Your guide to the Paycheck Protection Program
Construction pros like you will always be our top priority. We know that this difficult time has been hard on all of you. We want to do our part and ensure you have the recourses you need to help weather the storm and come out on top when things start rolling again.
On March 27, Congress passed a $2 trillion stimulus package, also known as the CARES Act, to help the US economy recover from the coronavirus pandemic. You can learn more about all the relief types offered in the bill here on the blog. The CARES Act will provide money and other resources to individuals and businesses that are struggling with the impacts of COVID-19.
Included in the CARES Act is the Paycheck Protection Program. We asked our Buildertrend legal expert, Nick Knihnisky, to help explain the PPP and how it can could offer much-needed relief to your company.
What is the Paycheck Protection Program?
The PPP is a loan program that will allow the Small Business Administration to administer loans, through private lenders, to businesses with fewer than 500 employees. PPP loans are designed to help small businesses maintain employee payroll while dealing with the challenges caused by the pandemic and are forgivable if certain requirements are met.
How do I know if I qualify for a PPP loan?
Any business, non-profit organization, veterans’ organization or Tribal business with fewer than 500 employees is eligible to apply for PPP loans. Sole proprietors and independent contractors are also eligible for these loans.
Additionally, PPP loans will be made by participating commercial lenders between Feb. 15, 2020 and June 30, 2020 (the covered period) and will be subject to eligibility requirements. Businesses must have been operating on Feb. 15, 2020 and must verify:
- That the need for the loan is due to the current economic state.
- That the loan will be used to retain employees, maintain payroll or make mortgage, lease or utility payments.
- That the applicant does not have additional pending applications for an SBA business loan.
- That between Feb. 15, 2020 and Dec. 31, 2020, the applicant has not received a loan from the SBA.
How will my employees be counted?
Applicants will be responsible for counting their own employees. This includes full-time and part-time employees as well as employees of affiliates. Independent contractors are not to be included.
For additional information and small business regulations as defined by the SBA click here.
If eligible, how much can I apply for?
The PPP loans you apply for cannot exceed 250% of your business’ average monthly payroll costs from the last year with a maximum of $10 million.
How can I use my PPP loan?
Between Feb. 15, 2020, and June 30, 2020, PPP loans can be used for payroll costs, health care benefits, mortgage interest, rent, utilities and interest on any other debt sustained before Feb. 15, 2020.
How do I determine payroll costs?
Payroll costs include:
- Salary, wages, commissions
- Cash tips
- Payment for vacation, parental, family, medical, or sick leave
- Severance payments
- Payment for provision of group health care benefits, including insurance premiums
- Payment of any retirement benefit
- Payment of state or local payroll taxes
- Payments of any compensation to a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation
Payroll costs do not include:
- Compensation of an individual employee in excess of an annual salary of $100k
- Compensation of employees outside the U.S.
- Qualified sick/family leave wages paid under the Families First Coronavirus Response Act (already credited)
How do I apply for a PPP loan?
Rather than applying through the SBA, PPP loans are provided by private, SBA-approved lenders. Start by calling your usual lender or banking location. If you are considering applying for a PPP loan, start by collecting the necessary documentation related to employee headcount, average monthly payroll costs and other required loan costs from the previous 12 months.
If your current lender does not offer PPP loans, you may contact other banks in your area that participate in the SBA loan program. You can find a list of participating lenders on the SBA website.
What is the timing of a PPP loan?
Applications are expected to open on April 3, 2020, but different lenders may have a later date. It is recommended that you contact your lender as soon as possible to ensure you can submit an application. During the initial conversation, ask about their current timelines from application to disbursement. Lenders should be able to tell you when you can expect the money in your hands.
If your application is approved, the loan will be disbursed, thereby marking the “origination date.” Once the loan amount is disbursed, you will have eight weeks for the origination date that counts as your “covered period.” How a business acts during the covered period determines its eligibility to have the loan forgiven. After the eight weeks, you will provide another round of payroll records to verify potential eligibility.
How do I get my PPP loan forgiven?
To receive forgiveness, the loan amount must be spent on eligible expenses. Loan forgiveness will be reduced if:
- Your headcount at the end of the covered period is less than your average number of the full-time employees from:
- 15, 2019 to June 30, 2019, OR
- 1, 2020 to Feb. 29, 2020
- You reduce any employee’s salary by more than 25% during the covered period
What if I already laid off employees?
If you reduced headcount between Feb. 15, 2020 and April 26, 2020, that reduction will not affect forgivability so long as the headcount and wages are returned to their Feb. 15 levels by June 30.
How can I apply for loan forgiveness?
Applicants can apply for PPP loan forgiveness and may receive a partial or full amount, subject to limitations. If you would like further guidelines on PPP loan forgiveness or would like to begin preparing for your loan forgiveness application, click here to visit the SBA website.
Other important information to note
PPP loans do not require personal guarantee or collateral, and they are fee free. Additionally, principal and interest payments will be deferred for at least six months and up to one year. The remaining balance after forgiveness will be subject to an interest rate between 1% and 4% and maturity of up to ten years.
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