PPP FAQs - Loan Eligibility and Application Requirements

Jan. 6, 2021 PPP Update: The SBA released initial guidance for PPP loans updates per the Economic Aid Act passed on Dec. 27, 2020. We’re still diving into the details, which may affect the following information. Stay tuned for updates! In the meantime, visit the SBA's PPP web page for the most-up-to-date guidance. 

A provision of the CARES Act and extended revised via the Economic Aid Act with revisions, the Paycheck Protection Program (PPP) provides eligible employers and self-employed individuals with a forgivable SBA-backed loan to cover some payroll and some expenses during the COVID-19 pandemic.

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Who can apply for a PPP loan?

In general, organizations with  fewer than 500 employees, as well as self-employed individuals, are eligible for a PPP loan if they were in operation on Feb. 15, 2020* and certify that current economic uncertainty makes the loan necessary to support ongoing operations. Borrowers may apply for a PPP loan for each entity that meets eligibility criteria; only one PPP loan is allowed per entity.

Small businesses with more than 500 employees may be eligible for a PPP loan if they satisfy the statutory and regulatory definition of a “small business concern” under section 3 of the Small Business Act, 15 U.S.C. 632. A business may qualify if it meets the SBA employee-based or revenue-based size standard for its primary industry. Use the  SBA’s Size Standard Tool to check your eligibility.
In addition, a business may qualify for a PPP loan if it meets the SBA's "alternative size standard:" maximum net worth of the business is not more than $15 million  and the average net income after Federal income taxes (excluding any carry-over loses) of the business for the two full fiscal years before the date of the application is not more than $5 million.

The following entities are eligible for a PPP loan:

  • Small businesses with fewer than 500 employees (as 
  • Certain franchises and NAIS Code 72 entities with fewer than 500 employees at each location
  • 501(c)(3) nonprofit, 501(c)19 veterans organization, or Tribal business with fewer than 500 employees
  • Self-employed individuals (e.g., sole proprietors, independent contractors)
  • Agricultural producers, farmers, and ranchers with 500 or fewer employees or has average annual receipts of $1 million

*In determining eligibility for seasonal employers, lenders may consider whether the organization was in operation on Feb. 15, 2020 or for an 8-week period between Feb. 15, 2019 and June 30, 2019.

NOTE: Calculating Average Employee Count for PPP Loan Application vs FTE Level for Forgiveness

The method for counting employees for the PPP loan application is different than the "full-time equivalent" (FTE) employee calculation used to satisfy the FTE level forgiveness requirement. The total employee count is used to apply the employee-based size standard to determine loan eligibility. This number includes all employees regardless of full- or part-time status.You may use your average employment count from 2019 or the past 12 months from when you apply for your loan. Or you can use the SBA's usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

Source: US Treasury PPP FAQs (Questions 2-6, 9, 14, 34, 35, 38, 42)

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Is the PPP loan only for payroll costs?

No, PPP loans may also be used for the following non-payroll expenses: mortgage interest, lease/rent payments, and utilities that were in place before February 15, 2020. Non-payroll costs incurred or paid during your 24-week loan covered period are eligible for forgiveness. However, non-payroll costs cannot exceed 40% of your PPP loan forgiveness amount.

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How much can I borrow?

You can borrow 2.5x your average monthly payroll costs for 8 weeks (including benefits). The total loan amount is capped at $10 million.

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What is the deadline to apply for a PPP loan?

The deadline to apply for a PPP loan is Aug. 8, 2020. The original application deadline of June 30 was extended on July 4 as $130 billion in PPP funds were still available.

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How do I apply for a PPP loan?

You can apply for a PPP loan through any existing SBA lender or through a participating federally insured depository institution, federally insured credit union, or Farm Credit System institution. Consult with your local lender to see if they are or will be participating in the program.

Due to high demand, lenders may prioritize applications for existing customers. We've created a list of Colorado and national PPP loan lenders that may be able to assist non-customers.

