Small Business Emergency Loan - What You Need to Know About the Paycheck Protection Plan

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As part of the $2.2 trillion economic stimulus package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act bill includes funds for Paycheck Protection Plan (PPP) Small Business Loans. Treasury Secretary Steve Mnuchin said he expects to have the small business loan program up and running this week. The information below is meant to be a guide and we strongly suggest you contact your banker directly to obtain the latest information and the status of the loan application process.


Where are we at now?


Later this week, more details will be released, including a list of FDIC lenders that are offering loans under this program. Although recent legislation includes other loans and benefits, the information provided here is to assist you with preparing for the Paycheck Protection Plan loan only.


Who is eligible?


Businesses and nonprofits with fewer than 500 employees, individuals that operate as sole proprietors, or independent contractors, and individuals who are self-employed, that carry on any trade or business.  Keep in mind that for business with 500 employees or less, this number includes full-time, part-time or any other status of employee.


What size loan can I apply for?


PPP loans can be up to 2.5 times the borrower's average monthly payroll cost, not to exceed $10 million dollars.


Payroll costs included in the 250% calculation includes a wide variety of compensation, including wages, salary, commissions, paid time off, group benefits, retirement benefits, and severance pay. However, the calculation does not include costs of more than $100,000 relating to any one individual during the year. We are currently preparing a spreadsheet that can be used to calculate the potential loan size and loan forgiveness amount for companies looking to apply for this loan program. A link to the LMC version of this calculator with sample data can be found at the bottom of this email.


What will lenders look for?


The current uncertain economic climate makes the loan request necessary for business operations to continue.  The borrower intends to use the loan to retain its work force, maintain payroll and keep up operating costs such as mortgage, lease, or utility payments. 


Although it is uncertain exactly what a bank will request, we are anticipating that companies should start gathering some of the following information to be prepared for when the program becomes available.


  1. 2019 Payroll - including the last 12 months of payroll
  2. 2019 Employees - 1099's for 2019 employees and independent contractors that would otherwise be an employee of your business. (Note: Do NOT include 1099's for services)
  3. Healthcare Costs - all health insurance premiums paid by the business owner under a group health plan.
  4. Retirement - your company retirement plan funding paid for by the company.


Can this loan be forgiven?


A borrower may apply for forgiveness of the entire loan or a portion of the entre loan. The forgiven amount is reduced by multiplying the amount forgiven by a fraction; the numerator is the average number of full-time employees per month during the eight-week period following origination of the loan, and the denominator is, at the election of the borrower, one of the two following values: (a) the average number of full-time employees per month between Feb. 15, 2019, and June 30, 2019; or (b) the average number of full-time employees per month between January 1, 2020 and ending on February 29, 2020. Employees terminated between February 15, 2020 and 30 days after passage of the CARES Act, but rehired by June 30, 2020, qualify in the numerator so long as they're fully paid as if they weren't terminated. A borrower will need to calculate their average number of full-time employees in both periods (a) and (b) above to determine the most favorable result.


Any portion of the loan that is not forgiven will have a maximum maturity rate of 10 years with a maximum interest rate of 4%. Payments on these loans can be deferred, principal and interest free, for or up to 12 months.


Other Information


Businesses cannot get both Economic Injury Disaster Loan (EIDL) and PPP loans at the same time. You can apply for the EIDL loan now and the PPP loan when it becomes available. If you qualify and accept the EIDL loan, and you subsequently qualify for the PPP loan, you can re-finance the EIDL loan with the PPP loan, OR you can apply for both loans and decide which one to take if you qualify for both. Loans are limited to one per Taxpayer Identification Number.


Next Steps: 


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.


Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.


Applications will be accepted starting April 3, 2020.



*Information referenced in this article was sourced from the U.S. Chamber of Commerce recent handout on Emergency Loans and newly released data from the website.


Click on the link below to download a copy of the LMC Payment Protection Loan & Forgiveness calculator:


LMC Payment Protection Loan & Forgiveness Calculator with Sample Data


Please note this calculator is intended for demonstrative purposes only. This data is subject to change frequently based on bank guidelines


During this crisis, your LMC professional is available if you have questions related to the latest updates on this topic.   All our prior Alerts are available on the Updates page of our website.


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