Paycheck Protection Program
PPP funds have been exhausted as of May 4, 2021.
Update March 3, 2021
SBA Adjusts PPP Payroll Calculation for Form 1040, Schedule C Filers
The Small Business Administration (SBA) has issued an interim final rule (IFR) implementing recent changes to the Paycheck Protection Program. The IFR allows individuals who file an IRS Form 1040, Schedule C to calculate their maximum loan amount using gross income. SBA has issued updated forms for borrowers and lenders reflecting these changes and step-by-step loan amount calculations.
Previously, PPP rules defined payroll costs for individuals who file Form 1040, Schedule C as payroll costs (if employees exist) plus net profits, which is net earnings from self-employment. This formula effectively excluded many sole proprietors from obtaining PPP loans, particularly those with very little or negative net profit.
The IFR also stated that this calculation change will apply only to loans approved after the rule’s effective date.Borrowers that have already had their loans approved cannot increase their PPP loan amount based on the new maximum loan formula.
Additionally, businesses electing to use gross income to calculate their First Draw PPP Loan will only have a safe harbor presumption of making the necessary certification of economic necessity if they reported $150,000 or less in gross income on their Schedule C being used to apply for a First Draw PPP loan. Borrowers with reported gross income greater than $150,000 will be subject to additional SBA review.
Finally, the IFR removes a restriction on business at least 20% owned by an individual who was arrested for or convicted of a felony related to financial assistance fraud in the previous five years or any other felony within the previous year from obtaining PPP loans. It also removes a restriction on businesses at least 20% owned by an individual who is delinquent on student loan from receiving PPP loans.
Update January 8, 2021
Paycheck Protection Program FIRST DRAW and SECOND DRAW LOANS
SBA is reopening the Paycheck Protection Program (PPP) for First Draw as well as Second Draw Loans the week of January 11, 2021. Both First Draw and Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
Full Forgiveness Terms
First Draw and Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:
- Employee and compensation levels are maintained;
- The loan proceeds are spent on payroll costs and other eligible expenses; and
- At least 60 percent of the proceeds are spent on payroll costs.
Who Can Apply for FIRST DRAW Loans?
Eligible small entities, that together with their affiliates (if applicable), have 500 or fewer employees—including nonprofits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors—can apply. Entities with more than 500 employees in certain industries that meet SBA’s alternative size standard or SBA’s size standards for those particular industries can also apply. Also eligible to apply for First Draw PPP Loans are businesses with a NAICS Code that begins with 72 (Accommodation and Food Services sector) or eligible news organizations with no more than 500 employees per physical location, as well as housing cooperatives, 501(c)(6) organizations, or destination marketing organizations with no more than 300 employees. Under the PPP, the maximum loan amount for First Draw PPP Loans is the lesser of $10 Million or an amount calculated using the PPP payroll-based formula.
Targeted Eligibility for SECOND DRAW Loans
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
- Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
- Has no more than 300 employees; and
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
Maximum SECOND DRAW Loan Amount and Increased Assistance for Accommodation and Food Services Businesses
For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers in the Accommodation and Food Services sector (NAICS 72), the maximum loan amount for a Second Draw PPP Loan is 3.5x average monthly 2019 or 2020 payroll costs up to $2 million.
How and When to Apply?
Funds have been exhausted as of May 4, 2021. Borrowers can apply for First Draw and Second Draw PPP Loans until March 31, 2021. All new First Draw and Second Draw PPP Loans will have the same terms regardless of lender or borrower.
What can the funds be used for?
- Payroll costs, including benefits;
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020;
- Utilities, for which service began before February 15, 2020;
- Worker protection costs related to COVID-19;
- Uninsured property damage costs caused by looting or vandalism during 2020; and
- Certain supplier costs and expenses for operations.
- Salary, wages (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums and payment of any retirement benefit
- State and local taxes assessed on compensation
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
What are the loan terms?
- 1.00% fixed rate
- 5-year term - no prepayment penalties or fees
- No collateral or personal guarantee required
- All payments are deferred for 10 months after the end of your loan forgiveness covered period - interest will continue to accrue over this period
Get all the loan details by visiting the SBA.
Interim Final Rule on Loan Amount Calculation and Eligibility (originally posted 3/3/2021) (treasury.gov)
Interim Final Rule on Second Draw Loans (treasury.gov) – January 6, 2021