FAQs for CARES Act Paycheck Protection Program (PPP) Loans

Editorial Team

13 min read
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The Coronavirus Aid Relief and Economic Security Act (CARES Act) includes a number of programs to help small business owners. There are still details being worked out, but our goal here is to answer common questions about the Paycheck Protection Program Loans that will be made available soon under that law. These loans are a modification of the popular SBA 7(a) loan program for the specific purposes of assisting small businesses affected by coronavirus.

by Gerri Detweiler

This article is published courtesy of Nav, a Clover partner that provides financial tools and resources for small business owners.

This article has been updated on April 3, 2020 with information from the final interim rule.

Please keep in mind:

  • This article is not about the Economic Injury Disaster Loans (EIDL) which is a separate loan program. Read our FAQs about Disaster Loans due to coronavirus here.
  • Lenders will begin to accept applications beginning April 3 for small businesses and sole proprietors and April 10, 2020 for independent contractors and self-employed individuals. Nav will match borrowers to SBA lenders and we’ll let you know when these loans are available through our lending partners.

Do I Qualify for The Small Business Stimulus Loans?

To qualify for SBA funding under this new program, 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 SBA size standards.)
  • 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; or paid independent contractors, as reported on a Form 1099–MISC. An ‘employee’ includes individuals employed on a full-time, part-time, or other basis. (Read further for more information about independent contractors.)

I Don’t Have Employees. Can I Still Qualify?

Yes you may. The CARES Act states: “…individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible. Applicants who fall in this category will need to provide documentation such as “payroll tax filings reported to the Internal Revenue Service, Forms 1099–MISC, and income and expenses from the sole proprietorship, as determined by the (SBA) Administrator and the (Treasury) Secretary.”

What If I Have A Franchise?

Franchises and hospitality businesses (NAICS code 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.

Use our free CARES Act SBA Calculator to see how much you may be able to borrow. Access the calculator through the Nav app from your Clover Dashboard.

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.

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. (See What Does Payroll Include? below.)

Is This The Free SBA Grant Money I Heard About?

No. The $10,000 advance is part of the Economic Injury Disaster Loan program, not Paycheck Protection Program 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 will make these loans.
Nav will be helping match small business owners to lenders making SBA loans and we’ll notify you when these loans become available through our lending partners.

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)
  • Utilities
  • 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 Can I Get a Loan?

This legislation was specifically designed to make these loans faster and easier for lenders to approve and fund. (Traditionally SBA 7(a) loans can take anywhere from a few weeks to a couple of months.) The relaxed standards are designed for fast approval, but keep in mind there will be unprecedented demand and lenders must implement the new rules.

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 will be 1% for all lenders that make them. Normal 7(a) loan fees are waived.

Is there a Personal or Business 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-resource 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 for six months (though interest will accrue).

Do I Have to Prove I Can’t Get Credit Elsewhere?

No. Normally SBA loans require a “credit elsewhere” test to determine whether the borrower can get similar credit at another financial institution. This is waived here.

How Do I Get Loan Forgiveness?

If you get one of these loans, you can request forgiveness of the principal portion of the loan for the eight week period after you get the loan that covers:

  • Payroll costs
  • Interest on a mortgage
  • Rent
  • Utilities

However, no more than 25% of the forgiven amount can be attributed to non-payroll costs.

Your loan forgiveness will be reduced if you decrease your full-time employee headcount. It will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annually in 2019. You may also receive forgiveness for additional wages paid to tipped workers.

In addition:

  • Payroll includes the costs listed under the section “What Does Payroll Include?” below.
  • Forgiven debt will not be taxable.
  • The mortgage, rent and utilities covered in this section must be in place before February 15, 2020.

Please note: 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.

Do Independent Contractors Count as Employees?

No. Independent contractors can apply for a PPP loan on their own so they do not qualify for purposes of a borrower’s PPP loan forgiveness.

Can I Apply for More Than One PPP Loan?


What Happens if PPP Loan Funds are Misused?

