US Paycheck Protection Program (“PPP”)
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This page was last updated on April 14, 2020.
The New Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone. The loan is to be used to cover payroll and certain other expenses.
The critical thing is that the loan amounts will be forgiven (essentially converting it to a grant) as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8-week period after the loan is made; and
- Employee and compensation levels are maintained.
Loan amount is $10 million or 2.5 times of the business’s average monthly net payroll (gross payroll minus payroll taxes) computed based on the last 12 months. Payroll costs are capped at $100,000 on an annualized basis for each employee. Any qualifying expenses the business incurs in the 8 weeks period starting from the date of the loan (ending no later June 30, 2020) may be eligible for a future loan forgiveness. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. The remaining balance will be deferred for 6 months and repayment is to be done over a 2-year period. Interest on any outstanding balance is computed at a fixed rate of 1%.
Application acceptance begins today for small businesses and sole proprietorships, April 3, 2020. The loan can be applied through the businesses’ existing US Small Business Administration loan lenders (typically a regular bank approved by the SBA, see www.sba.gov for a list). Due to the likelihood of over-subscription, it is anticipated that less than 25% of the forgiven amount may be used for non-payroll expenses. A small business is defined to be one with 500 or fewer employees; certain industries may have more than 500 employees. There are few restrictions to business types so most businesses will qualify including nonprofits. In fact, certain chain or franchise type of business-like hotels and restaurants may be exempt from the affiliation standards thereby allowing the chain to have more than 500 employees. Independent contractors and self-employed individuals can apply for the same on April 10, 2020.
Please note that this is not a tax-based program, so your financial institutions are generally taking the lead on this. KRP can assist with the calculations, so please give us a call if you need assistance. Some of you may note that the original application found on the US Small Business Administration website did state that if the business has any 20% owner who is NOT a US citizen or permanent resident (i.e. greencard holder); the loan will not be approved. However, the Department of Treasury has released a new version of the form, found here; and the US ownership requirement has been removed. With the new update, this may prove to be a fantastically lucrative program for Canadian owned enterprises as well.
In a nutshell, a fantastically lucrative program, but of limited benefit to most Canadians.
For more information, please contact:
Director International Taxation