Paycheck Protection Program Information

June 5, 2020

The President recently signed the Paycheck Protection Program (PPP) Flexibility Act of 2020.

The Act introduces several key changes to PPP loan forgiveness rules, which will result in far more businesses being able to take advantage of full debt forgiveness.  These changes include:

  1. Extension of Covered Period to 24 weeks. The time period borrowers are allowed to use PPP funds, eligible for loan forgiveness, has been extended from 8 weeks to 24. For example, if a borrower’s PPP loan was advanced on April 15, the covered period would end on September 29.

 

  1. Payroll requirement has been reduced to 60%. Previously, in order to qualify for full debt forgiveness borrowers had to demonstrate that 75% of the funds were used to fund payroll and payroll related costs.  This requirement has been reduced to 60%.

 

  1. “Safe Harbors” have been extended to December 31, 2020.  Loan forgiveness rules generally require that borrowers maintain their average levels of employment during their covered period at pre-COVID levels, in order to qualify for full forgiveness. 

 

Previous rules provided “safe harbors” stating that this requirement did not apply to borrowers that restored employment to pre-COVID levels on or before June 30, 2020.  The “safe harbor” dates have been extended to on or before December 31, 2020.

 


May 28, 2020

The Small Business Administration (SBA) and Department of Treasury (DOT) have released the Paycheck Protection Program (PPP) Loan Forgiveness Application (LFA). The application is available at the following link: 

https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf

The SBA and DOT have also issued an Interim Final Rule on Loan Forgiveness on May 22, 2020.  This final rule can be viewed at the following link:

https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf

 

Based upon the guidance issued to date, the following discusses the LFA and the Interim Final Rule’s guidance on applying for loan forgiveness.

PPP borrowers are eligible for loan forgiveness on the entire loan balance, provided the borrowers meet certain conditions.  Borrowers that do not qualify for full loan forgiveness may repay their PPP loan or term out the remaining balance over 18 months at 1.0%.

With certain exceptions, borrowers are eligible for loan forgiveness provided PPP proceeds are used to pay the following documented eligible expenses during the eight week period immediately following the first PPP loan advance:

  • Payroll (of up to $100,000 per employee and owner),
  • Certain payroll benefits,
  • Mortgage interest (on loans secured by both real and personal property),
  • Business rent or lease expenses, and
  • Utility expenses.

 

Stockman Bank expects there will be numerous updates to the rules and guidance.  Many industry experts believe that it may be to the advantage of the borrower to let the “dust settle” on the loan forgiveness rules before completing the LFA.

 

There are several things borrowers should be doing now to prepare for loan forgiveness.  These include:

  • Prepare their internal accounting systems and records to comply with the loan forgiveness documentation requirements.
  • Determine how the borrower can meet the FTE and compensation requirements (or safe harbors) so they qualify for the maximum amount of loan forgiveness.

 

In order to qualify for full debt forgiveness borrowers must be able to document the following:

  • Payroll or payroll costs must be 75% or more of eligible expenses,
  • The borrower must maintain the same average full time equivalent (FTE) employees during the 8 period used to calculate loan forgiveness (the “covered period”) as they did pre-COVID.

 

However, a borrower is exempt from this requirement if they “restore” their level of FTE’s by June 30, 2020.

In addition when determining whether the borrower’s FTE during the covered period is the same or greater than their pre-COVID FTE, the borrower can include the following individuals as employees:

  • Any employee to whom the borrower made a “good faith” written offer to rehire that was rejected by the employee,
  • Any employee fired for cause,
  • Any employee that voluntarily resigned, and
  • Any employee that voluntarily requested and received a reduction in their hours.
  • Each employee’s compensation must be at least 75% of pre-COVID levels.

 

However a borrower is exempt from this requirement if they “restore” an employee’s average annual salary or wages on June 30, 2020 to an amount equal to or greater than the employee’s salary on February 15, 2020.

 

The LFA provides for an “alternative payroll covered period” for borrowers with payroll set up bi-weekly or more frequently.  This allows borrowers to start their 8 week “payroll clock” on the first pay period immediately following their PPP loan advance.

 

The LFA allows borrowers to include accrued but not yet paid payroll, utility, interest and rent expenses owed at the end of the relevant covered period in their loan forgiveness calculation provided those accrued expenses are paid in the next regular billing cycle.

 

The LFA documentation requirements are significant.  Borrowers should review page 10 of the LFA to ensure they have the ability to produce the documentation required for loan forgiveness. 

 

Stockman Bank lenders are prepared to answer questions and discuss PPP loan forgiveness with borrowers.  Feel free to contact your lender to discuss any questions with the program.


 

April 22, 2020

Congress has approved another $310 billion for the Paycheck Protection Program (PPP). 

The Small Business Administration (SBA) will begin accepting applications Monday morning, April 27, 2020 at 8:30am MDT (10:30 a.m. EDT).

This is great news!  We are ready to resume submitting loan applications for our business customers.

  • If you had already submitted an application with us that was not approved by the SBA before the program was suspended,  we will re-submit your application for approval as soon as the SBA allows.  If you are unsure of the status of your application, please contact your banker.
  • If you have not yet applied for a PPP loan, we continue to accept new applications. Contact us for more information or visit your local Stockman Bank.

April 16, 2020

The U.S. Small Business Administration (SBA) announced this morning that all appropriated funds for the Paycheck Protection Program have been fully committed. As a result, the SBA  is no longer accepting Paycheck Protection Program(PPP) loans until Congress approves additional funds.

  • If you have already submitted an application, we will continue to process the application so it is ready to submit for SBA approval when Congress approves additional funding. 
  • If you have received notice that your application has been approved by the SBA, please be assured that today’s  development will not impact the approval or funding of your loan. Contact your banker if you have questions.


