(406) 234-2705 info@mcaedc.org

Information about the Paycheck Protection Program and Unemployment

The SBA has the direct oversight and management of the Paycheck Protection Program (PPP) :

Last night the Small Business Administration issued an interim final rule explaining details about the Paycheck Protection Program that starts today, Friday, April 3. The regulations address timely and recurring questions, highlighted below.

Borrowers must complete the SBA Form 2483 (Paycheck Protection Program Application Form) and provide payroll documentation.  Borrowers will apply through their local financial institution.  Contact your lender and set up an appointment.  There are no borrower or lender fees.

Payroll Costs Defined
As defined by SBA: “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.”

Exclusions from payroll costs include compensation for employees based outside the U.S, compensation in excess of $100,000 (prorated), federal payroll taxes, qualified paid leave under the Families First Act.

Calculating Payroll Costs
The rule lays out a five-step process for calculating payroll costs for purposes of PPP loans:

  1. Aggregate payroll costs (see above) for last 12-months;
  2. Subtract pay from each employee in excess of $100,000;
  3. Divide step 2 total by 12 months to get the monthly average;
  4. Multiply step 3 total by 2.5; and then
  5. Add any outstanding amount from an EIDL loan received between 1/31/2020 and 4/3/2020, “less the amount of any ‘advance’ under an EIDL COVID-19 loan (because it doesn’t have to be repaid).

Lender Scrutiny
The interim final rule states: “The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower.”

75%-25% Rule for Forgiveness – 100% of the PPP Loan may be forgiven, provided the money is spent within the following parameters
SBA will limit how much of a loan can be forgiven based on how the borrower spends the money. Loan forgiveness requires at least 75 percent of the loan amount be spent on payroll and no more than 25 percent on other eligible expenses (rent/mortgage, utilities). This restriction isn’t in the statute but SBA says it is imposing the restriction to promote employment.

Repayment Terms (for any portion of the PPP that is not forgiven)
The first payment will be automatically deferred for 6 months (the loan will accrue interest)
The interest rate is 1%
There is a maximum 2 year repayment period on any amount that is not forgiven

The PPP is intended for use by employers who want to keep employees on their payroll, who need to keep business functioning, but who may not be bringing in the revenue necessary to continue covering their full payroll.  This program is designed to keep employees in pay status for up to 8 weeks.  If employees have been laid off, but are brought back into pay statues by June 30, the loan forgiveness option still stands.

This article, Your Biggest Stimulus Loan Questions Answered, has some more great information.

The above, is information from the SBA and from conversations that Elizabeth personally had with an SBA director here in Montana.

The following is just Elizabeth talking to you.

If your business is already struggling, or you have any thought that it will struggle, begin by filling out the COVID-19 Relief EIDL Application now.  Then talk with your lender(s) about any outstanding debt(s) that you currently have.  Communication will always work in your favor.  Document conversations – follow-up emails (even emails to yourself, with date, time, who was part of the conversation, and pertinent details) work great for this.  Keep a paper trail for yourself.  There is no magic date that we can tell you the funds for and EIDL (see yesterday’s post) or the funds for the PPP will actually be deposited into your account.  Your lender can probably help you with a short-term bridge loan, which can then be repayed when your EIDL or PPP are funded.

One question I was asked multiple times yesterday was if it would be better to lay off employees and encourage them to collect unemployment, or if it would be better to apply for an EIDL or the PPP.

My thought – though I encourage you to look at the options carefully and make a decision based on your particular case and your numbers and some conversation with any trusted financial advisers – would be that if you need to keep your business running and you need employees to make that happen, the PPP would be a great option for you.  You would be able to continue to do business and pay your employees at their regular rate, no matter what revenue you have coming in over the next 8 weeks.

If your business is shut down, or can function with just a very few employees, lay employees off and encourage them to collect unemployment.  The unemployment benefit each person is eligible for will be supplemented with an additional $600 per week beginning in mid-April (and retro-active to the date of work hours being reduced or suspended).

A business owner may be (should be, if you are on a payroll plan) eligible for unemployment benefits, and would still be eligible for and EIDL to cover other business expenses (up to 6 months worth of short-term liabilities).

For all of these programs, you MAY NOT double dip.  There is a variety of help available, but each piece (unemployment benefits, the PPP, and the EIDL) may be used to cover individual pieces.  If you are going to lay off employees, you may not utilize the PPP for their payroll expenses.  If you use the PPP, you may not use the EIDL to cover those same payroll expenses.  But, you can use the PPP for payroll and the EIDL for other short-term liabilities.  You can mix and match, you just can’t overlap.

Okay.  This is a LOT.  I know that many of you will have more questions.  I am thinking that I would be willing to host a ZOOM for question-and-answer and some collaborative conversation.  I am willing to offer one this evening at 7:00 pm.  Email me at epatten@mcaedc.org if you are interested, and I will set up the meeting and send out the sign on information.

Also, feel free to email me with questions.  epatten@mceadc.org