Paycheck Protection Program

As a small business, we had a lot of questions about the Paycheck Protection Program. So, we read the bill and did our best to summarize it (please note that we are not attorneys and the following is not legal advice).

Who qualifies?

Any business with 500 or few employees will qualify.

Why should I apply for the
Paycheck Protection Program?

We hear the word loan and immediately think about "how and when will I pay it off?" This is different. This loan can effectively turn into a grant if you bring all of your employees back on payroll and use the loaned money for payroll, mortgages interest/rent obligations, and covered utilities. People are most confused by this sentiment. They are also confused by the listing of 8 weeks in the bill. Basically, if you apply for this loan on May 1st, you get the forgiveness coverage for 8 weeks from that day (so June 30).

What is the maximum amount I can borrow?

The maximum loan amount is based on average total monthly payments for payroll costs which includes salaries up to $100,000 for all employees. To the extent that any salary exceeds $100,000, only the excess above $100,000 would be excluded.

What eligible expenses are forgivable from the loan?

According to sections 1106(b) and 1106(a)(3), the following expenses are covered:

  • Payroll costs (salaried positions, part-time,
    hourly employees)
  • Interest on any covered mortgage obligation
  • A covered rent obligation
  • Covered utilities

What utilities are covered?

Electricity, gas, water, transportation, telephone, or internet access
for which service began before February 15, 2020.

What payroll expenses
are forgivable?

Section 1106(b) provides that the amount of forgiveness is equal to the sum of eligible costs incurred during "the 8-week period beginning on the date of the origination of a covered loan." Meaning, you have 8 weeks of forgiveness from the time your loan starts for qualified expenses like payroll.

Payroll costs are defined in section 1106(a)(8) which incorporates the definition in section 1102(A)(viii) and include payments to employees for salary, wages, commissions, similar compensation and paid leave and payments for group health benefits, retirement benefits, and a few other items.

Explanation of the $100,000
salary restriction

For those whose salary exceeds $100,000, the excess above that amount is an expense that is not forgivable. The first $100,000 is eligible. This interpretation is based on the words "in excess of an annual salary of $100,000 as prorated for the covered period. So a salary of $150,000 would have an amount of $50,000 that would not be eligible.

However, section 1106(d)(5) entitled "Exemption for Rehires" provides that there will be no reduction where no later than June 30, 2020, all employees are rehired and salary reductions eliminated.

What if I laid off some people, but only hire a portion of them back?

Your expenses eligible for forgiveness will be reduced proportionally. You're incentivized to bring back all of your employees in order to fully maximize the benefits of the program.

What should I do next?

Contact your bank or credit union to get definitive answers on your business's specific sitiuation if you are interested in applying for the paycheck protection program.