Federal ‘Paycheck Protection Program’ Offers Forgivable Loans to Small Businesses and Nonprofits; See If You Qualify

Photograph by 401(K) 2012.

By Carol and Robert Tannenhauser

The federal government has launched a loan program designed to help small businesses and their employees through this period of closings and layoffs.

Small businesses do not just mean mom-and-pop shops and restaurants: they also include nonprofits, the self employed, professional offices, and others, as long as they have fewer than 500 employees and have been in business as of February 15, 2020. The purpose of the program is to lift the burden of payroll costs from employers during this fallow period, and to ensure that employee salaries and benefits continue to be paid.

Robert Tannenhauser, consultant to ConnectOne Bank and a long-time Small Business Administration (SBA) lender (and full-disclosure, the writer’s husband with whom she is sequestered), explained what is called the Paycheck Protection Program to WSR (the only face-to-face interview in a month.) The program is included in the $2 trillion CARES (Coronavirus Aid, Relief, and Economic Security) Act that President Trump signed into law on March 27th.

WSR: Why did they include the Payroll Protection Program and how does it work?

RT: It’s pretty simple; they made it that way because they want to get the money out fast. Basically, the goal is for businesses and eligible nonprofits to retain their employees on payroll for at least the next two-and-a-half months — and, hopefully, to be able to return to normal operations once the crisis is past. The program is structured so that participating banks can give SBA-guaranteed loans to eligible businesses and nonprofits. The amazing part is that the loans can be forgiven, basically, if you don’t fire anyone.

WSR: How much money can businesses get?

RT: The amount is equal to 2.5 times your average monthly payroll costs for the past 12 months not to exceed $10 million. You can only count up to $100,000 of an employee’s salary for this purpose. Payroll costs include salaries, commissions, payments for parental, family, medical or sick leave, health care and retirement benefits, and some others.

WSR: How does someone apply?

RT: You can apply directly to your bank if they are a participating SBA lender.

WSR: How is the loan forgiven?

RT: The borrower submits a certified application for forgiveness to the lender, documenting the number of employees on payroll and their pay rates for the eight-week period beginning on the date of the loan. If there is no reduction on the number of employees, the full amount is forgiven. If there is a reduction, the amount forgiven is proportionately reduced.

WSR: You know what they say if something sounds to good to be true?

RT: In this case, it is true. Just like the government is sending checks directly to individuals, they are directly helping companies retain and pay their employees and keep them off the unemployment rolls. Therefore, the business has a better chance of surviving.

NEWS | 94 comments | permalink
    1. Trying to find out if we can qualify as a small business owner

      • RT says:

        If you have less than 500 employees, were in business on February 15, 2020, you should qualify. Call your bank.

    2. JS says:

      Great explanation from a real pro!!

    3. Susan says:

      Are sole proprietors with no employees eligible? Paying for office rent when you can’t work is a business killer.

    4. gs says:

      Small businesses are great and are particularly vulnerable to business disruptions, including the advent of on-line commerce…but please don’t vilify medium and large size companies. Most of their employ employees are not rich (contrary to the rantings on the left…many of them academics, government workers and politicians) and are huge contributors to society by paying taxes, patronizing small business and making charitable contributions!

      • Bruce Bernstein says:

        since when does the left rant about EMPLOYEES of large corporations? the left has fought for higher wages (see Amazon and Disney, where Sanders in particular has been successful), guaranteed public health insurance, safe working conditions, unionization, and even representation by employees on corporate boards (Warren and Sanders).

        the left correctly rants about inequality and the huge pay packages for C-level executives, compliant and sheeplike Boards, and so on.

        where do people get such strange ideas?

    5. Krash says:

      Thank you. This is excellent information that needs to be spread around. Our businesses and workers need all the help they can get!

    6. quick, concise and factual.

    7. nick says:

      Is there also a provision in here for some operating costs – rent, utilities, etc? I thought that it was 2.5 times payroll + 25% of some overhead…?

      • RT says:

        You can use the proceeds for rent and utilities, but the loan amount is calculated based upon your payroll costs.

        • Ant says:

          if used for rent or utilities does the forgiveness still apply or does it have to be paid back with interest?

          • RT says:

            The forgiveness applies to any payments made for the approved uses, including rent and utilities, during the eight-week period beginning when the loan is made. The amount forgiven is reduced only if there is a reduction in the number of employees or salaries during that period.

    8. Emily says:

      Can the money be used for loan payments, vender costs? Etc…

      • RT says:

        Allowable use of loan proceeds: payroll costs; rent; utilities; interest on mortgages that were in effect on or prior to February 15; and interest on other business debts in effect on or prior to February 15.

