Updated Application and Paycheck Protection Program Guidelines

April 3, 2020

Dear Clients and Friends,

The US Treasury has released guidance last night on the Paycheck Protection Program from the SBA. As you may know, the loan for qualifying self-employed individuals and businesses is designed to provide payroll cost cash flow funding that can be forgiven based upon employee retention. Loan applications for businesses are being accepted today, however many SBA approved lenders who are supposed to receive and process these applications, are not ready to take them in.

First, the SBA has updated loan application. You will need to use the new application to submit your loan request. The new application can be found at: https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf

The Interim Final Rules providing guidance to banks and borrowers can be found at: https://content.sba.gov/sites/default/files/2020-04/PPP--IFRN%20FINAL.pdf.

The loan borrowing base is based on certain payroll costs, including wage compensation, health insurance premiums paid by the business, pension benefits paid by the business, and state taxes (NSYUI, MCTMT) based on compensation. The borrowing base definition was defined to include and exclude certain things which Treasury has now shed some light on.

  • Payroll costs are supposed to be aggregated for the last 12 months from the date of application. However, the application indicates most applicants will use the average monthly payroll for 2019.

  • Payroll should only be for employees whose principal place of residence is the United States.

  • The reduction in payroll costs for Federal employment taxes is only for taxes imposed or withheld between February 15, 2020 and June 30, 2020, including employees and employers share if FICA and income taxes, used in the computation of the forgiveness of the loan, not in the amount used in determine the loan proceeds. (No doubt they are excluding this as there are other COVID-19 programs related to the payment of these taxes for these dates).

  • Reduce payroll costs for qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act.

  • Independent contractors do not count in the determination of payroll costs as they can apply for this benefit themselves under the self-employed portion of this program.

In addition, there are further clarifications as follows:

  • The borrowing rate on the loan is 1%.
  • The loan maturity is two years.
  • The PPP program is first come, first served. Get your application in soon.
  • Application parts include the SBA Form 2483, payroll documentation (941's or other reports) and the lender must submit SBA Form 2484.
  • For review of the forgiveness computation, payroll spending must be at least 75% of loan proceeds during the eight-week spending subsequent to the loan funding. 25% can constitute other costs such as mortgage interest payments, rent payments, utility payments, interest on other debt incurred before February 15, 2020.

Please refer to the above link for detailed questions and answers the SBA has provided lenders and borrowers in the computation of the amount of the loan, and the permitted uses of the loan.

KFP urges you to get your applications in to the SBA approved lenders as soon as possible. We are happy to assist with this process in reviewing your gathering data.

As always, we thank you for giving us the opportunity to work with you.

Sincerely,

Your Accountant
and the Team at KFP

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