Paycheck Protection Program (CARES Act)
The SBA’s Paycheck Protection Program (PPP) was included in the CARES Act federal stimulus package. It is designed to keep employees on payroll and allow your business to pay essential expenses during the crisis. Bank3 is taking applications and is currently taking proactive steps in collecting necessary information in order to expedite the entry process.
A Bank3 lender is best equipped to help you see how this SBA program fits into your overall needs and help you apply. Below you will find all the information you need before you start that conversation.
Not sure who to contact? Please reach out to PPP@bank3.com and someone will be in contact
Who is eligible to apply?
Small businesses that have 500 or fewer employees, including non-profit 501(c)(3)s, sole proprietorships, independent contractors and self-employed individuals. Borrowers must have been in operation on February 15, 2020, and employ either salaried employees subject to payroll taxes or paid independent contractors.
The requirements for collateral and personal guarantees are expressly waived. The maximum loan amount for a covered loan is the average monthly payments for payroll costs incurred during the 1-year prior multiplied by 2.5, not to exceed $10 million. Payroll costs include, but are not limited to, salary, paid leave, medical, and healthcare. Payroll costs cannot include individual compensation in excess of $100,000 per year as prorated for the covered period, federal payroll taxes, employee compensation whose principal residence is outside the U.S. and qualified sick leave or family leave wages for which credit is allowed under the Families First Coronavirus Response Act.
The SBA will not charge any fees. All loans have a 1% interest rate with a term of 2 years and payments may be deferred for up to 6 months.
PPP loans may be used to pay for payroll costs, mortgage interest obligations, rent obligations, utilities, and any other interest payment on debt obligations accrued before February 15, 2020. SBA requires 75% of the loan to be used for payroll costs, while the remaining 25% can be used for other expenses.
Is the loan forgivable?
After disbursement of the loan, a borrower is eligible for loan forgiveness on up to eight weeks of covered expenses. Total amount forgivable equals what you pay in eligible payroll costs. The forgiveness cannot exceed the principal financed and could be impacted if you reduce the number of employees compared to last year and you reduce the pay of any employees by more than 25% compared to last quarter. If you terminated, furloughed or laid off employees from February 15, 2020 through April 26, 2020, you will not be penalized if you re-hire the employees by June 30, 2020.
Documentation for loan amount determination:
Required documentation may vary depending on the type of small business entity, however, the following provides examples of what your lender will request to process your loan request:
- Copies of payroll tax reports filed with the IRS for the entire year of 2019 and first quarter of 2020.
- Copies of payroll reports for each pay period for the preceding 12 months and pay period preceding the origination of the SBA loan. Reports should include gross wages (paid time off, vacation, sick, etc.).
- Documentation reflecting health insurance premiums paid for the immediately preceding 12 months prior to the date of the SBA loan origination.
- Documentation of all retirement plan funding for the immediately preceding 12 months prior to the date of the SBA loan origination.
Documentation for loan forgiveness:
Required documentation may vary depending on the type of small business entity, however, the following provides examples of what your lender will request to validate loan forgiveness. All documentation requested is for the 8 week period following the first loan disbursement date.
- Certification that the documentation is true and correct and the amount for which forgiveness is being requested was used to make payments to retain employees and to make interest payments on covered mortgage obligations, covered rent obligations and covered utility payments.
- Copies of payroll tax reports filed with the IRS.
- Copies of payroll reports for each pay period.
- Documentation reflecting the health insurance premiums paid by the company under a group health plan, including owners of the company.
- Documentation of all retirement plan funding by the employer.
- Copies of all lease agreements for real estate and tangible personal property along with proof of payment.
- Copies of cancelled checks, statements, or other evidence of utilities paid.
Bank3 is proud of the fact that we were able to process and fund 100% of the first round loan requests received for the Paycheck Protection Program (“PPP”). The next step in the process is to complete the forgiveness application and we want to help you get a head start in preparing for what may be needed. Keep in mind that the SBA may modify requirements along the way; we will keep you updated as changes may be announced.
Recommended Next Steps
• Evidence you were in business on February 15, 2020 and paid employees or independent contractors (Payroll Tax Filing for 1st quarter 2020); if not previously provided at the time of your loan request.
• Your funds were placed in a separate business checking account so that you can easily track how you use the money. If you are moving these funds to another general business account, you will want to keep detailed records of the PPP funds.
• Keep in mind payroll costs must make up at least 75% of how you spend the funds in order to be forgiven. 25% may be used towards mortgage interest payments, rent payments, and utilities.
• Document how all loan proceeds were spent.
• Compile a list of of all employees on payroll during the 8 weeks following receipt of the loan proceeds with corresponding dollar amounts.
• Evidence of mortgage interest payments, rent payments and/or utilities paid during the 8 weeks following receipt of the loan proceeds as well as prior to February 15, 2020 for comparison for alignment. Note: for self-employed individuals, these expenses are allowed to the extent they are deductible on form 1040 Schedule C. Evidence may include:
• Mortgage statements
• Lease statements
• Bank statements showing ACH payments
• Copies of canceled checks
• Utility statements
• Evidence that workers were kept on payroll or rehired following receipt of the loan proceeds. Employee count at the end of 8 weeks should be at least equal to the amount on the application.
• Evidence of restoration by June 30, 2020 of pay for any individual whose pay was reduced by 25% or more between February 15 and April 26, 2020.
• For borrowers who are self-employed, the forgiveness amount for owner’s compensation is limited to eight weeks’ worth of 2019 net profit and does not include covered benefits. It also excludes any qualified sick leave equivalent amount for which a credit is claimed under section 7002 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116-127) or qualified family leave equivalent amount for which a tax credit is claimed under section 7004 of FFCRA (similar rule as applies to employers with respect to pay for time for which a tax credit is claimed under FFCRA).
• If your PPP loan was used to refinance part or all of an Economic Injury Disaster Loan (“EIDL”), provide a copy of the EIDL documentation as well as any supporting documentation (listed above) the funds were used for payroll costs.
What are considered “payroll costs” under the PPP?
• Payroll costs include salary, wages, commissions and tips capped at $100,000 per year for each employee.
• Costs of benefits including vacation, parental, family, medical and sick leave.
• Allowance for separation or dismissal of employees.
• Payments for health care benefits.
• Payments for retirement benefits.
• State and local taxes on compensation.
• For an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
The following are expressly excluded from the term “payroll costs”
• Any compensation of an employee whose principal place of residence is outside of the United States;
• The cash compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary;
• Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
• Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
Preparing for the Forgiveness Application as soon as your loan closes will be the best way to ensure as much of your loan’s principal and interest will be forgiven. Any unforgiven balance will begin a monthly payment starting the 7th month after your note date and will be amortized over the remaining 18 months.
If you have additional questions or concerns, please contact your Bank3 Officer or contact us at 1-833-623-BANK or firstname.lastname@example.org.
*Banking Products and Services are provided by Bank3. Member FDIC. Equal Housing Lender. The above information is accurate as of 4/8/2020 and is subject to change as additional guidance is received from the SBA and regulatory agencies.