- To Download a PDF of this guide CLICK HERE
- For a top-line overview of the program CLICK HERE
- If you’re a lender, more information can be found HERE
- If you’re a borrower, more information can be found HERE
- The application for borrowers can be found HERE
- For FAQs about this program, CLICK HERE
Guide to Preparing the SBA Paycheck Protection Program (PPP) Application
The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses.
Our office has been receiving numerous calls from anxious business owners looking for help as they try and determine what their best options are. They are being overwhelmed with information from a variety of sources and are struggling to determine what their best relief options are. In addition, some of our business clients have started the online SBA loan process and have had some confusion as to how to answer some of the questions.
Accordingly, the following information is intended to help answer some of those questions and to provide a guide to help you fill out the SBA application. We do have a significant qualifier for this guidance; It is being prepared using current information that we have and our current understanding of the process. Subsequent changes in requirements and guidelines may cause our communication to become outdated.
What SBA Program should I use?
Before you start the application process it is important that you understand the three primary programs that are currently available. Basic information on the options include:
- Economic Injury Disaster Grants. This
program was developed to provide an advance of $10,000 to all small businesses.
- This is a grant and does not have to be repaid
- The loan application is supposed to be approved within three days of application
- You do not give up the ability to apply for the SBA Paycheck Protection Plan (PPP) loan that is highlighted below.
- Application is done online with the SBA
- Paycheck Protection Program (PPP):
- The loan is calculated at 2.5 times average monthly payroll for the preceding year including certain benefits.
- Some or all the loan may be forgiven if used for qualifying purposes during an 8-week period beginning with the receipt of the loan. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
- If the loan is not forgiven it turns into a 2-year loan. Based on previous Government communication we were led to believe that it was a 10-year loan.
to apply (based on guidance and wording received):
- Starting April 3, 2020, small businesses and sole proprietorships can apply. I am assuming sole proprietors must have employees, otherwise they would be a self-employed individual.
- Starting April 10, 2020, independent contractors and self-employed individuals can apply.
must be done through the following:
- SBA 7(a) lender (typically your bank),
- Federally insured depository institution
- Federally insured credit union
- A participating Farm Credit System
Injury Disaster Loan: Highlights include:
- Loan can be up to $2,000,000
- Must be processed through a participating bank
- Requires more information, collateral, and personal guarantees.
- This will take longer
Given the above what is my best option?
For most of our clients with employees, the PPP loan program will be the preferred option assuming they meet the qualifications.
For our clients that have small salaries (less than $30,000) paid through their S Corporations, or are self-employed with limited income, the SBA grant program may be the preferred place to start. However, this does not preclude you from applying for a PPP loan.
How soon should I get started?
We are encouraging everyone to start the application process immediately.
Let’s Get Started on the SBA PPP Program Application
We are of the opinion that all our clients should be applying for the PPP loan. We don’t know what lies ahead as we weather the COVID-19 storm and having access to working capital is just a plain good business decision. Most of us will lose operating profits that we may never get back. The PPP loan program not only is intended to encourage keeping people on the payroll, but it also provides some cushion to help all of us cover our overhead costs.
Based on the flood of phone calls and e-mails that we are receiving it feels as if we are in the middle of what I call the “toilet paper” run related to the rush for SBA loan applications. There is anxiety that this funding is going to be “oversubscribed” and the comments I am receiving indicate that our clients want to make sure they get their application in as soon as possible. We are encouraging everyone to start the process as soon as they can. To be transparent, our firm is planning on having our application ready to go on April 3rd.
I am operating on the assumption that our elected leaders will do the right thing. The concept of the PPP program makes sense and I am anticipating that it will be funded appropriately.
The other questions we are receiving include:
- My bank has indicated they are not participating
in the PPP program and will not act as a conduit. What do I do?
- Find a banker that will, and if you need a referral, let us know and we can help you
- My banker is indicating that I need to provide
copies of all my payroll records and supporting documentation. Is that correct?
- We had originally thought the application process would be streamlined and you would just have to complete the application. Accordingly, we were not sure if the payroll reports would have to be provided.
based on the information on the SBA website and confirmation from our banker, documentation
will be required. So be prepared to provide the following:
- Copies of the 2019 quarterly payroll reports (Form 941’s) and the year-end Form 940.
- If you are operating as a partnership and need to include the self-employment income of the partners, a supporting schedule will be required reconciling to the total computation of payroll costs.
- As a reminder when we sign the loan application document, we are representing the information provided is accurate. If there is an intentional material misstatement the fines and potential jail time is not to be taken lightly.
- When can I start applying for the loans?
- If you are an operating business with employees, the first day of applications will be April 3rd.
- Independent contractors and self-employed individuals (with no employees) can apply starting April 10th.
- What if the program runs out of money?
- We are confident that the program will be properly funded. However, there is no guarantee, and it will be a question of how long a re-funding delay might last.
- Has subsequent guidance changed any of the
- It looks like the only change is that for the loans to be forgiven 75% of the proceeds must be used for payroll costs during the 8-week measuring period.
