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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 help employers keep workers on payroll.

The deadline to receive a PPP loan has been extended to August 8, 2020. You can use this link to find a lender near you that can issue PPP loans; if possible, we recommend that you first approach the lender(s) 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 or your employees receive pay through the PPP, this will likely reduce any unemployment benefits.

PPP loans have a 1% interest rate (raised from the 0.5% rate publicized initially) and mature in a minimum of two years for loans made before June 5, 2020 or five years for loans made on or after June 5, 2020. Loan payments are deferred for at least six months, and come due once borrowers receive compensation for forgiven amounts, or ten months after the end of the borrower’s loan forgiveness covered period if the borrower doesn’t apply for forgiveness. 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,” but 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 twenty-four 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 the period leading up to your application for loan forgiveness (or up to 24 weeks after loan disbursement:

  • At least 60% of loan funds must 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
  • You maintain both your number of employees and your compensation of employees at pre-COVID levels, or return them to these levels by December 31, 2020 (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 loan forgiveness. 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 period leading up to your application for loan forgiveness (up to 24 weeks after loan disbursement), you must pay your employees at least 75% of what you paid them during the first quarter of 2020. For this test you can compare the average weekly compensation for both periods on an employee-by-employee basis.
      • If compensation declines by more than 25%, there will be a proportional reduction in loan forgiveness (unless compensation reductions are eliminated by 12/31/20).
    • Employee retention requirement:
      • During the period leading up to your application for loan forgiveness (up to 24 weeks after loan disbursement), 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. There will, however, be no reduction in forgiveness if you rehire for all positions by 12/31/20. There will also be no reduction if you are able to document either that 1) you were unable to rehire the individuals who were your employees on February 15, 2020 AND you were unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020; OR 2) you were unable to return to the same level of business activity due to compliance with federal guidance.

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. To apply for loan forgiveness, find the loan forgiveness application here.

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