April 3, 2020 – The Economic Development Corporation of Decatur and Macon County is helping to better clarify information regarding the Paycheck Protection Program for small businesses.
The EDC advises to check with your bank or credit union for information regarding your business’s eligibility.
The U.S. Small Business Administration issued its Interim Final Rule for the Paycheck Protection Program. The final program documents:
- The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
- You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
- Use this tool to find a nearby lender eligible to issue a loan under the Paycheck Protection Program.
- Starting April 3, 2020, small businesses and sole proprietorships can apply. Starting April 10, 2020, independent contractors and self-employed individuals can apply.
- This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organizations, or 501(c)(19) veterans organizations affected by coronavirus/COVID-19. Small businesses in the hospitality and food industry with more than one location could also be eligible if their individual locations employ less than 500 workers.
- No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Q: Is the PPP “first-come, first-served?”
A: Yes. SBA encourages you to apply as quickly as you can because there is a funding cap.
Q: What is the interest rate on a PPP loan?
A: The interest rate will be 1.00%. (This has changed from the original 0.5%.)
Q: What will be the maturity date on a PPP loan?
A: The maturity is two years.
Q: When will I have to begin paying principal and interest on my PPP loan?
A: You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment.
Q: Can my PPP loan be forgiven in whole or in part?
A: Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes described in the rule and employee and compensation levels are maintained. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However, not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs.
Q: What forms do I need and how do I submit an application?
A: The applicant must submit SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation.
Q: Can I apply for more than one PPP loan?
A: No. The SBA, in consultation with the Secretary, determined that no eligible borrower may receive more than one PPP loan. This means that if you apply for a PPP loan you should consider applying for the maximum amount.
Q: How do I calculate the maximum amount I can borrow?
A: The following methodology will be most useful for many applicants.
- Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
- 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.
- Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
- Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
- 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).
- Additional notes:
- Page 3 of the final application for borrowers says:
- For purposes of calculating “Average Monthly Payroll,” most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. 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.
- Page 21 of final rule says this for lenders:
- Confirm receipt of information demonstrating that a borrower had employees for whom the borrower paid salaries and payroll taxes on or around February 15, 2020;
- Confirm the dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the payroll documentation submitted with the borrower’s application.
Q: What qualifies as “payroll costs?”
A: 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.
Q: Is there anything that is expressly excluded from the definition of payroll costs?
A: Yes. The Act expressly excludes the following:
- Any compensation of an employee whose principal place of residence is outside of the United States;
- The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary;
- Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
Q: Do independent contractors count as employees for purposes of PPP loan calculations?
A: No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.
Q: How can PPP loans be used?
A: At least 75 percent of the PPP loan proceeds shall be used for payroll costs. The total proceeds of a PPP loan are to be used for:
- payroll costs;
- 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;
- interest payments on any other debt obligations that were incurred before February 15, 2020; and/or
- refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020:
- If an EIDL loan received between January 1, 2020 and April 3, 2020 was used for payroll costs, your PPP loan must be used to refinance your EIDL loan (and the amount of the PPP loan is increased by the outstanding EIDL, subject to the $10mm cap)
- If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
- If an EIDL was received prior to January 31, 2020, borrowers cannot apply for a PPP loan
With information rapidly changing, we are committed to providing accurate training, information sharing, and guidance on the different financial assistance options available to small business in Illinois. The webinar listed below, led by SBDC Director Don Elmore, will provide details about the financial options available, including eligibility requirements, what documents are necessary to apply, program terms, and more. The webinar will be approximately 30-45 minutes of presentation time followed by Q&A. Participants will be able to ask questions in the chat box, which will be moderated by a member of our team.
Webinar dates and times this week:
Friday, April 3, 2020: 4 – 5 PM (click here for more details and to register)
RSVP: Free to attend – registration is required to secure a spot. RSVP through the links above or call 217-378-8535, or email Jordan Landeck at email@example.com. Webinar instructions will be emailed to you.
The webinar will give you a complete a baseline of the most up-to-date information surrounding the current loan and grant opportunities. The webinars are updated daily because the information is changing that rapidly.
Continue to check the EDC’s COVID-19 Resources page for new information and business resources as they become available, and please do not hesitate to reach out with questions or concerns.