- I am one of two partners in a partnership with
several employees. Because of the partnership rules the owner is not paid
through a W-2. How do we calculate our payroll cost for purposes of determining
our eligible payroll?
- We don’t have specific clarity on that question, but I think this is how it will work. It appears that owner’s payroll is determined by how much of the partnership income is considered self-employment income. If the allocated self-employment (SE) income is less than $100,000, the amount of the SE income can be included in the computation, but it will be limited to $100,000 per partner.
The following is an example of what needs to be done before you can submit the application.
Step 1: Find a Banker
If you have not already done this give your banker a call to see if they are a participating lender. This is truly the starting point. Also, make sure you are clear in what they expect for supporting documentation for the payroll cost amount you will be providing.
Step 2: Calculate your “Average Monthly Payroll”
Based on the guidance it appears the “Average Monthly Payroll” needs to be calculated from your 2019 financial records. Your tax return does not have to be completed to do the calculation. However, you should feel comfortable that your 2019 financial statement records are accurate.
I will use our firm as an example of what I did to do the calculation for Axtell Haller & Slachta. Here are the steps I followed.
- I downloaded our QuickBooks 2019 Profit and loss statement to an excel document.
added two columns to the excel statement.
- A column that showed compensation
- A column that showed the medical and dental insurance we pay for our employees.
- I then combined this total to give me total 2019 payroll related costs.
- I then added to the calculation above the amount of earnings we had that were subject to self-employment tax. This then becomes my “total 2019 payroll costs”.
- Divide this number by 12 and it becomes your “Average Monthly Payroll Cost”. This is the number you enter on the first page of the PPP Application Form.
As a reminder, payroll costs include:
- Salary, wages, commissions, or tips (capped at $100,000 if any employee exceeds that total)
- Employee benefits including health care benefits and retirement plan contributions. If you break out your gross payroll to record vacation and sick time separately these costs are also included.
- State and local taxes assessed on compensation
- For a sole proprietor or independent contractor, wages include earnings from self-employment as reported on your tax returns.
Step 3: Fill out the Paycheck Protection Program Application Form
We have attached a copy of the application that appears to be self-explanatory. Some reminders as you complete the section.
- Make sure each area is completed in its entirety. It is easy to miss a box when completing the form.
- The “Average Monthly Payroll” should come from a
worksheet that you prepare.
- Make sure you double-check your computations and keep supporting information filed away safely.
- Assume you will be challenged later, think of this as cheap audit protection.
- In the area titled “Purpose of the Loan” make
sure you check all the boxes.
- I would not check “Other” unless there is a good reason to. You may need guidance from your banker on this question.
- In the area titled “Number of Jobs” I believe
this refers to # of employees. It is not clear if this represents full-time
equivalents or simply the number of employees you have. I am assuming this
should be the number of employees at time of this application.
- I believe this question will flag an application if the number of employees exceeds 500.
- Make sure you list out all the owners of the
business if they have more than a 20% ownership interest.
- I would suggest including family members that own less than 20% and note accordingly that they are related.
- Complete the Question section. Make sure all the boxes have been checked.
- On page two of the application it is my understanding
that each 20% or greater owner must complete this section and initial
- If you have five owners, it will require five separately prepared pages.
- Make sure everyone signs as instructed.
On page 3 of the application there is a section called Paperwork Reduction Act. They are indicating it will only take you 8 minutes to complete the application and provide the supporting documentation. I am not sure where this guidance is coming from, but this process will take more than 8 minutes!
Step 4: Now what do I do with this completed application?
Reach out to your banker to see how they want to receive this information. Our banker has indicated we will just need to upload the information to their website.
Now it is up to your banker to review the application. They will either approve or come back to you with additional questions.
When could I expect to see the loan proceeds deposited?
We have been told the funding could take place the same day as approval. Not so sure this is a reasonable expectation.
Oops, there is one more Step!!!
The post funding time period may be the most important step. The objective is to make sure you spend the loan proceeds on the items the program was designed for. This includes the following:
costs, including benefits.
- This also includes paying yourself
on mortgage obligations, incurred before February 15, 2020.
- I am assuming this would include a mortgage for a building that is owned by your business
under lease agreements in force before February 15, 2020.
- If the business is paying rent to an entity you own, I am assuming this qualifies.
- Utilities, for which service began before February 20, 2020.
The last comment I would like to make before you start your loan application relates to documentation. Starting at the time the loan is funded you are now on the eight-week clock. If you document your expenses properly, a significant portion of your loan may be forgiven. Accordingly, make sure you keep the following documents and be prepared to provide them to your lender.
number of full-time equivalent employees and pay rates.
- I would prepare this computation at the time of the loan and at the end of the eight-week measuring period.
would suggest making sure you have a current lease agreement in place even if
it indicates you are month-to-month.
- Take copies of the cancelled checks and file accordingly.
- Keep copies of your utility bills as well as the cancelled checks to support the payment.
- You will also have to provide copies of your payroll records and reports.
Good luck and Godspeed!