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loan forgiveness for small businesses

The Paycheck Protection Program (PPP) is a Small Business Association lending program made available to small businesses to pay their employees during the COVID-19 crisis. Loan forgiveness under this program is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.

What is different in this second round of PPP funding?

The following are notable differences in this additional Paycheck Protection Program round:

• Expenses that are forgiven are now also tax deductible
• Economic Injury Disaster Loan (EIDL) Advance reduction is getting repealed
• Flexibility on covered period - any time period between 8 to 24 weeks
• Employers who receive PPP loans may still qualify for Employee Retention Credit (ERC)
• The maximum loan amount calculation for farmers and ranchers is clarified and the loan amount that these operators are eligible for, under the CAA, may be higher
• There may be other differences as the new PPP funding gets rolled out by the Department of Treasury and United States Small Business Administration (SBA)

Read further to learn about business eligibility, what the PPP loan funds can be used for, loan forgiveness, and applying for a PPP loan.

what businesses are eligible?

Eligible businesses include:

• Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)
• Sole proprietors, independent contractors, and self-employed persons
• Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
• Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
  • 500 employees, or
  • That meets the SBA industry size standard if more than 500

If your business has previously received PPP funding

For eligible businesses that currently have a PPP loan or have had one previously who need additional support, the updated program allows some businesses obtain another PPP loan, called a "PPP second draw." Eligibility for PPP Second Draw loans includes:

• Businesses with 300 employees or less
• Businesses with a 25% revenue reduction across any quarter of 2020, when compared to the same quarter in 2019
• The max loan amount is $2mm
• Loan amount may be up to 2.5x average monthly payroll or 3.5x if NAICS code starts with 72 (generally, hotels and restaurants).

PPP availability and application process

As more information comes through, the SBA will provide an update on the application details, including timing. We are closely monitoring the program and will keep you up to speed on all we learn as more information is published.

The SBA officially reopened on Monday, January 11, however this does not apply for credit unions. The program will be open to all remaining lenders, including United, on Tuesday, January 19, 2021.

There are two versions of the application, depending on if this is your first PPP loan received or if it will be your second. The applications are downloadable from the SBA site. Please be sure you have the most recent form for your type of application.

• Paycheck Protection Program Borrower Application Form: First Draw (SBA Form 2483)
• Paycheck Protection Program Borrower Application Form: Second Draw (SBA Form 2483-SD)

While you may fill out the application ahead of time, we cannot process it until January 19, when the SBA opens the program to all lenders. In the meantime, feel free to reach out to us if you have any questions.

If you are not in one of our six regional locations, please call at (888) 982-1400.

PPP coverage

How to use a PPP loan

As with the previous PPP loan, the new Paycheck Protection Program loans can be used for:

• Mortgage interest payments
• Rent or lease payments
• Utility payments

In addition, the new PPP loans can also be used for:

• Payroll costs - including benefits
• Covered operations expenditures - includes payments for software of cloud computing services that facilitate business processes
• Covered property damage - includes costs related to property damage and vandalism or looting that occurred during 2020 public unrest and were not covered by insurance
• Covered supplier costs - expenditures made by a borrower pursuant to a contract, order, or purchase order in operations of the borrower’s business
• Covered worker protection equipment - cost of personal protective equipment that a borrower was required to purchase to comply with CDC, OSHA, or US Department of Health & Human Services requirements. These can be capital expenditures such as installing a drive-thru window, air filtration systems, health screening costs, and physical barriers such as sneeze guards

What counts as payroll costs?

• Salary, wages, commissions, or tips - 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
  • 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.

loan forgiveness

The loan amounts will be forgiven as long as:

• The loan proceeds are used to cover payroll costs*, and other eligible uses as defined previously
• Employee and compensation levels are maintained
• * At least 60% of the forgiven amount must have been used for payroll
• Loan proceeds must be used over an 8 to 24-week window

Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

The process to file for forgiveness has also been streamlined for businesses borrowing less than $150,000. More details on this process will be provided to ensure you are tracking and measuring the right information.

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More details on this process will be provided to help ensure you are tracking and measuring the right information.

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