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What is the Paycheck Protection Program?


What is the Paycheck Protection Program?

After the signing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Small Business Administration (SBA) received funding and authority to modify existing loans. Programs were put in place to assist small business nationwide that had been adversely impacted by the COVID-19 pandemic. The purpose of these programs was to provide emergency assistance and healthcare response for individuals, families, and businesses affected by the coronavirus.

One of these programs is the Paycheck Protection Program (PPP), which is granted, in full, by the SBA. The SBA is authorized to grant loans through August 8th, 2020 due to the CARES Act’s intention to provide relief to America’s small businesses expeditiously. Lenders will rely solely on certifications made by the borrower and use of loan proceeds. They must rely on specified documents provided by the borrowers to determine loan amount and eligibility for loan forgiveness.

The PPP has seven key characteristics business owners should familiarize themselves with. By knowing them, owners will know how the PPP works and whether they are eligible or not.

The first one is eligibility. The most important step is to submit the appropriate documentation to establish eligibility—such as payroll processor records, payroll tax filings, or income and expenses from a sole proprietorship.

You are eligible: if you have 500 or fewer employees whose principal place of residence is in the United States; if you are a business which operates in a certain industry and meets the applicable, SBA employee-based size standards for that industry; if you were in operation on February 15th, 2020 and had employees for whom you paid salaries and payroll taxes; if you are an individual who operates under a sole proprietorship or an independent contractor, or eligible self-employed individual; if you are not engaged in any activity that is illegal under federal, state, or local law; if you are not an individual who employs nannies or housekeepers; if you are not the owner of 20-percent or more of the equity of whose applicant is incarcerated, on probation, on parole, or has been convicted of a felony within the last five years; and if your business is not owned or controlled by anyone who has obtained a loan from the 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.

The second one is the loan amount, which is less than $10 million, or the calculation of a payroll-based formula specified in the CARES Act. To calculate this formula, you must add payroll costs from the last 12 months for employees whose principal place of residence is the United States; subtract any compensation paid to an employee in excess of an annual salary of $100,000 or any amounts paid to an independent contractor or sole proprietor in excess of $100,000; calculate the average monthly payroll costs; multiply the average by 2.5; and add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31st, 2020 and April 3rd, 2020 minus the amount of any advance under EIDL COVID-19 loan.

The third one is the interest rate, which will be 100 basis points, or one percent. After that, we have the loan maturity. The CARES Act established the loans will have a maximum maturity of up to 10 years from the date the borrower applies for loan forgiveness. However, the SBA determined that a two-year loan term is sufficient, due to the temporary economic dislocation. Payments are deferred six months from date of disbursement. Interest will continue to accrue during that period.

The fifth key characteristic is the uses of the loan. The PPP can be used for payroll costs, costs related to the continuation of group healthcare benefits during periods of paid sick, medical, or family leave, and insurance premiums, mortgage interest payments, rent payments, utility payments, interest payments on any other debt obligations that were incurred before February 15th, 2020, and to refinance an SBA EIDL. The loan forgiveness can be up to the full principal amount of the loan and any accrued interest if the borrower uses it to cover at least 75-percent of compensation—based on 2019—but not exceeding $100,000. Also, if not, more than 25-percent of the loan forgiveness amount may be attributable to non-payroll costs, and the borrower must have claimed a deduction for 2019 for the abovementioned expenses.

Last, but not least, the seventh key characteristic is the amount of PPP loans a business can apply for. Each business owner can only apply for one PPP loan.

The PPP is a great loan opportunity granted by the SBA. If your business has suffered due to the COVID-19 pandemic, you should check your eligibility and try to apply for this loan. However, if you find you do not meet the requirements, there are other SBA loans you can apply for. Make sure to have the proper documentation and select the loan that will benefit your business the most.


Mirel Barcelo is the founder and owner of Corp 1 Financial Services, LLC, where she offers her comprehensive services as a CPA in Florida.

Barcelo comes from extensive education and experience in accounting. She graduated from Florida International University with a Bachelor’s in accounting, as well as an Executive Master in science of taxation. Barcelo then went on to become a Certified Public Accountant in the state of Florida.

Her company, Corp 1, LLC., specializes in personal and corporate income tax services, IRS audit management and representation, tax preparation, accounting educational course programs, and sales tax compliance. Barcelo also offers accounting and bookkeeping services, compliance consulting, corporate services, and notary services.

Prior to owning and operating her own company, Barcelo acquired nearly a decade of work experience in tax services, first as a senior associate in state and local tax services at Grant Thornton, LLP., then advancing to a senior property tax consultant position at Ryan, LLC. During this time, Barcelo was responsible for national property tax compliance, valuations for property tax purposes, accrual analysis, managing clients’ budgets to ensure projects are handled efficiently, and overseeing and managing the preparation of over 5,000 tangible property tax returns.

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