What do you get when you try to develop rules, guidelines, and processes to stand up and execute a $349B program in a week? Then provide that guidance to thousands of SBA approved lenders within 12 hours of when they’re expected to be live? The most active of which process a few hundred SBA loan applications a year? The Payroll Protection Program.
I think it’s safe to say this has been an extremely confusing and stressful week for small businesses trying to keep their businesses afloat. Compass East has been diligently preparing financial documents, creating an application tool and calculator from scratch, and advising our clients on how to apply for PPP loans, all while the goalposts keep moving. First off, I’m incredibly proud of what our team has been able to accomplish this week. The Compass East core values are shining through as our whole team has been Approachable, Proactive, and Accountable.
Late last night, we received final guidance from the SBA on specific program details. There were a number of changes and clarifications in the 30-page document that we will summarize below. Here’s what you need to know:
PPP FINAL GUIDANCE
PPP Summary of Changes and Clarifications
- $100k Salary Cap Confirmation – Confirmation that employees with salaries above $100k can be included to calculate payroll costs to determine loan size and included in forgiveness payments up to $100k but not in excess of $100k. So they are not excluded totally, just proportional to their monthly salary up to $100k. Capped at $8,333/m ($100,000/12).
- Independent contractors (1099s) are NOT included in borrower payroll costs calculation, must apply on their own – There was confusion on this all week. When determining an employer’s average monthly payroll cost, 1099’s are NOT included in that calculation. So if you have a mix of W2 employees and 1099s, you only include the W2’s. Independent contractors must apply separately for their own PPP loan.
- Interest rate is 1% – Speculation on interest rate has been anywhere between .5% and 4%. Lenders complained that .5% wouldn’t cover the cost of servicing these loans, so the SBA doubled it to 1%.
- Term/maturity is 2 years – Earlier guidance said this term was going to be anywhere between 5 and 10 years. The term is now set at 2 years.
- Only one PPP loan, so apply for maximum – Clarified that an eligible borrower may only apply for one PPP loan. The Act didn’t specify this explicitly. Apply for the maximum amount.
- E-signatures – They are permitted.
- First come, first served – This is a big one. Loans are first come, first served so the speed of filing applications will matter. PPP is open until 6/30 or until funds run out. The expectation is that funds will run out before the deadline.
- Payments deferred for 6 months, but interest accrues (1%) – Confirmed payments are deferred for 6 months (had been a six month to year range) but the 1% interest accrues during the deferral period.
- No more than 25% of the loan forgiveness can be non-payroll cost – This is another major clarification. When determining the loan forgiveness amount, 75% of funds have to be utilized for payroll costs. Only 25% can be spent on other approved expenses like mortgage interest payments, rent, and utilities. The goal here for the SBA was to focus payments on maintaining payroll.
The team at Compass East has been in constant contact with SBA lenders over the last 72 hours as they are frantically trying to get application portals live today. Each bank is going to open up applications at different times as they get things off the ground. Lenders are going to focus on their current clients first. So as a borrower the best advice is to start with your current banking partner. Expect long wait times and systems crashing as this is all being built on the fly.
Compass East will be releasing our internal application tool publically next week to help everyone that we can navigate this process.
John Lanahan
Director Of Financial Strategy
john.lanahan@compasseast.com