Paycheck Protection Program FAQs

Updated: June 9, 2020

Loan Application Information

Description:

The Paycheck Protection Program offers low-interest loans to nonprofit organizations to pay staff and cover operating costs. These loans are eligible for debt forgiveness if they are used to retain workers or hire back those who have been laid off. 

Eligibility: 

Nonprofit 501(c)3 or 501(c)(19) organizations are eligible to apply if they meet two criteria: 

  • The organization has 500 or fewer full-time and part-time employees 
  • The organization was in operation on February 15, 2020 and with paid employees and/or paid independent contractors 

Loan Amount: 

PPP loans are up to a maximum of $10M. The loan amount will be 2.5x average monthly payroll costs over the prior 12 months. 

Loan Terms: 

PPP loans have up to 1% annual interest rate with a term of 2 years. The first 6 months of payments (principal and interest) are deferred. 

Loan Use:

These loans can be used to cover the following over an 8-week period after loan origination: 

  • Payroll costs: salaries and benefits for employees making up to $100K, plus state and local payroll taxes
  • Rent or mortgage interest  
  • Debt service 
  • Utilities 

Loan Forgiveness:

The loan principal is eligible for forgiveness if it is used to cover payroll costs, mortgage interest payments, rent payments, and utilities. This includes: 

  • Salaries for employees making up to $100K, plus state and local payroll taxes 
  • Non-COVID-19 sick/family leave, plus health insurance premiums 
  • Rent and/or mortgage interest 
  • Debt service 

At least 75% of the forgiven amount will have has to go towards payroll.  If employees are laid off or their salaries are reduced significantly, the amount of debt eligible for forgiveness will decrease. 

Any other expenses (i.e. inventory) are not eligible for debt forgiveness and will be converted into a loan subject to PPP terms. 

Application Requirements:

The application form will require organizations to calculate the loan amount (2.5x average monthly payroll costs in prior 12 months). 

Organizations also need to make a good-faith certification of three things: 

  1. Their need for the loan is based on economic conditions.  
  2. Funds will be used to retain workers and maintain payroll, along with making mortgage interest, rent, and utility payments.  
  3. The organization does not have multiple applications (and has not received other SBA emergency funds) for the same purpose. 

How to Apply:

To apply for a loan through the PPP, you need to find an SBA-approved lender who is processing applications. You can also visit this SBA web page to find resources on locating a lender in your area.

PPP applications will be processed beginning on April 3, 2020. Visit the SBA and Treasury PPP pages for the most up-to-date information

Documentation Needed:

  • 2019 IRS quarterly 940, 941, or 944 payroll tax reports
  • Itemized 1099s for calendar year 2019 and January-February 2020 (just in case your lender requests this)
  • Last 12 months of payroll reports beginning with your last payroll date, including the following:
    • Gross wages for each employee, including the officer(s) if paid W-2 wages
    • Paid time off for each employee
    • Vacation pay for each employee
    • Family medical leave pay for each employee
    • State and local taxes assessed on the employee's compensation for each employee
    • 2019 1099s for any independent contractors that would otherwise be an employee of your business (excluding 1099s for services rendered)
    • Documentation showing the total of all health insurance premiums paid by the company owner under a group health plan for all employees and owners
    • Documentation of the sum of all retirement plan funding paid by the company owner (excluding monies that came from the employees' paycheck contributions). This includes 401K plans, Simple IRAs, and SEP IRAs.
  • For Nonprofits:  Board of Directors resolution giving permission to apply for PPP (Click here for a sample board resolution)

Additional Documents Needed to Apply:

  • Determination letter from the IRS
  • Internal financials from 2019 (income statement, balance sheet)
  • Lease agreement and documentation of recent rental payments
  • Mortgage agreement and documentation of recent payments showing amount of interest paid 

Additional Resources:

Paycheck Protection Program Information Sheet for Borrowers - US Department of the Treasury
Paycheck Protection Program - US Small Business Administration

Sources: 

The CARES Act (Sections 1002 and 10006)
Assistance for Small Businesses - US Department of the Treasury
CARES Act Loan Options - The National Council on Nonprofits
Loan Details and Forgiveness - SBA Paycheck Protection Program  
 

Loan Forgiveness

Description:

The Paycheck Protection Program offers low-interest loans to nonprofit organizations to pay staff and cover operating costs. These loans are eligible for debt forgiveness if they are used to retain workers or hire back those who have been laid off.

SBA released the PPP Loan Forgiveness Application on May 15.

PPP loan forgiveness guidance is not final. We have prepared this FAQ with information available as of June 9. SBA has not yet released guidance to reflect the new loan forgiveness process contained in the PPP Flexibility Act. This FAQ reflects our best understanding at the time it was prepared. It will likely change as updated guidance is released. Check the SBA website for the latest updates.

This FAQ is meant as a general guide, but your lending institution is ultimately responsible for approving your loan forgiveness.

  • Ask your lender if they have a forgiveness calculator (these differ from lender to lender)
  • Ask your lender for clarification on calculation questions and confirm they support your approach to calculating loan forgiveness

The SBA will conduct a review of organizations with PPP loans of $2M or above. They will also reserve the right to conduct reviews for smaller loans as well.


