Application for a PPP Loan is made to a lender who is an SBA participating lender. This essentially means that the lender is qualified to issue Section 7(a) loans under the Small Business Act. The PPP Loan application includes instructions that help the applicant complete the form. Note that each business owner who owns 20% or more of the business must sign the application and initial the certifications contained within the application. Businesses under common control with other businesses, such as subsidiaries and affiliates, will need to disclose those affiliates and/or subsidiaries as part of the application. Consequently, it would be advisable to include an organizational chart with percentage ownership interests with the application if the applicant has related companies. In addition, the applicant must disclose if it has obtained an Economic Injury Disaster Loan from the SBA under Section 7(b) of the Small Business Act. Under the CARES Act, this Economic Injury Disaster Loan can be refinanced with the PPP Loan.
The maximum principal amount of Paycheck Protection Loans is calculated by multiplying the applicant’s average monthly payroll costs by 2.5. However, the maximum amount of the loan is capped at $10,000,000. Payroll costs include salaries, wages, tips, paid vacation, parental, family, medical, or sick leave, health care benefits including insurance premiums, retirement benefits, and state and local taxes assessed on employee compensation. However, payroll costs do not include the compensation of an individual employee in excess of an annual salary of $100,000. The lender taking the application is likely to request the following from the applicant:
- 2019, and if available, first quarter 2020, IRS quarterly 940, 941, or 944 Payroll Tax Reports;
- Payroll reports for a twelve (12) month period (ending on the applicant’s most recent payroll date), which includes (and subject to the $100,000 cap described above) for each employee gross wages, paid time off, vacation pay, family medical leave pay, and state and local taxes assessed on employee compensation;
- 1099’s for independent contractors (which is also subject to the $100,000 cap);
- Documentation showing payments for group health care benefits, including insurance premiums; and
- Documentation showing payments for retirement benefits.
Lenders are also likely to ask for driver’s licenses from owners of the business and the organizational documents of the business, such as its articles of incorporation and bylaws, in the case of a corporation, articles of organization and an operating agreement, in the case of a limited liability company, or partnership agreement, in the case of a partnership. A lender may also request financial statements and tax returns.
Different lenders will have different requirements, so it is important that businesses that are interested in PPP Loans contact their banks as soon as possible and ask what is required in addition to the PPP Loan application. Lenders are anticipating getting a large number of applications for PPP Loans. Consequently, the sooner a business contacts its bank, the better.
The Banking and Finance attorneys at Dvorak Law Group have the knowledge and experience to efficiently assist our clients with financing needs. Please contact Dvorak Law Group for specific questions and recommendations regarding how PPP Loans may assist your business and with help in the application process.
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