The article was written in partnership with The Carrot Project

The Paycheck Protection Program (PPP) was just approved for a second round of low interest, forgivable loans. The loans are designed to help small business owners pay their employees during this pandemic.

Not all loan uses are forgivable. Be sure you know your intended use of the loan funds. This article details what is and isn’t forgivable.

The first round of funding ran out within days. The second opened up on April 27th. If you plan to apply you should plan to do so as quickly as possible. You will apply through your bank so first make sure your bank is participating, and second: get in touch with them as soon as possible.

The application itself is pretty straightforward. We’ve detailed information below about common questions.

How do I apply?

  • You apply directly through your bank. Go to the website of your bank where you have your business accounts. You may need to search for PPP application if it is not easily findable.
  • If you use Intuit (QuickBooks) you can apply through them.
  • If you have a PayPal business account or a Kabbage account, you can apply through their portals.

Do I qualify?

According to the Small Business Administration, the following entities may be eligible:

  • Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard). This includes farm businesses.
  • 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
  • Sole proprietors, independent contractors, and self-employed persons who file a Schedule F or Schedule C
  • 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

What can I use the funds for?

  • Payroll costs, including benefits;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

How do I calculate what I qualify for?

The following methodology (as detailed on the SBA website) which is one of the methodologies contained in the Act, will be most useful for many applicants.

    1. Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
    2. 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.
    3. Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
    4. Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
    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).
      The examples below illustrate this methodology.

Notes:

  • For seasonal businesses, the Applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee.
  • For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.
  • If you file a Schedule C or Schedule F tax return, then your payroll expense is calculated using your net income as your total payroll expense. This is Line 31 on the schedule C; and line 34 on the Schedule F.

Example 1 – No employees make more than $100,000 Annual payroll: $120,000

Average monthly payroll: $10,000 Multiply by 2.5 = $25,000 Maximum loan amount is $25,000

Example 2 – Some employees make more than $100,000 Annual payroll: $1,500,000

Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000
Average monthly qualifying payroll: $100,000
Multiply by 2.5 = $250,000

Maximum loan amount is $250,000

Example 3 – No employees make more than $100,000, outstanding EIDL

loan of $10,000.
Annual payroll: $120,000
Average monthly payroll: $10,000 Multiply by 2.5 = $25,000
Add EIDL loan of $10,000 = $35,000 Maximum loan amount is $35,000

Example 4 – Some employees make more than $100,000, outstanding EIDL (Economic Injury Disaster Loan Emergency Advance) loan of $10,000

Annual payroll: $1,500,000
Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000
Average monthly qualifying payroll: $100,000
Multiply by 2.5 = $250,000
Add EIDL loan of $10,000 = $260,000
Maximum loan amount is $260,000

What qualifies as a payroll cost?

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

 

A few helpful links:

 

If you need help figuring out if PPP, and you farm in Southern New England or the Hudson Valley, feel free to reach out Jeff Cole. While we are not experts, some of our consultants have experience helping other business owners navigate these new processes.