Frequently Asked Questions:
SBA Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) of the U.S. Small Business Administration is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Funds can be used for payroll costs, mortgage interest, rent, and utilities. Loans may be forgiven if certain criteria are met.
Question: When can applicants apply for a PPP loan?
Qualified borrowers should talk to an SBA-approved lender as soon as possible, given that there are limited program funds available. At this time, the program's earliest acceptance dates are:
- Friday, April 3rd for small businesses and sole proprietorships
- Friday, April 10th for independent contractors and self-employed individuals
Question: Who can apply for a PPP loan?
All small businesses with fewer than 500 employees, including:
- Sole proprietors
- Independent contractors
- 501(c)(3) Nonprofit organizations
- 501(c)(19) Veterans Organizations
- Tribal business concerns
Businesses with more than 500 employees are eligible in certain industries:
- If you are in the hotel and food services sector (NAICS 72), the 500 employee rule is applied on a per physical location basis.
- If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company, the normal affiliation rules do not apply.
Question: What can the loan be used for?
Loan proceeds must be used for:
- Payroll costs, including benefits (75% of loan must be used for payroll costs)
- Interest on mortgage obligations, incurred before February 15, 2020
- Rent on a lease agreement in place before February 15, 2020
- Utilities, for which service began before February 15, 2020
Due to anticipated high subscription, not more than 25% of the loan proceeds may be used for non-payroll costs.
Question: What counts as payroll costs?
Payroll costs include:
- Salary, wage, commission, or tips (capped at $100,000 annualized for each employee)
- Payments for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation (severance costs)
- Group health care benefits, including insurance premiums
- Retirement benefits
- State or local tax assessed on employee compensation
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 annualized for each employee.
Question: How much can be borrowed?
Eligible applicants can borrow 2.5 times the business's average monthly payroll up to $10 million. Payroll costs are capped at $100,000 on an annualized basis for each employee.We encourage you to consult with your dedicated relationship manager or accountant for more information.
Question: How much of the loan will be forgiven?
Full loan amounts will be forgiven as long as:
- Loan proceeds are used to cover payroll costs, mortgage interest, rent, and utility costs over the 8-week period after the loan is funded; and
- Employee headcount and compensation levels are maintained.
Loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Borrowers will owe money when the loan is due if full-time headcount declines, or if salaries and wages decrease by more than 25% for any employee that made less than $100,000 annualized in 2019.
Question: What is my interest rate?
1% fixed rate.
Questions: When do I need to start paying interest on my loan?
You do not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment.
Question: When is my loan due?
In 2 years. The loan can be paid earlier with no prepayment penalties or fees.
Question: Do I need to pledge any collateral for this loan?
No, no collateral is required.
Question: Do I need to personally guarantee this loan?
No, there is no personal guarantee requirement. However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.
Question: What information do I need to apply for this loan?
SMALL BUSINESSES AND SOLE PROPRIETORS
- Valid business license
- Formation documents (Articles of Incorporation, Bylaws, LLC Operating Agreement, General Partnership Agreement)
- Payroll data (Form 941 for each quarter in 2019 and first quarter of 2020, if available)
- Profit & Loss statement containing eligible items listed below
- Verification that the business was in operations as of 2/15/2020 (such as a rent check, utilities bill, or bank statement)
- 2019 Payroll tax filings reported to the IRS
- 2019 Forms 1099-MISC
- Wage, commission, income, net earnings from self-employment, or similar compensation; and
- An amount that is not more than $100,000 in one year, as pro-rated for the covered period
We recommend your accountant review these definitions in preparing payroll records for loan submission. The Act also requires documentation for loan forgiveness.
Question: Do independent contractors count as employees for purposes of PPP loan calculations?
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 calculation.
Disclaimer: Pacific City Bank is updating this information to the best of its abilities, but you should always rely on SBA.gov and the U.S. Treasury Department to serve as the most up-to-date resources for SBA Lending and the Paycheck Protection Program. The FAQ information contained herein was good as of 4/13/2020.