Paycheck Protection Program

The Paycheck Protection Program (PPP) is a small business loan relief program authorized by the CARES Act, funded and overseen by the U.S. Treasury Department (Treasury) and administered by the U.S. Small Business Administration (SBA).  PPP provides small businesses forgivable loan funding to cover payroll costs and other critical expenses incurred during the COVID-19 national emergency.  PPP was recently reopened to first-time borrowers and expanded to allow “Second Draw” loan disbursements to eligible existing borrowers.

• NSB is accepting applications for its customers and Vermont-based businesses located within NSB’s market area.
• PPP funds are available on a first-come, first-served basis until funds are depleted or March 31, 2021, whichever comes first.

NSB is accepting applications for its customers and Vermont-based businesses located within NSB’s market area.  While NSB will strive to accommodate non-customer applicants, existing NSB customer applications will receive first priority.

Eligible first-time applicants are businesses with 500 or fewer employees including:

• Corporations
• Nonprofits
• Veterans organizations
• Tribal business concerns
• Sole proprietorships
• Self-employed individuals
• Independent contractors
• Partnerships
• 501(c)6 entities

Certain businesses with more than 500 employees might also meet SBA eligibility requirements.  SBA provides those details HERE.

Existing PPP borrowers may be eligible for Second Draw funding, provided they have 300 or fewer employees and can document a decrease of at least 25% in gross receipts from 2019 to 2020.  Any PPP forgiveness amount already received is excluded from gross receipts calculation.

Any unforgiven portion of PPP proceeds is a loan with principal and interest that must be paid back.

PPP’s primary purpose is to provide support for small business payroll costs.  No more than 40% of the forgiven amount may be for non-payroll costs.

PPP loan amounts will be forgiven provided:

• Loan proceeds are used to cover payroll costs and most mortgage interest, rent, and utility costs during the 8 to 24 week covered period after loan funds are disbursed; and
• Employees are retained and their compensation levels are maintained.  Some exceptions are made for loan amounts under $150,000 and companies who attempt to rehire or replace laid-off employees but are unable to do so.

Loan proceeds used for non-approved purposes will not be forgiven.

No, borrowers with loans of less than $150,000 are exempt from reductions in the forgiveness amount based on reductions in full-time equivalent employees, salary, or wages. Borrowers of over $150,000 may not have their forgiveness amounts reduced if they can adequately document:

• An inability to rehire former employees and an inability to hire similarly qualified employees; or
• An inability to return to the same level of business activity due to compliance with federal COVID-19 requirements or guidance.

Any unforgiven portion of PPP proceeds is a loan with a fixed interest rate of 1% and full payment due in 5 years.  Loan payments are deferred until the date any forgiven amount is paid by the SBA to NSB, but interest will continue to accrue over this period.  There are no prepayment penalties or fees.

No.  Previously the SBA has required small businesses to try to obtain some or all of their loan funding from other sources.  For PPP, this “Credit Elsewhere” requirement has been waived.

Maximum PPP loan amount for first-time borrowers is average monthly payroll costs from the last year multiplied by 2.5.  Total loan amount for first-time borrowers will not exceed $10 million. Seasonal or new businesses will use different methods to calculate payroll costs.  An annualized compensation cap of $100,000 per employee factors into payroll cost calculation.

Maximum loan amount for Second Draw borrowers is average monthly payroll costs from the last year multiplied by 2.5.  Second Draw borrowers in industries assigned to NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5X average monthly payroll costs.  Maximum amount for all Second Draw loans may not exceed $2 million.

Treasury provides first-time borrowers detailed guidance on how to calculate maximum PPP loan amounts for self-employed, partnerships, S corporations, C corporations, LLCs, and nonprofits.  Second Draw borrower guidance is available here.

The following methodology may be useful for many applicants.

Step 1: Aggregate 12 months of payroll costs from the year 2019 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.

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
 

No fees will be charged and no collateral is required.  No personal guaranty is required, but the U.S. Government will pursue criminal charges against borrowers who use PPP proceeds for fraudulent purposes.

Yes, the SBA will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.