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by Jen Leigh on April 10, 2020

Paycheck Protection Program Loan Overview and Guide


The CARES Act was enacted to provide immediate assistance to individuals, families, and businesses affected by the COVID-19 emergency. Among the provisions contained in the CARES Act are provisions authorizing SBA to temporarily guarantee loans under a new 7(a) loan program titled the "Paycheck Protection Program." Loans guaranteed under the Paycheck Protection Program (PPP) will be 100 percent guaranteed by SBA, and the full principal amount of the loans may qualify for loan forgiveness.

What qualifies as "payroll costs" under the PPP?

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation. 

PPP Loan Assistance

How do I calculate the maximum amount I can borrow for a PPP loan?

The following methodology, which is one of the methodologies contained in the Act, will be most useful for many applicants.

Step 1: Aggregate payroll costs (defined above) from the last twelve months for employees whose principal place of residence is the United States.

Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.

Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).

Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.

Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any "advance" under an EIDL COVID-19 loan (because it does not have to be repaid).

The examples below illustrate this methodology.

Example 1 - No employees make more than $100,000

  • Annual payroll: $120,000
  • Average monthly payroll: $10,000
  • Multiply by 2.5 = $25,000
  • Maximum loan amount is $25,000

Example 2 - Some employees make more than $100,000

  • Annual payroll: $1,500,000
  • Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000 Average monthly qualifying payroll: $100,000
  • Multiply by 2.5 = $250,000
  • Maximum loan amount is $250,000

Example 3 - No employees make more than $100,000, outstanding EIDL loan of $10,000.

  • Annual payroll: $120,000
  • Average monthly payroll: $10,000
  • Multiply by 2.5 = $25,000
  • Add EIDL loan of $10,000 = $35,000
  • Maximum loan amount is $35,000

Example 4 - Some employees make more than $100,000, outstanding EIDL loan of $10,000

  • Annual payroll: $1,500,000
  • Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000
  • Average monthly qualifying payroll: $100,000
  • Multiply by 2.5 = $250,000
  • Add EIDL loan of $10,000 = $260,000
  • Maximum loan amount is $260,000

What documentation is required to verify these PPP loan calculations?

Borrowers must submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship.

For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.

What Acknowledgements and Certifications will I need to agree to?

The authorized representative of the Applicant must certify in good faith to all of the below:

  • The Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.
  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
  • The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule.
  • Certify that you understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.
  • Agree to provide to the lender documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan.
  • Acknowledge that you understand that the loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.
  • Acknowledge that during the period beginning on February 15, 2020 and ending on December 31, 2020, you have not and will not receive another loan under the Paycheck Protection Program.
  • Certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects.
  • Certify that you understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
  • Acknowledge that the lender will confirm the eligible loan amount using required documents submitted.
  • Acknowledge and agree that the lender can share any tax information that I have provided with 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.

Keep in mind that additionally certifications and acknowledgements may be asked for by your lender. For more resources and information, check out our coronavirus (COVID-19) resources for employers

CARES Act Guidance

Jen Leigh

Jen Leigh is a Senior Product Specialist with Inflection HR's Cloud Based HR and Workforce Management Solutions. Connect with Jenni and the rest of the Inflection HR Team on Twitter, Facebook, Linkedin, or Google +.