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What do I need to certify for a PPP loan?

As part of your application, you need to certify in good faith that:

  • Current economic uncertainty makes the loan necessary to support your ongoing operations.
  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
  • You have not and will not receive another loan under this program.
  • You will provide to the lender documentation that verifies the number of full-time equivalent (FTE) employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the 24 weeks after receiving the loan funds (borrowers who received their loans prior to June 5 may elect to use the 8-week covered period).
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. 
  • All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
  • You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

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How do I calculate my PPP loan amount?

In general, PPP loan amounts are calculated using your average eligible payroll costs for 2019 or from the previous 12 months, plus 25% of that amount for certain operating expenses. Cash compensation is capped at $100,000 annualized per employee. Do not include amounts paid to an independent contractor or sole proprietor.

Seasonal employers may use average monthly payroll from Feb. 15 or March 1, 2019 to June 30, 2019. New businesses may use average monthly payroll costs from Jan. 1, 2020 to Feb. 29, 2020.

If you're self-employed, your loan amount is based on your 2019 net profit as recorded on Form 1040 Schedule C, Line 31. If you were in operation on Feb. 15, 2020 but not between Feb. 15 - June 30, 2019, your loan amount will equal 2.5 times your average monthly payroll costs incurred in January and February 2020.

For assistance in determining your loan amount, check out the SBA's guide, How to Calculate Maximum Loan Amounts, which includes calculation instructions for various business types.

Source: US Treasury PPP FAQs (Questions 14,15)

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What counts as eligible payroll costs for the PPP loan amount basis?

In general, payroll costs are calculated on a gross basis (i.e., total amount not reduced by Federal income taxes and FICA; payroll costs do not include the employer's share of Federal payroll taxes).

You may include the following payroll costs to calculate your PPP loan amount:

  • Gross compensation (salary, wages, commissions, or tips); capped at $100,000 on an annualized basis for each employee
    • Note: $100,000 annual limit applies only to cash compensation, not to non-cash benefits (e.g., employer contributions to health and retirement plans; payment for provision of employee benefits; and payment of state and local payroll taxes)
  • Employee benefits, including vacation, parental, family, medical, or sick leave
    • Note: Exclude sick and family leave wages for which a credit is allowed per the Families First Coronavirus Response Act (FFCRA)
  • Allowance for separation or dismissal
  • Payments required for the provisions of group health care benefits, including insurance premiums
  • Payment of any retirement benefit
  • State and local taxes assessed on compensation
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

Note: Do not include payments made to independent contractors or sole proprietors when calculating average payroll costs.

Sources: US Treasury PPP FAQs (Questions 7-9,15, 16); CARES Act

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What payroll costs are not eligible for the PPP loan amount basis and forgiveness?

Do not include the following payroll-related costs in your PPP loan amount:

  • Employee/owner compensation in excess of $100,000
  • Federal income taxes and FICA (i.e., taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code)
  • Compensation of employees whose principal primary residence is outside the US
  • Qualified sick and family leave for which a credit is allowed under the Emergency Family Paid Leave Expansion Act and Emergency Paid Sick Leave Act of the Families First Coronavirus Response Act (FFCRA)

For more information, go to PPP Loan Forgiveness FAQs >>

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I own a startup and have not yet paid myself on a regular basis. Should I still apply for a PPP loan?

The Paycheck Protection Program is geared toward keeping employees paid and/or putting employees back on payroll who were laid off due to the economic impact of the Coronavirus pandemic. Under the PPP portion of the CARES Act, there is no provision for supplementing an owner’s investment. 

However, there is a provision under the SBA Economic Injury Disaster Loan (EIDL) program that might apply to your startup business. Like the PPP Loan, this is part of the $3.5B small business recovery program under the CARES Act. These loans provide immediate emergency assistance to small businesses impacted by COVID-19. EIDL Emergency Advance funds are provided within a few days of application for amounts up to $10,000, which does not have to be repaid. The EIDL program also includes long-term loans up to $2 million at an interest rate of 3.75% with a repayment period up to 30 years depending on the specific loan. 

