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Frequently Asked Questions About Small Business Loans

Originally published by National Association of Home Builders

The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed by Congress in March 2020, expanded the Small Business Administration’s (SBA) 7(a) loan program to include nearly $670 billion for a small business program called the Payroll Protection Program (PPP). In December 2020, Congress passed another relief package that includes a number of enhancements to the PPP, notably an additional $284 billion in funding; allowing home builders associations (HBAs) access to PPP funds; and allowing certain businesses to take a second PPP loan (called a Second Draw Loan).

Please note: The SBA and Department of Treasury continue to update guidelines and publish new direction on the application and use of these funds on a near-daily basis. Please stay tuned to NAHB communications for information as it becomes available.

Who is eligible?
  • Small and medium sized businesses with fewer than 500 employees;
  • Nonprofits with fewer than 500 employees, including 501(c)(3), 501(c)(6), 501(c)(19) organizations;
  • Sole proprietors;
  • Self-employed individuals; and
  • Independent contractors who typically receive 1099s.
What are the eligibility requirements for HBAs?

An HBA is eligible for a PPP loan if the association:

  • Has 300 or fewer employees;
  • Receives 15% or less of their receipts from their lobbying activities;
  • Lobbying activities do not comprise more than 15% of their activities; and
  • Spends less than $1 million on lobbying activities

Lobbying activities for the purpose of determining 501(c)(6) eligibility for PPP loans is defined in section 3 of the Lobbying Disclosure Act of 1995 (2 U.S.C.19 1602), which governs lobbying at the federal level.

How do I apply for a Paycheck Protection Program loan?

This program is not provided through SBA directly, so the first step to qualifying for a PPP loan is to find an SBA-approved lender in your community. Your lender can guide you through the application process.

The SBA recently announced “to promote access to capital, initially only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter.”

Borrowers can apply for a First Draw and Second Draw PPP Loan until March 31, 2021, through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, eligible non-bank lender, or Farm Credit System institution that is participating in PPP. All Second Draw PPP Loans will have the same terms regardless of lender or borrower. If you are interested in either program, it is important to work with an SBA-approved lender as soon as possible. A list of participating lenders as well as additional information and full terms can be found here.

You can also contact the national SBA office at 800-877-8339 or connect with a local SBA representative here. If you are having trouble getting through to, or getting your questions answered by, the SBA, please submit this form, and NAHB staff will follow up and provide additional guidance as needed.

Are home builders engaged in building for future sale, land developers and multifamily developers and property owners eligible for the PPP First Draw and Second Draw loans?

SBA guidance on the first round of PPP loans excluded home builders engaged in building homes for future sale, land developers and multifamily developers and property owners from PPP eligibility. These groups were also excluded from the Second-Draw PPP loans in the coronavirus relief package that authorized the expansion of the PPP. Despite many requests to SBA and Treasury for clarity on these exclusions, at this time no guidance or definitions have been provided. If you have questions regarding your PPP eligibility, please consult with your legal representative and SBA-approved lender.

What are allowable uses for Paycheck Protection Program loans?
  1. Payroll costs — must account for 60% of your costs under the program;
  2. Certain costs related to the continuation of group health care benefits;
  3. Employee salaries (including commissions);
  4. Mortgage, rent and utilities payments;
  5. Interest on any other debt obligations that were incurred before the covered period;
  6. Worker protection costs related to COVID-19; certain expenditures that are made to facilitate the adaption of the business activities of a borrower to comply with requirements established or guidance issued by federal, state and local governments related to COVID-19; and
  7. Payment for certain business software or cloud computing services.
What size business loan do you qualify for?

The CARES Act allows businesses to take out loans equal to 2.5 times their average monthly payroll from 2019 or 2020, with the total capped at $10 million ($2 million for the PPP Second-Draw Loan). Payroll figures include salary and wages, health care benefits and paid sick leave.

What calculation is used to determine a borrower’s loan amount?

Step 1: Aggregate payroll costs from 2019 or 2020 for employees whose principal place of residence is the United States.

