What is the deadline to apply for a Paycheck Protection Program loan?
The deadline to apply for a Paycheck Protection Program loan is May 31, 2021.
Can businesses get more than one Paycheck Protection Program loan?
Yes. In the December 21 Coronavirus Relief Bill, certain small businesses are eligible for a second-draw Paycheck Protection Program loan of up to $2 million. The requirements to get a second PPP loan are:
- 300 or fewer employees
- A reduction in gross receipts of at least 25% in a quarter of 2020 compared to the same quarter in 2019
- The business will not receive more than $10 million in PPP loans within 90 days
For borrowers seeking an initial Paycheck Protection Program loan under the relief bill, the same requirements for qualifying for the PPP first established under the CARES Act still apply. Borrowers that returned all or part of a previous Paycheck Protection Program loan can also reapply for an amount equal to the difference between the amount retained and the maximum amount applicable. If a borrower did not accept the full amount, they may request a modification to allow them to borrow the full amount for which their business is eligible.
Is there a credit score requirement for Paycheck Protection Program loans?
No. A borrower’s ability to repay the Paycheck Protection Program loan is not a factor in eligibility consideration.
How do I determine the amount of the loan to request?
The maximum Paycheck Protection Program loan amount that a borrower can obtain is the lesser of 2.5 times the average monthly payroll costs that the borrower had the year prior to the loan or $10 million dollars for their first PPP draw. When calculating payroll costs, individual salaries are capped at $100,000 (prorated per month).
What costs can be paid with a Paycheck Protection Program loan?
Like the CARES Act, the Paycheck Protection Program loan under the Coronavirus Relief Act can be used to pay the following business expenses of a borrower:
- Payroll costs, including benefits
- Mortgage interest for mortgages originated before February 15, 2020
The mortgage interest, rent, and utility costs would need to be business expenses (not personal expenses) of the borrower to qualify. Additionally, if seeking 100% loan forgiveness, no more than 40% of the PPP loan be used for these non-payroll costs.
In addition to the uses listed above, the Paycheck Protection Program loan can also be used for:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
Will borrowers be taxed on expenses paid for with forgiven Paycheck Protection Program loans?
No. Congress confirmed in the Coronavirus Relief Bill that forgiveness is tax-exempt.
What documentation is required to qualify for forgiveness?
The three forms released by SBA and the Treasury include:
- The Form 3508S Forgiveness Application (This is a streamlined 1.5 page application for borrowers that have a total PPP loan amount of $150,000 or less);
- The EZ Forgiveness Application (This is a streamlined application for borrowers that:
- Are self-employed and have no employees or
- 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
- 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%) and
A Full Forgiveness Application (this is the application form for all other PPP borrowers).
The Coronavirus Relief Bill simplifies forgiveness for borrowers of less than $150,000 in PPP loans. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, including a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. Borrowers should retain their records in case they are audited. The Treasury Department has 24 days from the date of enactment to release the updated single-page form for those borrowers.
Should payments that an applicant (brokerage company) made to an independent contractor be included in calculations of payroll costs?
No. Any amounts that an applicant, in this case, a broker or the owner of a brokerage, has paid to an independent contractor should be excluded from the applicant’s payroll costs. However, an independent contractor is eligible to apply for a Paycheck Protection Program loan and may receive Paycheck Protection Program funds to cover his lost income, if the independent contractor satisfies the applicable requirements.
Does receiving a Paycheck Protection Program loan affect your credit?
Possibly. In the event that a Paycheck Protection Program loan does not qualify for 100% forgiveness, failure to make timely payments as required could impact the borrower’s credit. Additionally, the loan will be considered an extension of credit until forgiven or paid.
When must I repay the non-forgiven loan amount by?
In the event that a loan does not qualify for 100% forgiveness, PPP borrowers have two years (if the loan was made prior to June 5) or five years (if the loan was made after June 5) to repay the loan, at an interest rate of 1%. Borrowers that received loans before June 5 can request the longer repayment period from their lenders, but it is not applied automatically. The remaining loan balance after forgiveness is 100% guaranteed by the SBA.
Do I need a business checking account to apply?
Maybe. Lenders are setting up their own processes and requirements for applications. The borrower will need to provide documentation to calculate their average monthly payroll for the year prior to receiving the loan. Each lender has a specific list of documents necessary to complete the loan application, so be sure to ask your lender what is needed. For example, under the CARES Act/SBA guidelines, the applicant had to submit SBA Form 2483 and payroll documentation as necessary to establish eligibility (i.e. payroll processor records, payroll tax filings, Form 1099s, or income and expenses from a sole proprietorship). Borrowers that did not have any such documentation must provide other supporting documentation, such as bank records, to demonstrate the qualifying payroll amount.