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How much of my PPP loan will be forgiven?

Up to 100% of the PPP loan is forgivable if the funds are used for eligible expenses during the 24-week covered period*, and you satisfy forgiveness requirements for full-time equivalent (FTE) employee and compensation levels. Up to 40% of your forgiveness amount may be for eligible non-payroll costs.

The following items may reduce your loan forgiveness amount:

  • Reduction in number of FTE employees or average paid hours between Jan. 1, 2020 and the end of the covered period
  • Decrease in employee salaries or hourly wages by more than 25% during the covered period (or alternative payroll covered period) compared to the period between Jan. 1, 2020 and March 31, 2020 (this requirement only applies to employees who made less than $100,000 annualized in 2019)
FTE Reduction Exceptions

Your loan forgiveness amount will not be impacted by FTE reductions during the covered period that were due to:

  • Inability to rehire individuals who were employees on Feb. 15, 2020 or fill open positions with similarly qualified individuals by Dec. 31, 2020; or
  • Employee rejection of offers to restore any reduction in hours at the same salary or wages; or
  • Terminations for cause, voluntary resignations, or requests for reduced hours

FTE Reduction Safe Harbors

You may also be exempt from the FTE employee level requirement if:

  • You are able to document a reduction in business activity between Feb. 15, 2020 and the end of your covered period due to compliance with public health orders issued between March 1 and Dec. 31, 2020; or
  • By Dec. 31, 2020, you restore FTE reductions that were made between Feb. 15 and April 26, 2020 to the same FTE level in your pay period that included Feb.15, 2020

For more information, go to PPP Loan Forgiveness FAQs >>

*Borrowers who received PPP loan funds prior to June 5 may elect to use an 8-week covered period instead. The covered period begins on the date that you receive the PPP funds from your lender (aka "disbursement date" and "loan origination date").

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How do I request PPP loan forgiveness?

You can apply for PPP loan forgiveness via your lender when you have spent your PPP funds and satisfied forgiveness requirements (or safe harbor exceptions). The lender must make a decision on the forgiveness within 60 days of receiving your forgiveness application. If you do not apply for forgiveness within 10 months following the end of your covered period, your PPP loan will be automatically converted to a traditional loan with a 1% rate and 5-year term. You will also owe interest that started accruing when you received your loan funds.

For more information, go to PPP Loan Forgiveness FAQs >>

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What are the terms of the PPP loan amount that is not forgiven?

The PPP Loan has a fixed interest rate of 1% and is due in 5 years. All payments are deferred for 6 months, however, interest will accrue over that period. There are no prepayment penalties or fees.

For more information, go to PPP Loan Forgiveness FAQs >>

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Do I need to take any action if I filed a PPP loan application based on the PPP Interim Final Rules published on April 2, 2020?

No. Per the US Treasury, "Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application. However, borrowers whose previously submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs."

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Can ASAP Accounting & Payroll assist with my PPP loan application?

If you are a current ASAP Accounting & Payroll client, we can help provide payroll reports and documentation for your PPP Loan application. If you authorize us as your loan agent with your lender, we can provide these services at no charge to you as they are paid by the lender. Please complete this form so we can add you to our processing queue. You may also use this form to indicate if you want to use ASAP as your loan agent.

Please Note: We are only offering Loan Agent Services to active clients of ASAP Accounting & Payroll, Inc. at this time.

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PPP Loan Resources

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Disclaimer: This information is provided as a self-help tool and does not constitute legal or financial advice. Laws, regulations and lending products are changing daily and decisions as to whether or how to use this information and/or what actions to take in response to the COVID19 Pandemic are solely those of the employer. The providers of this information disclaim any and all responsibility and liability for its accuracy, completeness or fitness for your particular business purposes.