To diminish the spread of COVID-19, U.S. companies were ordered to close down or severely limit operations. This severely impacted the lives and well-being of individuals and continues to have a devastating economic effect on small businesses.
For- and non-profit small businesses employing 500 or less U.S. workers impacted by the pandemic are eligible for Paycheck Protection.
The Paycheck Protection Program (PPP) was established to help small businesses finance their payrolls and keep their companies staffed up.
Congress signed an amended PPP into law in June 2020, with new directives on administering an additional $310 billion in funds. The Small Business Administration (SBA) stopped accepting applications for the new bill, known as the Paycheck Protection Program Flexibility Act (PPPFA), on Aug. 8, 2020.
As the shutdown continues and more small businesses are affected, Congress will likely extend the program and pass a new funding round. Let’s take a closer look at the PPPFA loan requirements, loan forgiveness, and who is eligible for paycheck protection.
More About Paycheck Protection
The SBA implements the PPP with U.S. Treasury support. It was established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, to provide funds to pay up to eight weeks of employee wages and salaries, including benefits.
Additionally, the loans carry 1% in interest and can be used to cover rent, utilities, and mortgage interest. The SBA will pardon part or all of the loans, plus interest if employee retention criteria are fulfilled, and the funds are utilized for eligible expenses.
Eligibility Requirements for Paycheck Protection
To be eligible for Paycheck Protection, COVID-19-affected companies must have been in business as of Feb. 15, 2020, and employ fewer than 500 employees based in the U.S.
If Congress reauthorizes the program, company owners will still likely be eligible to apply even if they have utilized other disaster relief funding, including the SBA Bridge Loan or Economic Injury Disaster Loan (EIDL).
Additionally, companies with 500 or more employees may be entitled to PPP benefits if they meet one of the SBA’s size standards. These guidelines define whether a company can be considered small:
- Has a worker headcount that fits in the small business size standard for its distinct industry
- Meets the SBA’s alternative standard size based on a net worth under $15 million as of March 27, 2020, and an average net income of under $5 million per year over the last two fiscal years
Self-Employed Business Owner Eligibility
The PPP also covers self-employed business owners who lost income during the COVID-19 crisis through the Owner Compensation Replacement (OCR) provision. The OCR allows these individuals to utilize PPP funds to pay themselves a salary based on previous business profits.
This applies to individuals who:
- Run an unincorporated business as an independent contractor or sole proprietor.
- File self-employment taxes using Schedule C or Schedule F.
- Can prove prior income based on a 2019 tax return or 1099 statements.
The SBA looks at supporting documents and calculates the loan by multiplying their regular monthly income by 2.5, up to a maximum of $20,833. In effect, the loan gives self-employed business owners enough money to cover lost income for 10 weeks.
The PPP forgiveness process is straightforward. By filling out and submitting form 3508EZ, self-employed entrepreneurs can automatically earn 80% loan forgiveness, and the remaining 20% will be forgiven if used for qualified expenditures.
Nonprofits That Qualify for Paycheck Protection
A non-profit organization can take advantage of Paycheck Protection if it:
- Was formed on or before March 1, 2020.
- Is a 501(c)(19) tax-exempt war veterans’ organization having 500 or fewer U.S.-based employees.
- Is a non-profit exempt from federal income tax under IRS code section 501(c)(3), including churches and religious groups, charitable organizations, and private foundations.
- Is a designated tribal business.
All other non-profits are ineligible to participate in the program. The maximum amount each organization can borrow is $10 million. As with other for-profit business entities, the SBA will forgive amounts equal to eight weeks of payroll costs and other benefits if the organization maintains salary levels and retains its employees. Loan fees are waived for lenders and borrowers.
How the 500-Employee Headcount Is Calculated
It can be challenging for certain business organizations to establish how many employees they have on the payroll since this number changes from quarter to quarter. When determining a business entity’s PPP loan qualifications, the SBA looks at the average number of workers for each pay period over:
- The 2019 calendar year.
- The 12 months before your application submission.
- Your complete business history if you’ve been operating for less than a year.
Regardless of whether they are on staff part- or full-time, all employees are counted equally.
Businesses and non-profit organizations must also include workers at any of their affiliate companies. If one firm has majority-ownership over the other or if they are both controlled by the same outside entity, the companies are considered affiliates.
Affiliate Rule Exemptions
PPP guidelines permit specific companies to leave off affiliate business personnel from their complete worker headcount. It grants them eligibility for PPP benefits despite being otherwise too sizable to qualify. This includes:
- Companies that accept monetary support from the Small Business Investment Company (SBIC) program
- Franchise organizations possessing an SBA-issued franchise identifier coder
- Churches and other faith-based organizations
- Restaurants and hotels in the Accommodations and Food Services industry with a NAICS identification code that begins with 72, has more than one brick and mortar location, and employs fewer than 500 employees at each site
We’re Here to Help You Get the Funding You Need
Paycheck Protection was developed to help non-profit and for-profit small businesses and organizations with fewer than 500 employees keep their payroll.
Revenued and Cross River Bank have issued more than $1.3 billion in loans in 1,000 different industries — we know how to get the money you need.
Whether through another round of PPP loans, PPP loan forgiveness, or the new Revenued Business Card, we can help you get the funds to keep your company running during this difficult time and beyond.
Call us to find out more about who is eligible for Paycheck Protection and learn about the Revenued Card. Please fill out our online form or call (855) 943-5363 and talk to one of our advisors today.
For updated Paycheck Protection information, please click on the links below. Be sure to consult with an attorney, CPA, or advisor prior to making financial decisions.
U.S. Congress — PPP Bills
Benefits.gov — Everything You Need to Know About the Paycheck Protection Program
Small Business Administration — Paycheck Protection Program
U.S. Department of the Treasury — CARES Act
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