The Paycheck Protection Program (PPP)
Many farms and other businesses (including non-profits qualify for fully or partially forgivable loans through the Paycheck Protection Program (PPP), which is intended to provide incentives to employers to help them keep workers on payroll.
We recommend that you apply immediately if this program would benefit you, because funds will be exhausted soon. Finding a lender who can process your application expediently is important (and may not be easy from what we are hearing). You can use this link to find a lender near you that can issue PPP loans; if possible, we recommend that you first approach a lender with whom you already have a relationship.
Importantly, note that getting a PPP loan interacts with other available relief programs. A PPP loan makes the borrower ineligible for the related Employee Retention Tax Credit, so businesses should assess which of these programs will better meet their needs before applying. Note also that any grant funds you receive through the Economic Injury Disaster Loan Emergency Advance program will be subtracted from PPP loan forgiveness. In addition, if you receive pay through the PPP, this will likely reduce the unemployment benefits for which you are eligible.
PPP loans have a 1% interest rate (raised from the 0.5% rate publicized initially) and mature in two years, with loan payments deferred for six months. No collateral or personal guarantees are required, and there are no borrower fees. When submitting a PPP application, all borrowers must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” All borrowers with loans under $2 million will be deemed to have made this certification in good faith without further scrutiny. The loan amount you are eligible for through PPP is capped at 2.5 times your average monthly payroll cost. Typically this average will be calculated based upon payroll for all of 2019, but seasonal businesses can instead elect to base it either on the period from 2/15/19 to 6/30/19 or on any twelve-week period between 5/1/19 and 9/15/19. New businesses can elect to base it on the period from 1/1/20 to 2/29/20.
Note that payroll costs for any employee whose principal place of residence is outside of the United States – such as any workers on H-2A and J-1 visas – are specifically excluded from PPP. However, immigrant workers whose principal residence is in the United States are included in PPP along with U.S.-born workers.
In addition to having a very low interest rate, many businesses are attracted to these loans because they are fully or partially forgivable, depending on how funds are used. Any loan money that is spent within eight weeks of the first loan disbursement (which must happen within 10 days of loan approval) can be fully forgiven if both of the following conditions are met:
- During this eight-week period, at least 75% of loan funds smust be spent on payroll. The amount not spent on payroll must all be spent on:
- interest on mortgage obligations incurred before 2/15/20
- rent under lease agreements in force before 2/15/20, and/or
- utilities for which service began before 2/15/20
- During this eight-week period, you maintain both your number of employees and your compensation of employees at pre-COVID levels, or return them to 2019 levels after receiving the loan (in which case businesses will not be penalized for temporary lay-offs or wage reductions initiated between 2/15/20 and 4/26/20). Note that there is no obligation to continue to maintain staffing levels after the 8-week period following the first loan disbursement. The SBA has also indicated that employers will not be penalized if they offered to rehire laid-off employees (for the same salary/wages and same number of hours), as long as the offer was made in good faith and in writing, and the employee’s rejection of that offer was documented. See more details below on the requirements for employee retention and employee compensation to ensure loan forgiveness, and note that you must actively apply for loan forgiveness on a timely basis in order to receive it (forgiveness is not automatic).
- Employee compensation requirement:
- During the 8-week period after PPP loan origination, you must pay your employees at least 75% of what you paid them during the first quarter of 2020.
- Note that to compare an 8-week period with a 13-week quarter, you can compare the average weekly compensation for both periods.
- For this test, the before-and-after compensation levels are compared on an employee-by-employee basis. Some lawyers believe that the specific individuals who are employed may have to remain the same, but others believe that it is fine if employees are replaced by new hires for the same position.
- If compensation declines by more than 25%, there will be a reduction in loan forgiveness (unless compensation reductions are eliminated by 6/30/20). This reduction in loan forgiveness will be calculated as follows: For any covered employee whose compensation during the covered period decreased by more than 25%, 75% of their compensation during the first quarter 2020 will be subtracted from their compensation during the eight-week period following loan disbursement. The Loan forgiveness amount will then be reduced by this amount (i.e. the aggregate of this amount for all employees with >25% reductions).
- Employee retention requirement:
- During the 8-week period after PPP loan origination, you must maintain the same average monthly number of FTEs that you had during the period from 2/15/19 – 6/30/19 if you’re a seasonal business (or January – February 2020 if not seasonal).
- To calculate FTE numbers for purposes of loan forgiveness, you should count each full-time employee working 40+ hours per week as 1 FTE; and for part-time employees, you should divide the average number of hours worked per week by 40.
- If your number of FTEs declines, there will be a proportional reduction in loan forgiveness (unless all individuals are rehired by 6/30/20).
- Employee compensation requirement:
You can apply for PPP through many local banks and credit unions, and should first contact the bank with which you have the strongest relationship. For more information, see this SBA info page, and a sample application to see the types of information that will be requested of you.
The official application end date for PPP is June 30, 2020, but as noted above, funds will be exhausted far earlier, so again, businesses are encouraged to apply immediately if they wish to take advantage of this program.