If you have not yet applied for a PPP loan, we will continue to accept new applications. Contact your local Stockman Bank for more information.


 

April 3, 2020 (Updated April 8, 2020)

It was a busy day for our bankers and commercial loan officers across Montana as we received SBA approval of more than 1,000 loans at a total of over $200 million for our business customers as part of the Paycheck Protection Program (PPP).

Our “day” began at 10:01pm last night and our bankers were closing and funding loans for some of our business customers this afternoon.  Our bankers will be working throughout the weekend as there are a number of loan applications in process and more applications are still being received. 

We recognize the need our customers have for these loans to help keep their businesses in operation and their employees paid. As a result, we are committed to doing all we can to get these applications submitted, approved and funded.  We thank our employees for their dedication and working such long hours to meet the needs of our business customers.

If you have any questions or concerns, please contact your commercial lender at your local Stockman bank.  If you are not a Stockman Bank business customer, because of the legal requirements associated with the Bank Secrecy Act, we recommend that you contact your primary bank to submit an application on your behalf.

 

March 31, 2020 (Updated April 4, 2020)

Purpose of the Program:
The Paycheck Protection Program (“PPP”) is implemented by the Small Business Administration with support from the Department of the Treasury.  Additional information regarding the PPP loans can be found at www.sba.gov and www.coronavirus.gov.

The purpose of the program is to provide small businesses hurt by the COVID-19 pandemic with working capital in order to keep employees on the payroll or to quickly rehire employees that have been laid-off. 
 

Who is Eligible for the Loan:
The loans are intended for small businesses. Generally speaking, a small business is a business that employs 500 or fewer people, although this requirement may be waived for businesses in the hotel and food services industries.

Included in the definition of businesses are corporate entities such as corporations, LLCs or partnerships and similar organizations. 

In addition, nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals and independent contractors are considered small businesses and are eligible for PPP loans (provided the employment definition is met).

What can a Business use the Loan For:
The loan can be used for the following:

  • Payroll costs, including benefits.
  • Payroll costs include salary, wages, commissions or tips (capped at $100,000 on an annualized basis for each employee), employee benefit costs including vacation, health care, and retirement, state or local taxes based on compensation paid by the employer and for sole proprietors or independent contractors in addition to wages or commissions net earnings from self-employment (capped at $100,000, annualized).
  • Interest on mortgage debt, provided the debt originated prior to February 15, 2020.
  • Rent, provided the lease originated prior to February 15, 2020.
  • Utilities, provided the service started before February 15, 2020.


What are the Terms of the Loan:
Loan terms are as follows:

  • The loan amount is capped at 2.5 times the business’ average monthly compensation expense during 2019.  In calculating average monthly compensation, any compensation paid to individuals in excess of $100,000 is excluded from compensation expense.
  • The loan amount is capped at $10 million.
  • The loan is 100% guaranteed by the SBA.  The SBA is waiving all SBA guaranty fees, including the upfront and annual servicing fees.
  • The loan is unsecured and there is no requirement that business owners personally guarantee the loan.
  • The loan’s annual interest rate is 1.0% (one-half of one percent).
  • The loan will have a term of 24 months. Payments of principal and interest will not be required for the first six months. The loans principal and interest will then be repaid over the remaining 18 months of the loan.


How does a Business Qualify for Debt Forgiveness:

The business must provide documentation to verify that the loan proceeds were used for payroll, mortgage interest or lease and utility payments.  The business must also provide information to verify the number of its full-time equivalent employees and pay rates.

The amount of debt forgiveness could be decreased if a business reduces its number of employees or its salary levels.

If by June 30, 2020, the business restores its full-time employment or salary levels to offset any reductions in staff or pay occurring between February 1 and April 26, 2020, the amount of debt forgiveness may be adjusted.
 

How does a Business Apply:

Contact a commercial banker at Stockman Bank.  Stockman Bank is an existing SBA-Preferred lender and has been given delegated authority to process the PPP loans.

What Information is Needed for an Application:
To apply for a PPP loan, a business must provide the following:

  • A completed Paycheck Protection Program Application Form (SBA Form 2483).  To complete this form the borrower (and if the borrower has shareholders, each shareholder owning over 20%) must certify to the following:
    • That the loan is necessary because of current economic uncertainty and necessary to support the ongoing operations of the business,
    • That the funds will be used to retain workers, maintain payroll and make mortgage interest, lease or utility payments, and
    • That the information provided to Stockman Bank is accurate.
  • A copy of your most recent filed tax return.
  • A copy of your 2019 payroll records documenting total annual compensation expense, and identifying any employees with annualized salary tips or commission exceeding $100,000.
  • Verification that the business was in operation on February 15, 2020.
  • Documentation of any amount paid by borrower for sick leave or other paid time off under section 7001 or 7003 of the Families First Coronavirus Response Act

 

Your Stockman Bank commercial lender can assist you with any of these forms.


When can I Apply:
Stockman Bank is preparing applications for its customers at this time. 

Applications cannot be submitted to the SBA for processing until Friday April 3, 2020. 

Customers are encouraged to submit their applications as quickly as possible because funding for this program is limited.

All applications must be submitted by June 30, 2020.



Disclaimer:
The program terms and requirements of the Paycheck Protection Program are currently being developed and are subject to change by the U.S. Treasury and the SBA.  The information presented on this information sheet is Stockman Bank’s current understanding of the program based upon information we believe to be accurate. 

This information is provided as a courtesy to help Stockman Bank’s customers decide if a PPP loan would be beneficial.  The information or statements presented in this information sheet are subject to change and are not a commitment by Stockman Bank to lend under the terms presented.