CARES Act SBA Loan FAQs
What Does Payroll Include?
- Salary, wage or similar compensation,
- Payment of cash tips or equivalent
- Payment for vacation, parental, family, medical, or sick leave;
- Allowance for dismissal or separation;
- Payment required for the provisions of group health care benefits, including insurance premiums;
- Payment of any retirement benefit;
- Payment of State or local tax assessed on the compensation of employees; plus
- The sum of payments of any compensation or income that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period;
Self employed individuals (including independent contractors) who file IRS Form 1040 Schedule C with no employees should enter their net profit from their 2019 Schedule C (line 31)
Do not include rent, mortgage interest or utility payments when calculating your loan amount. Do not include payments to contractors you pay on a 1099 basis. They can apply for PPP themselves.
It Does Not Include
- The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period;
- Certain taxes imposed or withheld during the time period
- Any compensation of an employee whose principal place of residence is outside the United States;
- Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–6 127);
- Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–12 127);
Do I Qualify for the SBA Stimulus Loans?
To qualify for a Paycheck Protection Program loan, you must be a small business as defined by the SBA. This includes:
- Small businesses or non-profit 501(c)(3) organizations with 500 or fewer employees
- Small businesses, 501(c)(19) veteran’s organizations or tribal concerns that meet the SBA size standards (See the 2020 SBA size standards here.)
- Sole proprietors or independent contractors
Businesses in the food or hospitality industry (NAICS codes beginning in 72) may be eligible on a per location basis.
In addition the normal affiliation rules are waived for franchises or businesses receiving financial assistance from a Small Business Investment Company.
In determining eligibility for these loans, the lender must consider whether the business was in operation on February 15, 2020; and had employees for whom the borrower paid salaries and payroll taxes. An ‘employee’ includes individuals employed on a full-time, part-time, or other basis.
I Don’t Have Employees. Can I Still Qualify?
You may. Self employed individuals and independent contractors with no employees who file IRS Form 1040 Schedule C may qualify based on the 2019 net income for their business, as reported on line 31 of Schedule C. Note: it is not required that you have filed your 2019 tax return but you must complete it in order to determine how much you qualify for.
Are Franchises Eligible?
Franchises and hospitality businesses (NAICS beginning in 72) with multiple locations, even if they have more than 500 employees, may be eligible on a per location basis as well as any businesses receiving financial assistance from a Small Business Investment Company (SBIC).
How Much Money Can I Borrow?
The basic answer is that the maximum loan amount is 2.5 times the average monthly payroll for the 12 months preceding the date the loan is made, up to a maximum of $10 million. Alternatively, businesses may use average monthly payroll for 2019.
However, if you are a seasonal business, you can apply to borrow 2.5 times your payroll for either the 12-week period beginning February 15, 2019 and ending May 10, 2019, or the period of March 1, 2019 through June 30, 2019, or any consecutive 12-week period between May 1, 2019 and September 15, 2019.
What if you are a newer business? If you were not in business for the time period beginning on February 15, 2019 and ending on June 30, 2019, then you can use your average total monthly payroll costs incurred from January 1, 2020 to February 29, 2020 and multiply that by 2.5.
Payroll does not include salaries above $100,000 or qualified sick leave pay under the Families First Coronavirus Response Act. That does not mean they are completely excluded; it means that only the first $100,000 will qualify. (See What Does Payroll Include? above.)
Self employed individuals and independent contractors with no employees who file IRS Form 1040 Schedule C may qualify based on the 2019 net income for their business, as reported on line 31 of Schedule C.
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What’s the Difference Between the Payroll Protection Act and Disaster Assistance loans?
The CARES Act includes a number of relief programs for small businesses. The one we are focusing on in this article is the Paycheck Protection Loans. Borrowers may apply for forgiveness of these loans if they meet certain requirements primarily by keeping employees on payroll. (See more details below.)
The Economic Injury Disaster Loan is a separate loan altogether and you apply directly to the SBA, not to individual lenders.
Is This the Free SBA Grant Money I Heard About?
No. The advance (or grant) of up to $10,000 is part of the Economic Injury Disaster Loan program, not Paycheck Protection Loans. Read about Disaster Loans here.
Where Can I Get One of These Loans?
Individual lenders, including many banks, credit unions and some online lenders make these loans. Nav is connecting business owners to PPP lenders and agents, you can get matched to a PPP funding path here.
What Can I Use the Funds For?
You can use the loan proceeds for:
- payroll costs;
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
- employee salaries, commissions, or similar compensations;
- payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
- rent (including rent under a lease agreement);
- interest on any other debt obligations that were incurred before the covered period;
- refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
How Fast Will I Have to Repay It?
These loans have a maximum term of two years. You can prepay at any time without penalty.
What Is the Interest Rate and Fees?
The interest rate for these loans is 1%. Normal 7(a) loan fees are waived.
Is There a Personal Credit Check?
None is required.
Is There a Personal Guarantee?
No. There is no personal guarantee required. In addition, these will be non-recourse loans as long as proceeds are used for covered purposes. (Non-recourse means the government won’t be able to collect if you default.)
Is Collateral Required?
No. Normally SBA loans for more than $25,000 require collateral. That requirement is waived for these loans.
How Soon Do I Have to Start Making Payments?
Payments will be deferred until forgiveness is determined (though interest will accrue).
What If My Business Hasn’t Been Impacted Yet?
You have until December 31, 2020 to get a PPP loan if funds remain available.
How Do I Get Loan Forgiveness?
If you get one of these loans, you can request forgiveness of the principal portion of the loan which covers:
- Payroll costs
- Interest on a mortgage
At least 60% of loan proceeds must be spent on payroll and payroll-related expenses. Forgiveness may be reduced if you reduce full-time equivalent employment hours and/or salaries and wages, with exceptions.
Rehiring employees may mitigate reductions in the amount that can be forgiven.
- Payroll includes the costs listed under the section “What Does Payroll Include?” above.
- Forgiven debt will not be taxable.
- The mortgage interest, rent and utilities covered in this section must be in place before February 15, 2020.
information about forgiveness is available here
There are specific and technical calculations included in this section of the law, and you should not rely on this description to determine whether to keep employees, reduce employee wages or to determine your eligibility for loan forgiveness.
What If I Have Already Laid Off Employees or Cut Pay?
Under the CARES Act and the Payroll Protection Program Flexibility Act, employers may be able to avoid a reduction in forgiveness if they restore employment and wages by December 31, 2020. In addition, employers may be exempted from a reduction for forgiveness if they are “able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID– 19.
Again, you should not rely on this description to determine whether to lay off or hire employees.
Can I Apply for This Loan and Disaster Assistance?
Yes but you can’t “double dip” and use funds from both loan programs for the same purpose.
Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to review your real-time funding options with one of Nav’s lending experts by completing the sign-up flow above.