January 12, 2021

First Time PPP Applications Now Being Accepted

The Consolidated Appropriations Act, 2021, provided Atlanta businesses with new economic relief opportunities through business tax incentives, expanded Economic Injury Disaster Loan (EIDL) advances, and a newly extended Paycheck Protection Program (PPP) for first- and second-time borrowers. The Small Business Administration (SBA) recently released both new Interim Final Rules (IFR)and PPP loan applications. The information contained provided important details on loan eligibility, loan amount calculations, terms, and required certifications. To help clients, prospects, and others, Wilson Lewis has provided a summary of key points below.

Loan Eligibility

A business is considered eligible if it was in operation on February 15, 2020, with employees that were paid salaries including payroll taxes, independent contractors, or were an eligible self-employed individual, independent contractor or sole proprietor with no employees.  The CAA also requires a potential applicant to fall into one of the categories below, including:

• Small Businesses – A company, along with affiliates, is eligible if they have a maximum tangible net worth of less than $15M, and the average net income after income taxes for the prior two fiscal years is not more than $5M.
• Independent Contractors
• Sole Proprietors
• Certain Self-Employed Individuals
• Tax-Exempt Organizations – This includes nonprofits organized as a 501(c)(3), veterans groups organized as a 501(c)(19), and certain tribal businesses that have 500 employees or less.
• Other Tax-Exempt Entities – This includes 501(c)(6) housing cooperatives and destination marketing organizations with 300 employees or less.
• News Organizations – Only those who are majority-owned or controlled by a NAICS code 5151 business or a nonprofit public broadcasting entity with no more than 500 employees per location.

Loan Amount Calculations

The maximum loan amount for first-time borrowers is $10M and is determined using a payroll-based formula. To make the calculation an applicant should aggregate all payroll costs from either 2019, or 2020. Then subtract any compensation paid in an excess of $100,000 annually, then calculate the monthly average payroll cost by dividing employee compensation by 12, finally multiply the average monthly payroll costs by 12.

As an example, assume an applicant has no employees that make over $100,000 per year. The annual payroll of $120,000 per year would be divided by 12 ($120,000/12) to find the average monthly payroll costs ($10,000) which would be multiplied by 2.5 which equals $25,000. Therefore, in this example, the maximum loan amount would be $25,000.

Loan Terms

The loan term is 5 years, and the interest rate is set at 100 basis points or 1 percent calculated on a non-compounding, non-adjustable basis. Principal payments will not be required assuming the applicant submits a loan forgiveness application within 10 months after the end of the covered period. It is important to note during application review interest will continue to accrue. Repayment is required if full forgiveness is not received.

Loan Forgiveness

The amount of forgiveness may be up to the full principal amount and accrued interest. To receive full forgiveness a borrower must spend 60% or more on payroll and the remaining on nonpayroll expenses.  

Loan Certifications

There are a number of certifications that must be made, including:

• The applicant was in operation on February 15, 2020, has not permanently closed, and was either an eligible self-employed individual, independent contractor or sole proprietorship with no employees or had employees to whom salaries and related taxes were paid.
• The current economic conditions make the loan necessary to support the ongoing operations of the business.
• Loan funds will be used to retain current employees, fund payroll, make payments for mortgage interest or utilities. In addition, proceeds will also be used for covered operations expenses, supplier costs, property damage expenses, and worker protection expenditures. Finally, the applicant must certify they understand if the funds are used for an unauthorized purpose, the federal government can hold them legally liable, which includes the possibility of fraud charges.
• Confirm that loan forgiveness will only be provided for the sum of documented payroll, mortgage interest, rent payments, utility expenses, operations, property damage, supplier, and worker protection costs. The applicant must acknowledge that only 40% of the forgiven amount can be spent on non-payroll costs. As required, appropriate documentation may need to be submitted to the SBA.
• The applicant has not and will not receive another PPP loan, or funds from the Shuttered Venue Operator Grant program.
• Acknowledge that the President, Vice President, Executive Department Head, Member of Congress, or spouse, does not hold a controlling interest in the applicant’s business.
• The business is not an issuer of securities listed on an exchange registered as a national securities exchange.
• Acknowledgment the information submitted on the application is true and the Lender will confirm eligibility, including loan amount calculations, using the documents submitted with the application.

Applying for a Loan

The SBA has already started accepting applications for the first time PPP loan borrowers through certain community-based lenders and opens it up to all eligible lenders starting on January 13, 2021. The application for first-time borrowers with related instructions is available through the SBA.

Contact Us

The opportunity to receive a PPP loan will financially help many unable to previously participate. There are many complex rules, calculations, and compliance requirements to be aware of prior to application. For this reason, it is important to consult with a qualified advisor to guide you through the process. If you have questions or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.