Step 2: Subtract any compensation paid to an employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred.

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 Jan. 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).

For examples and more information on this process, please refer to the SBA and Treasury guidance on loan calculations available here.

What’s the interest rate on Paycheck Protection Program loans?

1% fixed rate.

What timeframe can borrowers use to determine their loan amount?

New borrowers can choose 2019 or 2020 as the base period for their loan calculations. Borrowers who apply for PPP loans in 2021 and who are not self-employed (including sole proprietorships and independent contractors) are also permitted to use the precise 1-year period before the date on which the loan is made to calculate payroll costs if they choose not to use 2019 or 2020.

Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use 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).

What do I need to apply?

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an SBA-approved lender that is available to process your application by March 31, 2021. Click here for the application.

You will also need to provide your lender with payroll documentation.

Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs?

No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.

What is required for the new simplified loan forgiveness application for loans under $150,000?

On covered loans of not more than $150,000, the borrower must sign and submit a one-page certification to their lender. This new certification form is to be established by SBA within 24 days of the enactment of the relief bill.

The certification will require the borrower to provide:

  • A description of the number of employees the borrower was able to retain because of the loan;
  • The estimated amount of the loan spent by the borrower to pay payroll costs; and
  • The total loan value.

The borrower will also attest that they accurately provided the required certification, complied with the requirements of the PPP program, and will retain relevant records that prove compliance (four years for employment records, three years for other records). The new simplified application process applies to loans made before, on, or after the date of enactment. Borrowers have up to 10 months to file forgiveness applications after the last day of the business’s covered period. If you think you qualify for this simplified process, contact your lender about applying for loan forgiveness using the new application.

The SBA and U.S. Treasury Department on Jan. 19, 2021, released loan forgiveness guidance and forms for borrowers that received a loan of $150,000 or less:

What are the eligibility requirements for a Second Draw PPP Loan?

To be eligible for a Second Draw PPP Loan, the borrower must:

  • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
  • Has no more than 300 employees; and
  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

A borrower must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. A borrower must calculate this revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with the borrower’s gross receipts for the corresponding quarter of 2019. Any forgiveness amount of a First Draw PPP Loan that a borrower received in calendar year 2020 is excluded from a borrower’s gross receipts. For more information on Second Draw PPP Loan eligibility, please review SBA’s Interim Final Rule on Second Draw PPP Loans.

Do PPP loans cover sick leave?

Yes. PPP loans cover payroll costs, including costs for employee vacation, parental, family, medical, and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127). Learn more about the Paid Sick Leave Refundable Credit here.

What if an eligible borrower contracts with a third-party payer such as a payroll provider or a Professional Employer Organization (PEO) to process payroll and report payroll taxes?

SBA recognizes that eligible borrowers that use PEOs or similar payroll providers are required under some state registration laws to report wage and other data on the Employer Identification Number (EIN) of the PEO or other payroll provider. In these cases, payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP loan payroll documentation. Relevant information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the eligible borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. In addition, employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.

The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?

No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:

  • Employer contributions to defined-benefit or defined-contribution retirement plans;
  • Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
  • Payment of state and local taxes assessed on compensation of employees.
My small business is a seasonal business whose activity increases from April to June. Considering activity from that period would be a more accurate reflection of my business’s operations. However, my small business was not fully ramped up on Feb. 15, 2020. Am I still eligible?

Yes. In evaluating a borrower’s eligibility, a seasonal business will be considered to have been in operation as of Feb. 15, 2020, if the business was in operation for any 12-week period between Feb. 15, 2019 and Feb. 15, 2020.

Can I receive forgiveness on my Second Draw PPP loan?

Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:

  • Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan;
  • The loan proceeds are spent on payroll costs and other eligible expenses; and
  • At least 60 percent of the proceeds are spent on payroll costs.

SBA should soon provide additional guidance regarding the PPP loan forgiveness process, including new and updated loan forgiveness applications.

NOTE: NAHB is providing this information for general information only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such.
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