My S corporation is only a few months old. Am I eligible?
Your S corporation is eligible for a Paycheck Protection Program loan if it was in operation on February 15, 2020 and had employees to whom it paid salaries and payroll taxes. Only the portion of your compensation paid through payroll will be used when determining the maximum loan amount. Any reduction in your shareholder distributions are not recoverable under the program.
Is it true that applicants are put at the front of the line based on their financial history with the lender or a long-standing relationship with the bank?
Due to the high volume of loan applications under the Paycheck Protection Program when the program first began, some lenders initially prioritized applicants that had an existing business relationship with the lender. Borrowers should reach out to multiple SBA lenders and to have their application and documentation of payroll expenses ready to submit.
Is Wells Fargo able to lend under this program?
Wells Fargo can lend under the Paycheck Protection Program based on action taken by the Federal Reserve on April 8, 2020.
When submitting a Paycheck Protection Program application, all borrowers must certify in good faith that that the PPP loan was necessary to support their ongoing operations.
How will the SBA review this certification?
Borrowers receiving a principal loan of less than $2 million from the PPP program will simply be deemed to have made the required certification in good faith. However, the agencies still have the ability to conduct audits on smaller loans, so borrowers should be careful to retain all the proper records and report correct information on their forgiveness applications.
For borrowers that do not qualify for this safe harbor, the SBA will review whether the borrower had an adequate basis for making the required good-faith certification based on their individual circumstances. If the SBA determines that a borrower lacked such basis, the SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, the SBA will not pursue administrative enforcement or referrals to other agencies with respect to the borrower’s certification.
Can local REALTOR® associations now apply for a Paycheck Protection Program loan?
Yes. 501(c)(6) organizations that were previously ineligible under the CARES Act may now be able to borrow in PPP under the Coronavirus Relief Bill. The requirements include:
- 300 or fewer employees
- Less than 15% of gross receipts come from lobbying activities (federal, state, and local)
- Less than 15% of total activities of the organization are lobbying activities (federal, state, and local)
- The organization spent less than $1 million on lobbying activities in the tax year ending on February 15, 2020.
Additionally, PPP loans cannot be used for lobbying expenses of any kind.
Why does the information I read about the Paycheck Protection Program seem to keep changing?
Lawmakers and government officials continue to consider changes to the PPP program that would provide borrowers seeking loan forgiveness with more flexibility and time to spend the money. Texas REALTORS® staff will continue to review any new guidance and legislation concerning the PPP program and will update the FAQs as needed.
QUESTIONS FOR INDEPENDENT CONTRACTORS
Are independent contractors eligible for a second Paycheck Protection Program loan?
Yes, a second round of forgivable PPP loans are available to independent contractors. Applicants will have to provide documentation to show a loss in revenue in 2020. This is proven by showing a 25% (or more) reduction in gross receipts from any quarter in 2020 relative to that same quarter in 2019.
How do I calculate the maximum loan amount that I can obtain under the Paycheck Protection Program?
The maximum loan amount that an independent contractor can obtain under the Paycheck Protection Program is the 2.5 times the average monthly net profit that the independent contractor had in 2019. In determining average monthly net profit, the net profit for 2019 is capped at $100,000.
Maximum loan for an independent contractor = (amount in line 31 of Form 1040 Schedule C for 2019, capped at $100,000) / 12 x 2.5
If I haven’t yet filed my 2019 tax return, am I still eligible for a loan under the Paycheck Protection Program?
Yes. However, you will be required to complete and provide your Form 1040 Schedule C for 2019 with your loan application to substantiate the requested amount.
What will I need to submit with my Paycheck Protection Plan loan application to show my income?
Regardless of whether you have filed a 2019 tax return with the IRS, you must provide the Form 1040 Schedule C for 2019 with your Paycheck Protection Plan loan application to substantiate the requested amount and a 1099-MISC for 2019 detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes you are self-employed. You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.
If the independent contractor began working after June 30, 2019 (i.e., no Schedule C or F in 2019), a taxpayer can use the net profit from January and February 2020 that they would report on Schedule C to calculate the amount of loan.
As an independent contractor, how much of the Paycheck Protection Program funds can I pay myself as compensation if I want to qualify for 100% loan forgiveness?
For purposes of loan forgiveness, the length of the covered period impacts how much of the borrower’s payroll costs are eligible for forgiveness. A borrower who received their Paycheck Protection Program loan before June 5 can opt either for an eight- or 24-week covered period, whereas borrowers who received their loans after June 5 will have a 24-week covered period.
