CARES Act - Payroll Protection Program
Another economic stimulus program offered by the SBA for small businesses and 501(c)3, or 501(c)19 non-profits, is the Payroll Protection Program (PPP). The PPP loan program offers loans up to 2.5 times monthly payroll costs. Monthly payroll costs are calculated using average monthly wages, employee benefit program costs, and retirement plan contributions. Wages are capped at $100,000 per person on an annual basis.
Once a loan is issued, the 8 weeks immediately after issuance is critical – as you can qualify for a reduction (i.e. forgiveness) of your PPP loan balance based on expenses paid during this period. Payroll expense, rent expense, utilities, loan and mortgage interest are all eligible to reduce your loan balance. The goal of this program is to rehire or retain employees. If the number of your employees decrease from pre-virus counts to June 30th, the amount of forgiveness will be reduced a proportional amount.
No payments are due for the first 6 months of the loan, but any portion of loan not forgiven, will be due over an 18 month period. The effective interest rate for this loan is 1%.
The methodology of calculating and verifying your eligible loan amount, and potential loan forgiveness is complicated. There are many details and limitations to this program that must be considered but are not fully outlined in this post. Furthemore, bank’s interpretation of the SBA rules vary, and the documentation requirement for each bank varies. It is also extremely risky to obtain such a loan if it is not used for payroll costs, as any significant unpaid loan amount, maybe challenging to repay over such a short 18 month period.
DALLE Accounting is thrilled to have helped over 50 businesses apply for PPP loans covering more than 12 banks, resulting in millions of dollars in loans which help keep individuals employed. If you need assistance, please let us know how we can help. Funds have run out once, don’t be shut out!