If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.

Keep good records of how you use these funds. Sloppy record keeping may prove costly!

What If I Have Already Laid Off Employees or Cut Pay?

If you have already laid off workers, you have until June 30, 2020 to restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

Again, you should not rely on this description to determine whether to lay off or hire employees.

What Does Payroll Include?

The CARES Act states that payroll includes:

  • Salary, wages, commissions or similar compensation
  • Payment of cash tips or equivalent  (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for dismissal or separation
  • Payment required for the provisions of employee benefits including insurance premiums
  • Payment of any retirement benefit
  • Payment of State or local tax assessed on the compensation of employees
  • For sole proprietors or independent contractors: wages, commission, income, or income from net earnings from self-employment, or similar compensation

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*
  • 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
  • Any compensation of an employee whose principal place of residence is outside the United States
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act

*For annual salaries above $100,000, use $100,000 for the salary of that individual when calculating payroll.

What Do Utilities Include?

Utilities include electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

Do Independent Contractors Count as Employees?

No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.

How Do I Document Payroll?

You must submit such documentation such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.

Are There Disqualifiers?

Yes. You are ineligible for a PPP loan if, for example:

  • You are engaged in any activity that is illegal under federal, state, or local law;
  • You are a household employer (individuals who employ household employees such as nannies or housekeepers);
  • An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years; or
  • You, or any business owned or controlled by you or any of your owners, has ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government.

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 Program Loans. As part of the new law, businesses will be able to more easily get certain SBA guaranteed 7(a) loans. Borrowers will then be able to apply for forgiveness of certain portions of the loan if they meet requirements by keeping employees on payroll.

The Economic Injury Disaster Loan is a separate loan altogether and you apply directly to the SBA, not to individual lenders.

Can I Apply For This Loan and Disaster Assistance?

Yes, but you cannot “double dip” and get funds from both loan programs for the same purpose. Furthermore, according to the Interim Rules, “If you received an SBA EIDL loan from January 31, 2020 16 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.”

This guidance does not address what happens if you applied for an EIDL before April 3, 2020 but received one after that date.

Can I Apply For This Loan and the Payroll Tax Credit?

There is a payroll tax credit of up to 50% of qualified wages for certain businesses whose operations have been fully or partially suspended by a government order or whose gross receipts in a quarter have fallen by at least half compared to a similar quarter the year before.

Your business cannot receive both the Employee Retention Payroll Tax Credit and a Paycheck Protection Program Loan, so if you are considering both make sure you consult with your legal or financial advisor.

What Can I Do Right Now?

While you wait for these loans to become available there are several things you can do right now:

  1. Gather payroll documentation. You’ll need documents such as payroll tax filings verifying the number of full-time employees on payroll and how much they were paid during the applicable time period. (See “How Much Can I Borrow” above.) If necessary, contact your accountant, bookkeeper or payroll processing firm to make sure you have the documents you need. If you are self-employed, see “I Don’t Have Employees.”
  2. Check your credit. These loans may still require a credit check even if the SBA doesn’t require it to qualify. If you don’t know where you stand, it’s a good idea to check your personal and business credit. You can check your business credit through the Nav app and we will also alert you when our lending partners begin to make these loans and help match you to lenders.
  3. Get clear on your finances. If you have let your bookkeeping fall behind, catch up. You need a clear picture of your income and expenses to make decisions about how your business will weather the crisis. If you hope to apply for loan forgiveness you’ll also need documentation of the expenses you will pay during the eight weeks after you get the loan, including mortgage interest and/or rent and utilities.

Paycheck Protection Program Loans may prove to be a crucial tool helping some small businesses survive this crisis. Although this may seem overwhelming, it’s worth taking the time to find out how they may help your business.

This article originally appeared on Nav.com.

About the Author

Credit expert Gerri Detweiler is education director for Nav. She has more than three decades of experience in consumer credit education, has been interviewed in more than 3500 news stories, and answered over 10,000 credit questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.

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