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SBA Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was recently passed into law.

The CARES Act includes the SBA Paycheck Protection Program (PPP) to provide quick relief for payroll costs for businesses that have been impacted by COVID-19. As an approved SBA Lender, Honor Bank will begin accepting applications for small business and sole proprietorships on Friday, April 3, and independent contractors and self-employed individuals on Friday, April 10.  We look forward to doing our part to get small businesses up and running again!

 

What You Should Know

  • How do I apply?

    Download a PPP Application and a Payroll Calculation Worksheet, and contact one of our commercial lenders for more details.

  • Who is eligible under the Paycheck Protection Program?
    • In addition to “traditional” small businesses, assistance will be provided to 501(c)(3) non-profits, sole proprietors, independent contractors, self-employed individuals and “gig” workers.
    • Small businesses will be eligible if they have 500 or fewer employees, unless the SBA has established a higher size threshold for the relevant industry.
    • Business must be operational as of February 15, 2020 and had employees for whom it paid salaries and payroll taxes.
  • How must the loan's proceeds be used?

    You should use the proceeds from these loans on your:

    • Payroll costs, including benefits;
    • Interest on mortgage obligations, incurred before February 15, 2020;
    • Rent, under lease agreements in force before February 15, 2020; and
    • Utilities, for which service began before February 15, 2020.
  • How much can a business apply for?

    Loans can be up to 2.5 times the average total monthly payroll costs incurred during the year prior to the loan date, not exceed $10 million.

  • Can payments be deferred?

    Yes. The SBA will require lenders to defer payments of principal and interest for loans under the Payroll Protection Program for at least six months and not more than one year.

  • How much of the loan will be forgiven?

    You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

     

    You will also owe money if you do not maintain your staff and payroll.

    • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
    • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
    • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. 
  • Are there reductions in forgiveness based on layoffs and wage reductions?

    Loan forgiveness will be reduced for a business that reduces its employees or employee pay (or has done so since February 15, 2020), unless the business, as applicable, rehires the employees or eliminates the salary reductions by June 30, 2020.

  • What collateral is required?

    No collateral is required.

  • Are personal guarantees required?

    No.

Individuals with Self-Employment Income who File a Form 1040, Schedule C

  • Am I eligible for a PPP Loan?

    You are eligible for a PPP loan if:

    • You were in operation on February 15, 2020;
    • You are an individual with self-employment income (such as an independent contractor or a sole proprietor);
    • Your principal place of residence is in the United States; and
    • You filed or will file a Form 1040 Schedule C for 2019.

    However, if you are a partner in a partnership, you may not submit a separate PPP loan application for yourself as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership. Partnerships are eligible for PPP loans under the Act, and the Administrator has determined, in consultation with the Secretary of the Treasury (Secretary), that limiting a partnership and its partners (and an LLC filing taxes as a partnership) to one PPP loan is necessary to help ensure that as many eligible borrowers as possible obtain PPP loans before the statutory deadline of June 30, 2020.

  • How do I calculate the maximum amount I can borrow?

    How you calculate your maximum loan amount depends upon whether or not you employ other individuals. If you have no employees, the following methodology should be used to calculate your maximum loan amount:

    • Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). If this amount is over $100,000, reduce it to $100,000. If this amount is zero or less, you are not eligible for a PPP loan.
    • Step 2: Calculate the average monthly net profit amount (divide the amount from Step 1 by 12).
    • Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5.
    • Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid). 

    If you have employees, the following methodology should be used to calculate your maximum loan amount: 

    • Step 1: Compute 2019 payroll by adding the following:
      • Your 2019 Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value), up to $100,000 annualized, if this amount is over $100,000, reduce it to $100,000, if this amount is less than zero, set this amount at zero;
      • 2019 gross wages and tips paid to your employees whose principal place of residence is in the United States computed using 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c- column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips; subtract any amounts paid to any individual employee in excess of $100,000 annualized and any amounts paid to any employee whose principal place of residence is outside the United States; and
      • 2019 employer health insurance contributions (health insurance component of Form 1040 Schedule C line 14), retirement contributions (Form 1040 Schedule C line 19), and state and local taxes assessed on employee compensation (primarily under state laws commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms). 
    • Step 2: Calculate the average monthly amount (divide the amount from Step 1 by 12).
    • Step 3: Multiply the average monthly amount from Step 2 by 2.5.
    • Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that you seek to refinance, less the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid). 
  • How can PPP loans be used?

    The proceeds of a PPP loan are to be used for the following:

    • Owner compensation replacement, calculated based on 2019 net profit.
    • Employee payroll costs for employees, if you have employees.
    • Mortgage interest payments, business rent payments, and business utility payments. You must have claimed or be entitled to claim a deduction for such expenses on your 2019 Form 1040 Schedule C for them to be a permissible use during the eight-week period following the first disbursement of the loan (the “covered period”). For example, if you did not claim or are not entitled to claim utilities expenses on your 2019 Form 1040 Schedule C, you cannot use the proceeds for utilities during the covered period.
    • Interest payments on any other debt obligations that were incurred before February 15, 2020 (such amounts are not eligible for PPP loan forgiveness).
    • Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020 (maturity will be reset to PPP’s maturity of two years). If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan. 
  • What amounts shall be eligible for forgiveness?

    The amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest. The actual amount of loan forgiveness will depend, in part, on the total amount spent over the covered period on:

    • Payroll costs including salary, wages, and tips, up to $100,000 of annualized pay per employee (for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums);
    • Owner compensation replacement, calculated based on 2019 net profit as described in Paragraph 1.b. above, with forgiveness of such amounts limited to eight weeks’ worth (8/52) of 2019 net profit, but excluding any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the CARES Act, or qualified family leave equivalent amount for which a credit is claimed under section 7004 of FFCRA; 
    • Payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business mortgage payments); iv. rent payments on lease agreements in force before February 15, 2020, to the extent they are deductible on Form 1040 Schedule C (business rent payments); and utility payments under service agreements dated before February 15, 2020 to the extent they are deductible on Form 1040 Schedule C (business utility payments). 

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