Step by Step Guide: Paycheck Protection Program for Small Businesses

Where to find lenders handling PPP forgivable loans?

Start With Your Local Bank

I would start with your local community or commercial bank that you already have a relationship with. A lot of banks are being inundated with payment protection program loan applications right now and they are going to be taking care of their current customers first. I personally don’t blame them. There are a lot of options in the market when choosing a bank to open an account with and I want to be a priority with the bank I chose to do business with. I’ve always loved smaller community banks for the personal relationships you can build and this COVID-19 pandemic is another example of why that’s still important. I have checking accounts for different companies with both Enterprise Bank and Trust of Kansas City, as well as Bank of America. I have received personal interaction from the staff at Enterprise Bank and Trust (Enterprise puts the TRUST in banking) throughout this process while I haven’t been able to even get anyone on the phone (or reply to my emails) from Bank of America. In addition, Bank of America’s online PPP application informs you that you aren’t qualified to submit an application if you don’t have a business checking account AND a line of credit with them (i.e. business loan, business credit card, etc.). After nearly 20 years with Bank of America, this is the straw that finally broke the camels back and I will be moving all my accounts to another financial institution that can show me they appreciate my business. I’ve tolerated Bank of America because there is a branch on every corner but with banking starting to go more and more digital, that is a diminishing convenience factor anyhow. The large banks (Chase, Wells Fargo, and Bank of America) have a black eye after the mishandling of the initial PPP application launch. If you want to see some of the turmoil taking place, then I invite you to check out this article. As of April 7th, 2020 Wells-Fargo has closed their PPP loan applications.

Alternative PPP Lenders Available

You have options, so don’t worry. There are services such as Nav (Nav helps business owners find the right business financing matched to their needs) that has rolled out a digital PPP loan application to help match you with lenders processing payment protection program applications. Another option is Kabbage (a company providing direct funding to small businesses) that launched their paycheck protection program application on April 3rd, to facilitate funding.

We asked Scott Stewart the CEO of (ILPA) Innovative Lending Platform Association (an organization representing a diverse group of online lending and service companies serving small businesses) whether or not fintech companies would be participating in processing PPP loans and he had this to say:

Calculating the Size of Your Loan

Payroll costs for the purpose of calculating the size of the loan you are eligible for include: Compensation including salaries, wages, commissions, payment of cash tips or equivalent, and independent contractor payments* (notice the independent contractor payment asterisk, keep reading).

This also includes payments for vacation, parental, family, medical or sick leave, and severance pay. Payments for group health care benefits, including insurance premiums, retirement benefits, and state or local taxes assessed on employee compensation are also eligible. Your employer can request a PPP forgivable loan that includes lost tips and with the current ruling as of the employer can use records or “a reasonable good-faith estimate” of tips.

Can You Include Independent Contractor Payments?

The short answer is “No“. Lenders now have guidance from the SBA in regard to the initial rule that came out allowing businesses to include independent contractor payments in their PPP loan application. As of now, you can only include W-2 payroll for your PPP loan as sole proprietors and independent contractors can apply for the PPP themselves. In regards to your W-2 payroll if you have a reduction in the payroll of 25% or more for any employee that made less than 100k annualized then your loan forgiveness will also be reduced. The most attractive aspect of the PPP loan is that it’s forgivable so don’t take on more debt unnecessarily if you don’t need it.

What makes this even more tricky is that independent contractors can apply for their own PPP loans to pay themselves, so it will be interesting to see how this shakes out.

What Does PPP Loan Cover Besides Payroll?

PPP forgivable loans can also cover interest payments on a business’s mortgage obligation (not principal), rent, utilities, and interest on any other debt obligations that were incurred before February 15, 2020.

*Important Note: If you are applying for the COVID-19 Economic Injury Disaster Loan Application please be aware that although perfectly fine to take advantage of both programs, make sure that you don’t use the funding for the same thing. I’d recommend you use the PPP loan to cover payroll as that is the original intention and use your COVID-19 EIDL loan for other shortfalls you have due to the COVID-19 impact on your business.

There are some costs that aren’t eligible to include in a PPP loan and you should be aware of those.

Non-eligible payroll costs include any employee wages or compensation over $100,000. Taxes imposed or withheld for payroll taxes, railroad taxes and retirement benefits, and income taxes withheld on wages. You also can’t include employees payroll who principally live outside the United States (sorry Web Dev Shops!). Qualified sick and family leave for which a credit is available under sections 7001 and 7003 of the Families First Coronavirus Response Act, a separate law that offered tax credits for paid sick leave under certain conditions.

*Fun Fact: PPP forgivable loans do not require personal guarantees or collateral!

There is a pretty straight forward formula for calculating your PPP forgiveness amount.

It is 8-weeks of payroll, plus rent or mortgage interest payments, plus utility bills paid in the first eight weeks after being approved for your loan. In order to get this amount, you must verify you did indeed pay those costs eligible for the forgiveness amount. After you have been approved for the PPP loan there will be a second application down the road for applying for the forgiveness of these funds. You will want to apply with your lender for loan forgiveness 8 weeks after getting approved for your loan, with the necessary documentation to prove you spent the loan proceeds on eight weeks of payroll, rent, or mortgage interest and utilities. Your individual lender then has 60-days to verify and process the loan forgiveness applications. If a business has maintained the employee headcount it had as of February 15, 2020, it will get the full forgiveness amount. If the headcount is less than that, loan forgiveness will be reduced according to another formula. Independent contractors do not count for loan forgiveness calculation purposes (except when applying for themselves, of course).

Any remaining PPP amount balance not covered by your PPP forgiveness amount will be due over a term of 2 years, at an interest rate of 1 percent.

The payments are deferred for 6 months from the time you are approved, but keep in mind that interest will still accrue during this 6-month deferment period.

There is a nationwide cap of $349 billion on PPP loan forgiveness, although we are hearing whispers of the government increasing this amount if necessary. Again, there is no sure thing they will do that so get your application submitted asap.

It will be first-come, first-served. This means if you own, operate, or work at an eligible small business or nonprofit, contact an SBA lender immediately.

The regulations are not finalized yet, so it’s not 100 percent clear to the lenders I’ve interviewed what documentation will be necessary for these loans or, later, for loan forgiveness. It’s the biggest question on their minds right now, because more documentation means less chance of fraud, meaning more assurance workers will benefit as promised. But the more documentation needed, the slower the process tends to be. It’s a balance that has to be struck. In general, for loan applications expect to bring any documentation of eligible payroll costs paid in the past year or before February 15, 2020, including independent contractor payments (for now). For loan forgiveness, which requires a separate application eight weeks after receiving a PPP loan, bring documentation of payroll paid, plus documentation for any lease or mortgage interest payments, and utility bill payments.