry.

  • You are eligible for PPP if your employee’s primary place of residence is in the United States

  • A tax-exempt nonprofit organization described in section 501 ( c ) (3) of the Internal Revenue Code (IRC), a tax-exempt veterans organization described in section 501 ( c ) (19) of the IRC, Tribal business concern described in section 31 (b) (2) ( c ) of the Small Business Act or any other business

  • You were in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid contractors, as reported on a Form 1099-MISC

  • You operated under a sole proprietorship as an independent contractor or eligible self-employed individual

You are ineligible for a PPP loan if:

You engaged in any activity that is illegal under federal, state or local law

An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years

If you were delinquent on a direct or guaranteed loan from SBA or any other Federal agency within the last seven years and caused the government a “loss”.

PPP loans are “first-come, first-served”

Who is eligible to make PPP loans?

All SBA 7(a) lenders are automatically approved to make PPP loans on a delegated basis

Do I have to make payments on the PPP loan?

You will not have to make any payments for six months following the date of the disbursement of the loan. However, PLEASE NOTE: interest will accrue on PPP loans during the six-month deferment!

How much can I borrow?

Under the PPP, the maximum loan amount is the lesser of $10 million or the calculated amount using a payroll-based formula.

How can PPP loans be used?

The proceeds of a PPP can be used for:

Payroll costs defined here

Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums

Mortgage interest payments (but not mortgage prepayments or principal payments)

Rent payments

Utility Payments