Payroll Protection Program – SBA 7(a)

The Paycheck Protection Program provides 100% federally guaranteed loans to small businesses that maintain their payroll during this emergency. Businesses with 500 employees or fewer, including sole proprietors and independent contractors, may be eligible for SBA 7(a) loans in response to COVID-19 covering expenses for the period of Feb. 15, 2020 through Dec. 31, 2020. The CARES Act appropriates $349 billion to cover these loans.

(Updated September 30) The U.S. Treasury Department has announced that the SBA will begin processing PPP loan forgiveness applications, following a delay which left many caught in a backlog. PPP borrowers are eligible for forgiveness if they meet the program’s requirements, which include using at least 60% of the funds for payroll costs and the remainder for other eligible uses (including rent, utility bills, and mortgage interest) during the covered period. For full forgiveness requirements, visit PPP borrowers should submit their forgiveness applications directly to the SBA lender with whom they worked, who will them pass them to the SBA for processing. For detailed instructions on how to fill out the PPP EZ Forgiveness application form, watch NAR’s step-by-step video.

The SBA is expected to quickly approve forgiveness applications for loans less than $2 million, with reports that the backlog may be cleared in as little as two weeks. PPP borrowers have 10 months from the end of their loan’s covered period to apply for forgiveness before any payments are due on the loans.

  • The loan amount will be 250% of the average salary expenditures/month for the year prior to the loan, up to $10 million. For businesses not open yet in that period, the SBA will look at earlier receipts from 2020.
  • 7(a) loans can be used for:
    • Payroll, including for independent contractors and employees who work on commission
    • Rent/Mortgage interest
    • Utilities
  • All or a portion of these loans will be forgivable for businesses that maintain at least 60% of the average payroll levels as in the previous year; forgivable amounts phase out as employers payroll levels drop below that.

In April, Congress replenished the popular Paycheck Protection Program with an additional $310 billion in funding. As of May 30, there’s more than $120 billion still left unallocated for small businesses.

UPDATE – 06/17/20:

The SBA and the Treasury released updated forgiveness forms and guidance for PPP loans, based on the changes made by the “PPP Flexibility Act” signed into law on June 5. NAR’s SBA FAQ has been updated to reflect these changes, which you can access here.

Notably, the updated forms clarify that the automatic forgiveness based on “owner-compensation replacement” is raised for borrowers who opt for the 24-week covered period from an 8-week amount (which still applies if borrowers choose the 8-week covered period) to an amount equal to 2.5x their average monthly net income. Thus, independent contractors who opt for the 24-week covered period are eligible to have their full PPP loan automatically forgiven under the new guidelines.  These borrowers must still complete and submit a forgiveness application to their lenders.  

In addition to updating the earlier forgiveness application form to reflect the lower 60% requirement for payroll expenses (down from 75%) and the extended 24-week covered period (borrowers who received their loans before June 5 can opt for either an 8- or 24-week period; borrowers who received them after must use 24-weeks), it also created a streamlined “EZ Forgiveness Application.”

The EZ Forgiveness Application is for borrowers that:

  1. Are self-employed and have no employees; OR
  2. Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
  3. Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

UPDATE -06/05/20:

Today the President signed the “PPP Flexibility Act” which amends the CARES Act to give more flexibility to PPP borrowers in how they can use their loan proceeds. Specifically, the bill makes the following positive changes to the program:

  • Extends the PPP program through the end of this year;
  • Increases the amount of time borrowers have to use their loans from 8 to 24-weeks (borrowers who use it in 8 will not be penalized); and
  • Decreases the mandatory payroll amount of the loan from 75% to 60%;
  • Extends the forbearance period for a PPP loan from six-months to a year; and
  • Extends the re-hire exemption for businesses from June 30 to December 31.

The Small Business Administration will be issuing new guidance and likely new forms soon.

View an updated video by NAR on PPP loan forgiveness here (added July 28).

Apply through a local SBA Lender here. More information can be found here.

Once a PPP Loan has been secured, the application for loan forgiveness may be accessed here.