What is the Paycheck Protection Program?


What exactly is the Paycheck Protection Program? Garcia & Associates C.P.A. firm can walk you through everything you need to know.
The paycheck protection program, also known as PPP is a small business loan designed as an incentive to keep workers on payroll during the Covid-19 crisis. The SBA will forgive loans if all facets of employee retention criteria are met and funds are used for eligible criteria.
You can apply through an existing SBA lender or through federally insured depository institutions, federally insured credit unions, and a Farm Credit System institution that is participating.

How The Paycheck Protection Program Works

Loan Details

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, utilities. At least 60% of the forgiven amount must be used for payroll.
  •   The interest rate on PPP loans is 1%.
  •   There is a 2-year maturity on loans before June 5th. There is a 5-year maturity on loans issued after June 5th.
  •   Loan payments can be deferred for 6 months.
  •   There are no personal guarantees or collateral needed.
  •   There are no fees charged by lenders or government.

Loan Forgiveness

Forgiveness of the Paycheck Protection Program loans is based on the employer maintaining employees or swiftly rehiring and maintaining the salary level of the employees. If full-time headcount declines or if salaries/wages decrease, forgiveness is reduced.
There are several measures to reduce the compliance burdens and simplify the process for borrowers on the SBA form which include:
  •   Borrower options for calculating payroll costs using an “alternative payroll covered period” that aligns with a borrower’s regular payroll cycle.
  •   Flexibility to include eligible payroll and non-payroll expenses incurred or paid during the 24-week period following the receipt of their PPP loan.
  •   Complete instructions on performing calculations required by the CARES Act to confirm eligibility of loan forgiveness.
  •   Implementation of statutory exemptions from forgiveness based on rehiring employees.

The rules for sole proprietors and independent contracts vary, Garcia & Associates can help you sift through all the regulations of the Paycheck Protection Program to make sure you understand your risks and liabilities.

Who Can Apply for a PPP Loan?


Entities affected by Covid-19 who may be eligible for a PPP loan include:
  •   A small business that meets the SBA’s size standards
  •   Sole proprietors, self-employed persons, and independent contractors
  •   Businesses with NAICS code beginning with 72 (Accommodations and Food Services) with more than one physical location and employs less than 500 per location
  •   Any 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of 500 employees, or that meets the SBA industry size standard if more than 500

What is the Maximum Amount I Can Borrow?

2.5 times the average monthly payroll expense, up to a total of $10 million is the maximum amount any small business can borrow through the Paycheck Protection Program. The amount is intended to cover 8 weeks of payroll expenses and additional payment towards debt obligations.

When is the PPP Loan Forgiven?

At the end of the 8 week period, after you take out the loan, borrowers work with lenders to verify covered expenses and determine the appropriate amount of forgiveness.

Am I Responsible for Interest on the Forgiven Loan Amount?

If the full principal of the amount is forgiven the borrower is not responsible for interest on the Paycheck Protection Program loan. The remainder of the loan will be charged interest according to the terms of the loan agreement.

What other uses of proceeds from loans made under the Paycheck Protection Program are allowed?

Proceeds of the loans under the Paycheck Protection Program may be used for:
  •   Payroll costs, wages, salaries
  •   Vacation and sick leave
  •   Retirement benefits
  •   Group healthcare benefits
  •   Interest on mortgage
  •   Rent
  •   Utilities

There are caps to some of the allowances so be sure to speak with your tax preparer to help understand the rules and requirements of the PPP loans.

Do I Need to get a PPP Loan?

Not at all. Knowing the financial state is an important factor in determining if you really should apply for a loan through the Paycheck Protection Program. Remember, there may be a portion of this loan that is not forgiven and you will be required to pay back. That portion will have interest attached to it. If your business does not require the money to keep operating and retain employees, you may be better positioned in the future not to have the loan balance outstanding. Sitting down with your tax advisor is the best way to determine your specific needs. Garcia & Associates can help you navigate the ins and outs of the Paycheck Protection Program to determine if it is right for you. Contact us today at 718-533-0300.