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Frequently Asked Questions: The CARES Act and PPP Loans

Frequently Asked Questions: The CARES Act and PPP Loans

UPDATE: As of 10:30 am ET on Monday, April 27, 2020, the Small Business Administration (SBA) is accepting new applications for loans from the Paycheck Protection Program (PPP). The process outlined below for preparing and submitting applications remains the same for this new round of funding. We will continue to update this page with any new developments.

Congress recently approved the CARES Act, which includes $350 billion in Small Business Administration (SBA) loans. Known as the Paycheck Protection Program (PPP), the loans can help small businesses and nonprofits stay in business amid the pandemic and economic downturn. The loans will be given on a first-come, first-served basis so it is important that eligible organizations move quickly.

The application process for the Paycheck Protection Program (PPP) loan program is now openClick here to access the application; please also refer to these detailed instructions for completing and submitting the application.

While the window for applications is now open, many banks may not yet be ready to process the applications. We still recommend that you contact your local banks and are ready to submit your application as early as possible.

Read below for answers to frequently asked questions and visit Understanding the CARES Act and PPP Loans for more information.

What is the Paycheck Protection Program?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (PPP), these loans are intended to help small businesses and nonprofits keep workers employed through the critical months ahead and keep their organizations running.

Is my organization eligible?
These loans are available to 501(c)(3) nonprofits with less than 500 employees.

On April 23, the SBA released a new rule stating that prospective PPP borrowers must “take into account their current business activity AND their ability to access other sources of liquidity sufficient to support the ongoing operations in a manner that is not significantly detrimental to the business” before applying for and accepting a PPP loan (see Q31). In other words, organizations must demonstrate that the PPP is necessary for them to be able to sustain operations. Borrowers that received a PPP loan before the April 23 guidance but do not meet the liquidity provision can repay the loan in full by May 14, 2020 without consequence (see Q39).

What can the loans be used for?
Operational costs, including payroll, health benefits, paid sick or medical leave, insurance premiums; mortgage and rent payments; utilities; and interest on debt incurred before the covered period.

Can these loans be forgiven?
Yes, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.

How long will these loans be available?
The loans will be available until June 30, 2020, but they will be distributed on a first come, first served basis.

What is the loan period?
Loans are intended to cover expenses incurred during the period from February 15, 2020 to June 30, 2020 (defined as the “covered period”). The term of the loan (maturity date) is two (2) years from the date of loan origination. 

How much can I borrow?
The maximum loan amount is 2.5 times the average total monthly payroll costs incurred in the one-year period before the loan origination date, or $10 million, whichever is smaller. For example: if the loan was made on April 1, 2020, and average monthly payroll costs for the period April 1, 2019 to April 1, 2020 were $500,000, the maximum loan amount would be $1,250,000.

How do I calculate my payroll costs?
Refer to the sample calculation document to calculate your payroll costs, which will help you estimate your total loan request. 

INCLUDED Payroll costs include:
The sum of payments of any compensation with respect to employees that is a:

  • salary, wage, commission, or similar compensation
  • payment of cash tip or equivalent
  • payment for vacation, parental, family, medical, or sick leave
  • allowance for dismissal or separation
  • payment required for the provisions of group health care benefits, including insurance premiums
  • payment of any retirement benefit
  • payment of state or local tax assessed on the compensation of the employee

EXCLUDED Payroll costs include:

  • Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020
  • Payroll taxes, railroad retirement taxes, and income taxes
  • Any compensation of an employee whose principal place of residence is outside of the United States
  • Qualified sick leave or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act

What are the eligibility requirements for a loan?
That the borrower was in operation before February 15, 2020 and had employees for whom they paid salaries and payroll taxes or paid independent contractors.

Lenders will also ask you for a good faith certification that:

  • The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
  • The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
  • Borrower is not receiving funds for this purpose from another SBA program

When do the loans have to be repaid?
The loans must be repaid in two (2) years. The deferral period on these loans is six (6) months and interest accrues during the deferral period. There are no prepayment penalties.

What is the interest rate on the loans?
The interest rate on the loans is 1%.

What are the requirements for loan forgiveness?
Loan forgiveness is based on retaining the same number of employees during the covered period in 2020 that the Borrower had in 2019. You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. 

Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll. 

  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount. 
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. 
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Which banks can I approach for a loan?
The list of banks, credit unions and other lenders can be found here.

How long will it take to get the funds?
Under the CARES Act, the loan process will be streamlined, and SBA participating lenders will be authorized to expedite loan processing.

Does it cost anything for my organization to apply for a PPP loan?
No, borrower origination fees will be waived for these loans.

Is the application online for me to review?
The application process for the Paycheck Protection Program (PPP) loan program is now openClick here to access the application; please also refer to these detailed instructions for completing and submitting the application.

It is important to note that Schusterman Family Philanthropies is not providing any legal, tax, financial or business advice. The information included in here is for general reference only and should not be relied upon as being definitive, either generally or with respect to any particular situation. You should consult your own professional advisors with respect to any of the topics discussed here.

Additional Resources

Understanding the CARES Act and Paycheck Protection Program (PPP) Loans

Small Business and Nonprofit Loans

Statement in Response to COVID-19