The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There?

The Paycheck Protection

A business that received applied for a PPP loan before May 5 will not be subject to penalties for interpreting the 500-employee threshold for only counting its employees in the United States. Businesses that receive PPP loans on or after May 5 must count all employees worldwide for purposes of the 500-employee threshold. A faith-based organization The Paycheck Protection may disregard the number of employees of its affiliates if the connection between the two organizations is based on a religious teaching, religious belief, or is otherwise a part of the exercise of religion. The affiliation rules do apply, however, if the affiliation is solely for non-religious reasons, such as administrative convenience.

This interim final rule is effective without advance notice and public comment because section 1114 of the Act authorizes SBA to issue regulations to implement Title 1 of the Act without regard to notice requirements. This rule is being issued to allow for immediate implementation of this program. Although this interim final rule is effective immediately, comments are solicited from interested members of the public on all aspects of the interim final rule, including section III below. The SBA will consider these comments and the need for making any revisions as a result of these comments. Relief programs based on payroll address just one of the expenses small businesses face. The PPP was designed to support payroll, but the vast majority of small businesses are non employers.

Grant Programs

The SBA has determined the following do not qualify as payroll costs. You should therefore not count them towards your average monthly payroll, nor should you use PPP funds to cover these expenses. PPP loan forgiveness, a key feature of the program, was conditioned on maintaining existing payrolls or quickly rehiring workers while maintaining the employees’ previous salaries.

Covering employers’ payrolls for eight weeks, they figured, would be enough to get them through the worst of the Covid-19 crisis. Use our guide below to figure out which PPP forgiveness application form you should use. You’ll need to keep your records and have accurate bookkeeping to prove your expenses during the loan period. You will also need to have spent 60% of the loan on payroll in order to qualify for forgiveness on the entire loan.

Loan Forgiveness Checklist

The Act expanded the definition of allowable payroll costs to employer-sponsored group life insurance benefits, group disability insurance benefits, group vision insurance benefits, and group dental insurance benefits. At that point, the lender has 60 days to send a decision and a request for payment to the Small Business Administration. When the lender does so, the Small Business Administration has 90 days to remit the appropriate forgiveness amount to the lender, including accrued interest on that amount, subject to Small Business Administration’s review of the loan or the loan application. The business must then pay any remaining principal and accrued interest to the lender by the end of the maturity of the PPP loan. Take the business’ average number of full-time equivalent employees per month during the 24 weeks after the loan proceeds were disbursed, and divide it by the average number of FTEs per month between February 15, 2019, and December 31, 2019.

  • No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan forgiveness.
  • While the loan-expense ratios provide pertinent context about the sizes of loans relative to business operations, they do not show how small business finances have evolved over the course of a pandemic which is now measured in months, not weeks.
  • The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.Need to file a report with the New York Fed?
  • In November 2020, Judge James E. Boasberg ordered a preliminary injunction in favor of the press, requiring the SBA to publish the full names, addresses, and precise loan amounts of the PPP recipients by November 19, 2020.
  • Loan proceeds are meant to pay employee wages, although a certain portion of the funds may be used for other eligible business expenses.

For them, a program supporting payroll may provide a relatively small fraction of what they need to sustain the business through this national emergency. Rep. Nita Lowey (D–NY) introduced the Heroes Act, which would extend the period that PPP loans can be made from June 30 to December 31, 2020. It would expand loan forgiveness from eight weeks of eligible costs to the 24 weeks or December 31, 2020, whichever is earlier. The bill would include eligible interest costs in the debt forgiveness calculation.

What counts as “payroll costs”?

However, expenses did not return to pre-pandemic levels, perhaps in an effort to maintain liquidity. Balances remained elevated weeks after loan disbursement, while revenues and expenses continue to be lower than they were a year ago. Personal service firms receiving PPP loans displayed a similar trajectory, as shown in Figure 3. Balances, expenses, and revenues were materially depressed in the weeks prior to loan disbursement.

The Paycheck Protection

A new paper published by the National Bureau of Economic Research called the result “highly regressive,” but noted that the program improved its focus in 2021. For your employees who make less than $100,000 a year, you either don’t cut their wages by more than 25% or you restore their original wages by the end of your covered period. You may apply for PPP funding through Square Capital, but Square Capital, like all PPP lenders, plays no role in determining PPP requirements. You are welcome to apply for PPP funds through Square Capital or any other approved PPP lender. Should you apply for and be approved for a PPP from Square Capital, Square Capital LLC will both issue and service your loan.

Veterans Educational Benefits

Currently, if more convenient to align with a borrower’s payroll schedule, the borrower can choose an alternative covered period beginning on the first day of the borrower’s first pay period following the loan disbursement date. The PPP ended on May 31, 2021, but existing borrowers may be eligible to apply for loan forgiveness. The SBA has developed a new borrower application form for Schedule C PPP loan borrowers that elect to use gross income to calculate their owner replacement amount. First-time PPP loan borrowers use SBA Form 2483-Cand second-draw PPP loan borrowers use SBA Form 2483-SD-C. Borrowers will be required to disclose their total amount of gross income on the form. Our final chart plots 2020 and 2021 approval rates by owner race/ethnicity. Within-group approval rates are generally similar between 2020 and 2021, further supporting the idea that determinants of PPP approval outcomes were largely unaffected by the 2021 changes to the PPP.