Under the 24-week covered period, an individual operating as independent contractor can pay themselves the entire Paycheck Protection Program loan amount as compensation and still qualify for 100% loan forgiveness (up to $20,833 based on the max $100,000 in net earnings from 2019).
Alternatively, under the eight-week covered period, forgivable compensation for the independent contractor is limited to eight weeks’ worth of 2019 net profit, up to $15, 385 (i.e., the amount in line 31 of Form 1040 Schedule C for 2019, capped at $100,000, then divided by 52, times 8). For 100% loan forgiveness in this scenario, the remaining Paycheck Protection Program loan funds would need to be used to pay other allowed business expenses (mortgage interest, rent, and utilities).
As an independent contractor, what non-payroll costs will qualify for loan forgiveness under the Paycheck Protection Program?
An independent contractor can use a Paycheck Protection Program loan to pay certain business expenses (mortgage interest, rent, interest from debt payments, and utilities) provided the independent contractor claimed deductions for similar expenses on Form 1040 Schedule C for 2019. However, no more than 40% of a Paycheck Protection Program loan will be forgiven for these non-payroll costs. Therefore, if seeking 100% loan forgiveness, an individual operating as an independent contractor must pay themselves at least 60% of the Paycheck Protection Program loan as compensation.
The new Coronavirus Relief Bill also includes operational costs, supplier costs, property damage costs, and personal protection equipment costs as non-payroll costs eligible for forgiveness.
As an independent contractor, what documents will my lender need to approve my request for loan forgiveness?
In requesting loan forgiveness, all borrowers are required to submit either the Paycheck Protection Program Loan Forgiveness Calculation Form (including Schedule A) or, for borrowers that are self-employed and have no employees, the Paycheck Protection Program Loan EZ Forgiveness Calculation Form. Additionally, for eligible nonpayroll costs, the lender will need documents that verify the existence of the eligible obligations/services prior to February 15, 2020, (such as lender amortization schedule, current lease agreement, and utility invoices from February 2020) and of any related payments made during the forgiveness period (such as cancelled checks or account statements covering the forgiveness period). For independent contractors, the lender will generally use the Form 1040 Schedule C for 2019 that the borrower provided with the loan application to determine the amount of funds that will be forgiven as payroll costs. Borrowers are encouraged to reach out to their lender to ask whether any additional documentation or records will be needed for forgiveness. The lender must make a decision on forgiveness within 60 days of a borrower’s request.
The Coronavirus Relief Bill simplifies forgiveness for borrowers of less than $150,000 in PPP loans. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a form certifying their compliance with the program requirements. The Treasury Department has 24 days from the date of enactment to release the updated single-page form for those borrowers.
I have an LLC but don’t pay myself a salary. Is my LLC eligible to apply for a loan so that I can get paid?
Yes—provided the LLC is not being taxed as a corporation, the LLC is eligible to apply for a Paycheck Protection Program loan that covers your earnings. Average monthly payroll costs used to calculate the Paycheck Protection Program loan amount will be based solely on your self-employment earnings in 2019 (max $100,000) if the LLC does not have any U.S. employees or additional owners. An LLC being taxed as a corporation that does not have a payroll may consider applying for an Economic Injury Disaster Loan (EIDL).
I am an agent, not a broker—am I eligible for a Paycheck Protection Program loan?
Yes, if an agent operates as an independent contractor, the agent may individually file for a Paycheck Protection Program loan. Alternatively, if the agent has formed a company for the agent’s real estate business (whereby the agent’s commission is paid to the company), the agent’s company is eligible to file for a Paycheck Protection Program loan.
Do independent contractors have to have a payroll to apply?
No. For the purposes of a Paycheck Protection Program loan, the payroll costs of an individual operating as an independent contractor would be based on net earnings shown on Form 1040 Schedule C for 2019 (max $100,000).
Am I eligible to apply for a loan if I have no track record of commissions because I’m a new agent?
Not unless you had net earnings before February 15, 2020. The loan amount that an independent contractor is eligible for under the Paycheck Protection Program is based on the independent contractor’s Form 1040 Schedule C for 2019 or a Form 1040 Schedule C prepared for January and February 2020.
I have heard that I am not eligible for a loan because I am paid commission as an independent contractor, not a salary or hourly wage as an employee.
This is not true. Independent contractors who had net earnings in 2019 are eligible to apply for a Paycheck Protection Program loan. A business cannot include independent contractors in its payroll amounts for its loan.
As an independent contractor, are there restrictions on how I spend the compensation that I pay myself under the Paycheck Protection Program?
No. Loan forgiveness will depend on how much compensation the independent contractor pays themselves, not how it is spent.