New Criteria for Loan Forgiveness

On June 5, the PPP Flexibility Act was signed into law. It changes a few criteria:

  • The required amount spent on payroll decreases from 75% to 60%
  • The covered period triples from 8 weeks to 24 weeks
  • The loan term can be up to 5 years
  • Safe harbor deadlines for restoring FTE and compensation levels are extended to December 31, 2020
  • Rehiring requirements for forgiveness are eased based on:
    1. Inability to rehire former/similarly qualified employees
    2. Inability to return to previous levels of operation
  • The deadline to file for loan forgiveness is 10 months after the end or the covered period
     

Existing Criteria for Loan Forgiveness:

There are two criteria for loan forgiveness:

  • The loan is used to cover forgivable expenses
    1. At least 75% of the PPP must be spent on payroll, which includes:
      • Wages of up to $100K per employee
      • Continued group healthcare benefits, which includes premiums and excludes employee withholdings
      • State and local payroll taxes (excludes federal taxes)
      • Retirement plan funding costs (excludes employee withholdings)
    2. Up to 25% spent on:
      • Mortgage interest
      • Lease payments
      • Utility payments
      • Note: applies to mortgages and leases entered into before February 15, 2020 and utilities where service began before February 15, 2020
  • The loan is used during the covered period
    • PPP proceeds must be used to cover expenses in the 8 weeks following disbursement for non-payroll expenses

    • There is an alternative covered period that begins the first day of the next pay period following loan disbursement. This is for clients with biweekly (or more frequent) pay schedules.

Ways Loan Forgiveness Can Be Reduced: 

There are 3 ways PPP loan forgiveness can be reduced:

  1. The number of FTE are reduced from prior levels and not restored during the covered period through June 30
    • The percentage of FTE reduced will be used to proportionally reduce the amount of the loan eligible for forgiveness. For example, a 10% reduction in FTE results in a 10% reduction in the forgivable amount of the loan.
    • Per AICPA, there are 2 time period options to calculate prior period FTEs:
      • Feb 15 - June 30, 2019
      • Jan 1 - Feb 15, 2020
    • To calculate the number of FTEs, use the 40-hour definition for full-time employees
      • Full-time employees (work at least 40 hours) are considered 1 FTE
      • Part-time employees (work less than 40 hours) can be counted in 2 ways
      • Simple Method: each part-time employee counts as 0.5 FTE
      • Each employee's average number of hours worked per week is divided by 40 (to one decimal point). E.g. 12 hours per week is 0.3 FTE
    •  Employees who were fired for cause, resigned, or requested to reduce their hours will not reduce loan forgiveness.
  2. Employee compensation is reduced by more than 25% and not restored by June 30
    • Compensation reductions over 25% will be directly subtracted from the loan amount eligible for forgiveness. For example, if an employee making $50,000 has a 30% reduction in salary ($15,000), the loan forgiveness amount decreases by the difference between a 25% and 30% salary reduction, which is $2,500 ($15,000 minus $12,500).
    • Per AICPA: the payroll reduction calculation should be based on the average payroll per employee per week rather than the total compensation per employee in the comparison 8-week period
  3. Spending on non-forgivable costs
    • Amounts spent on other debt service, EIDL refinancing, or other allowed but non-forgivable costs will convert to a loan at 1% interest with a 2-year term
       

Recent Guidance Clarified a Number of Questions

  • SBA clarified that the forgivable amount of the loan is calculated on a cash and accrual basis
    • Allows costs paid during the eight-week eligible period
    • Allows costs incurred during the eight-week eligible period, so long as they are paid in the normal billing or pay period cycle
  • FTEs are calculated based on a 40-hour work week

Guidance is Still Evolving in a Number of Area:

Additional clarification is needed in a number of areas:

  • Whether the forgiven portion of PPP loans will be federal grants or forgivable debt
    • This may impact indirect rate calculations for organizations with federal grants and contracts
    • No guidance on double-dipping or other implications for existing federal grants and contracts
  • The timing of allowable expenses eligible for expenses
    • No guidance on cash vs accrual
    • Several organizations have requested through public comment that the 8-week period begin in the first pay period, not immediately after the loan is disbursed
  • The best way to calculate FTEs
    • No guidance on how to account for voluntary attrition
  • The documents required to justify forgiveness
    • This appears to be up to individual lending institutions
    • Lenders may request documentation early to be able to sell loans to the SBA
  • The deadline to file for loan forgiveness
    • Lenders have 60 days to process borrower requests for loan forgiveness
  • The type of review conducted for organizations receiving loans of $2M or above
    • The Treasury and SBA have not announced the scope of the review
       

Additional resources:

Guidance on the PPP is updated frequently. These are some trusted resources to stay up-to-date:

Documents Needed for Loan Forgiveness

Payroll:

  • 2020 IRS Forms 941 that include the 8-week covered period
  • Reports reflecting employment tax returns filed
  • This documentation should clearly show:
    • Gross wages for each employee
    • State and local employer taxes
    • Average number of full-time equivalents per month during:
      • The 8-week covered period
      • Feb 15 - June 30, 2019
      • Jan 1 - Feb 29, 2020

Group Healthcare Benefits:

  • Documentation showing total costs paid for all health care benefits, including insurance premiums paid
  • Employee withholdings are not included

Retirement Plan Benefits:

  • Documentation showing total retirement plan funding costs paid by the organization
  • Includes funding for all employees and the company owners
  • Employee withholdings are not included

Mortgage Interest, Lease Payments, and Utility Payments:

  • Account statements or other documentation of payments of mortgage interest, lease, and utilities