The Paycheck Protection

While the key items of interest rate, time to repay, etc., will be the same for any loan under the PPP, other terms may vary between lenders. It’s important to check your promissory note, and you can ask your bank how it alters the standard SBA promissory note, so you understand any terms unique to your loan. We observe payroll for 35 percent of firms in this sample, and among these firms, payroll accounted for 18 percent of weekly expenses in 2019. These shares may not reflect the cost of payroll-related expenses, such as health insurance or other benefits which would be included in determining PPP loan amounts. Nevertheless, they provide some insight into the magnitude of expenses small businesses have in addition to payroll.

The law required the Small Business Administration to issue guidance to lenders about the loan deferment process, but it did not do so. The law required lenders to prioritize businesses in underserved and rural areas, but the Small Business Administration did not issue any such guidance to lenders. The law required the Small Business Administration to register each PPP loan using the Taxpayer Identification Number of each business within 15 days after each loan was made, but it did not do so. Payroll costs include salaries, wages, commissions, cash tips, paid leave, severance pay, clergy parsonage and housing allowance, and other compensation paid to employees. Payroll costs also include group health benefits and insurance and retirement benefits. Payroll costs include taxes withheld from employees’ wages and all state and local taxes assessed on compensation, but payroll costs do not include the employer’s portion of social security tax, the employer’s portion of Medicare tax, and federal unemployment tax. In the case of a sole proprietor, independent contractor, or self-employed person, payroll costs include net profits from self-employment, based on the 2019 Form 1040 Schedule C line 31, and limited to $100,000 annualized.

What does not qualify as payroll costs?

We are connecting emerging solutions with funding in three areas—health, household financial stability, and climate—to improve life for underserved communities. Around 94% of all eligible firms availed of the program, preserving up to million job-years of employment during and after the pandemic. Of the $510 billion distributed by the US government as part of its paycheck protection program in 2020, more than 70% of it—or nearly $370 billion—went into the pockets of business owners and shareholders in the richest 20% of the population. program disbursed $800 billion to US small businesses. If you do not apply for forgiveness and use the loan for these purposes you will have to pay back the loan. Your loan is over $50,000 and your total compensation for employees who make less than $100,000 a year decreases by 25% or more for each employee, the forgiveness amount the wage decrease exceeding 25%. You either don’t lay off employees or rehire them by the end of your covered period. If you’re not eligible to use Form 3508EZ, you will need to apply for forgiveness using Form 3508, which will require all documents and the headcount and wage reduction calculations.

  • The 3508S form eliminates the need for borrowers to demonstrate that they maintained wage and employment levels during the applicable covered period.
  • The bill extends the deferral of principal and interest payments to the date that loan forgiveness is remitted to the lender or, if the borrower does not apply for loan forgiveness, ten months after the end of the covered period.
  • The new round of PPP funding includes other important changes to the PPP loan forgiveness process, some of which may apply to loans issued previously in 2020.
  • The bill was passed by the House of Representatives in a vote of 208–199.
  • While their cash balances growth after receiving PPP was not unlike those of other firms, their depressed expenses and revenues suggest that balances alone do not indicate financial health.

A variation of this idea was used in the December 2020 statute that provided aid to shuttered venue operators. This program required funds to be disbursed first to venues that had experienced a 90% or more revenue loss, then to venues showing a 70% or more revenue loss, then to other venues.

You must also 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. Hotels terminated or furloughed more than one million workers in 2020 and 2021 combined and have since enjoyed billions in PPP relief without publicly disclosing whether funds were spent on payroll costs. The simplified SBA Form 3508S is now available, in addition to the revised SBA Form 3508EZ and SBA Form 3508 applications. Eligible clients will receive an email with a link to access our loan forgiveness application when it becomes available to them. Round one and Round two PPP loans stipulated that the period during which a business had to use its loan proceeds was an eight-week period beginning on the date the business received its loan proceeds. PPP supported increases in expenses when revenues remained depressed, but small businesses may be preserving liquidity by limiting expenses. When cash balances increased upon loan disbursement, firms immediately and materially increased expenses, compensating for the prior weeks of much lower expenses.

All approved PPP lenders could begin lending on Tues., Jan. 19, 2021. March 9, 2021, businesses with fewer than 20 employees were permitted to apply for PPP funding.

President Trump signed the bill into law on April 24, 2020, which allowed the Small Business Administration to accept applications again on April 27. The judge may affirm the Small Business Administration’s decision, deny the Small Business Administration’s decision, or remand the matter back to the Small Business Administration for additional consideration. A judge will not reverse a decision by the Small Business Administration entirely because a different decision could have been made.

All such loans made through Lendio Partners, LLC, a wholly-owned subsidiary of Lendio, Inc. and a licensed finance lender/broker, California Financing Law License No. 60DBO-44694. You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. The U.S. Department of Treasury created aninformation sheet for lenders.

What Are the Biggest Pitfalls I’ll Face in Getting My Loan Forgiven?

The Act authorizes the Administrator to establish limits on agent fees. The Administrator, in consultation with the Secretary, determined that the agent fee limits set forth above are reasonable based upon the application req uirements and the fees that lenders receive for making PPP loans. V. All loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower in order to determine eligibility of the borrower and the use of loan proceeds.

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