ast updated July 6th, 2020 Due to the COVID-19 crisis, the US Congress passed the CARES Act, which authorizes up to $349 billion in forgivable loans to small businesses. To learn more about the Paycheck Protection Program, an expanded Small Business Administration (SBA) loan program, and whether or not your business is eligible for financing through this program, please read these FAQs below and refer to the resources referenced throughout. Novo will be updating this as more information is provided.
Important Update as of July 6th
The SBA has reopened the application portal for PPP loans starting on July 6th and ending on August 8th, 2020. You can start your application today by clicking here!
What is the Paycheck Protection Program (PPP)?
This is a short term, forgivable loan that provides an infusion of cash for small businesses to pay payroll and other non-discretionary bills over the next two months. This loan scales with the size of your payroll, so amounts may vary depending on your payroll costs. To review the fact sheet provided by the US Department of the Treasury, please click here.
Can I get a loan through the PPP?
You are eligible for a loan through the PPP if:
- Your business has been in operation since February 15th, 2020.
- Your business has fewer than 500 employees.
If your company is majority-owned by another company (I.e. VC-backed), you may not be eligible. Please see more information here, and consult your tax professional or lawyer for further guidance.
Can I apply for a PPP loan as a non-profit?
Yes, you can apply for a PPP loan as a non-profit as long as your business:
- Is designated as 501(c)(3) or 501(c)(19)
- Has fewer than 500 employees
Can I apply for a loan as a sole proprietorship or independent contractor?
Yes, you can apply for a PPP loan if you are a sole proprietorship or independent contractor.
Where can I get a PPP loan?
As of now, any lender that is already eligible to provide SBA 7(a) loans can issue financing through the PPP. The US Department of the Treasury is also working to authorize new lenders, including more banks and non-bank lenders, but no additional guidance has been issued on this topic. You can also apply through Novo's partner Fundera to be matched with a lender that fits your needs.
When can I get a PPP loan?
Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Many lenders have advised that they will not be accepting applications for loans until April 6, 2020 at the earliest. Several prominent lenders have also announced that only existing account holders and borrowers will be eligible for loans through the PPP, though this appears to be a matter of institutional policy and not a requirement of the PPP itself. Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
How much am I eligible to receive?
Approved applicants will be eligible for 2.5X their average monthly payroll expenditures, which include the following eligible expenses:
- Salaries & Tips
- Employee Leave & Benefits
- State and Local Payroll Taxes
- Severance Pay
- Calculating your eligibility amount will be different for every business:
Existing businesses will take the average of monthly payroll expenditures over the previous 12-month period. The PPP Application Form states that for most businesses this will be the calendar year 2019. Businesses formed in 2020 but before February 15, 2020 will calculate the monthly average of payroll expenditures between January 1, 2020 and February 29, 2020. Businesses with seasonal employees will calculate the monthly average of payroll expenditures between February 15, 2019 and June 30, 2019. The maximum amount that any business is eligible to receive is $10 million. Novo strongly recommends that you speak with your tax professional or lawyer if you are unclear on how much your business is eligible to receive.
What is excluded from the loan calculation?
- Salary in excess of $100,000 paid to individual employees is excluded from the PPP loan. For example, if you have an employee who makes $125,000 annually, $25,000 of that amount will not be eligible towards calculating your PPP loan.
- Federal payroll or income taxes, as well as taxes imposed or withheld under Chapters 21, 22, and 24 of the IRS code are ineligible.
- Compensation for any employee whose primary residence is outside of the United States.
What can I use the loan for?
A statement from the SBA states that the primary intent of the loans is to ensure that employers do not need to lay off or furlough employees. According to the US Treasury fact sheet, you should use the proceeds from these loans to cover your:
- Payroll costs, including benefits;
- Interest on mortgage obligations, incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020.
What are the terms of forgiveness?
The loan recipient has 8 weeks from the date of the origination of the loan to use the funds to pay the eligible expenses stated above. All funds spent within that 8-week window are eligible for forgiveness by the issuing lender. According to the US Treasury, the loan amount will be forgiven as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made;
- Employee and compensation levels are maintained.
The forgivable amount is discounted proportionally based on any reduction in:
- The number of full-time employees
- The total wages paid to all employees (only if the reduction is by more than 25%)
How do I apply for forgiveness?
You must apply for forgiveness directly with your issuing lender. You will also be required to submit relevant documentation and IRS filings for the expenses you covered with the loan funds at the time of your request. Please note, the application for forgiveness has not been made available as of April 1st, 2020. We will update this as soon as it is available.
Do I need to maintain my employees to be eligible for forgiveness?
If you maintain your workforce, SBA will forgive the portion of the loan proceeds that are used to cover the first 8 weeks of payroll and certain other expenses following loan origination. See terms of forgiveness above. You may also rehire employees laid off after February 15th and utilize PPP funds to cover those payroll expenditures.
What are the interactions with other SBA Loans?
You can receive both the PPP and other types of SBA loans, including an EIDL. However, you cannot use both loans to pay for the same expenses. Novo recommends that you speak with your tax professional or lawyer before making any major financial decisions. This is intended for informational purposes and is not a recommendation or endorsement of the PPP.You can fill out the application form for the PPP here. For additional information please see the PPP FAQ from the SBA.