    9. Is the amount 2.5 times the average monthly payroll plus the rent. And if yes is it for 2 1/2 months rent or? You also said you can apply at your bank. Do you know if you need to go in person (hopefully not)

      • RT says:

        No. While the rent is a permissible use of the loan, it does not factor into the calculation of the amount of the loan (see article.) Can’t go in person at this time! Call or go online.

    10. Norma Morley says:

      What if my bank is not a participating lender? I have been told that these banks will take care of their own customers first. Does that leave me with no one that will do this for my company?

    11. B says:

      Great information; thank you!
      My bank(s), all SBA Lenders, tells me they won’t be underwriting any PPP loans for at least a week. Does anybody know of banks that are ‘ready to roll’?

      • Robert Tannenhauser says:

        Go to https://sbacares.boefly.com/ It’s an online platform that matches borrowers with lenders. I co-founded it in 2010 and since sold it to ConnectOne, for which I am a consultant. They are one of many banks in the Boefly network that are “ready to roll.” No fees or charges. But, please, study the site and make an informed decision. I offer it as a resource.

    12. Jon O says:

      If an employee quits during that 8 week period, does the loss of that wage amount reduce the forgiveness amount? If you have employee turnover during that period but still hire other employees to fill that spot, do those new hire wages count towards the 75%, or are you out of luck because the actual employee is gone and no longer able to be included in the forgiveness calc?

      • RT says:

        Yes, unless you replace that employee on or before June 30, 2020. If you replace the employees by June 30, 2020, they still count.

    13. I have a partnership small business with my two sisters . We take draws, but do not have employees.Owned our business for 18 years and Rent is going to be hard to make.Would we qualify for a forgivable loan?

      • RT says:

        Yes, if you report your income for federal tax purposes.

        • Susan says:

          My bank does not seem to believe my partnership that myself and partner takes draws from qualifies since we don’t receive a W-2, even though we report our income on our taxes. Is there a way to explain to them that we do indeed qualify?

    14. Kenny says:

      If you are a restaurant and closed in March due to this Covid-19 issue and laid all our employees off, do you have to reopen and bring them back in or can you rehire them and pay them to stay at home until it is safe to reopen your business?

    15. Ryan says:

      My business is closed due to executive order but I want to maintain my staff. Can I still pay my employees using the “PPP” loan with my staff working zero hours?

    16. Barb Hamlny says:

      How do I find out how to apply for a church?

    17. CH says:

      Thank you for the explanation! I thought it was too good to be true as well. If I applied for unemployment yesterday, can I still apply for a loan? I am self-employed. I have not heard back from the unemployment application yet.

      • RT says:

        It is yet unclear, however, if you take the PPP loan, the proceeds of which are used to pay your salary, I don’t see how you can apply for unemployment benefits.

    18. CAS says:

      Our corporation does not have employees but we pay independent contractors. Can we qualify for this program?

      • alice says:

        I am also wondering as a small S-Corp – do we count our payments to independent contractors who received a 1099? or only W2 wages.

      • Jonathan S says:

        I am also trying to find out if near full-time equivalent 1099 contractors (for which my business is their only income) are included. Have not been able to find any information on this.

        • RT says:

          To CAS, Alice and Jonathan S: Based on SBA guidance issued on March 31, while there is some ambiguity in the language, it appears that independent contractors would have to file for their own loans.

    19. B.B. says:

      Forgiven debt is considered income by IRS rules and subject to taxation.

      Unless Congress changed things for this stimulus/bailout any loan amounts unpaid and subsequently forgiven may incur tax liability.

      During last recent recession Congress allowed certain mortgage holders who had their debts reworked or forgiven to escape taxation, but it expired and IRS went right back to normal.

      • RT says:

        The PPP specifically provides that forgiveness of these loans will not be considered taxable income.

    20. Jennifer Renee Bonner says:

      I’m a hair dresser/self employed/ I have a mobile shop that I pay a note on meaning loan. Will that help me pay my note since we cant work?

      • RT says:

        I’m not familiar with a “note on meaning.” As for interest on debt, the law and the guidance from the SBA seem inconsistent on this point and will need to be clarified.

    21. Mark Norman says:

      My brother and I own a florist and are the only 2 employees and we are eligible to apply for the PPP . Are we still able to collect employment benefits too ( New Jersey)

      • RT says:

        It is yet unclear, however, if you take the PPP loan, the proceeds of which are used to pay your salaries, I don’t see how you can apply for unemployment benefits.

    22. Doug says:

      Most of my restaurant’s employees quit the week after St. Patrick’s Day because they were afraid of getting the virus. They have all applied for unemployment. In the meantime my restaurant’s business has been reduced by approximately 75% of what it used to be. Right now I am operating it with only myself and my chef. I met all of my payroll obligations through March 20th out of my own pocket. Am I supposed to bring back employees who are currently collecting unemployment into my restaurant which has very little revenue at this time?
      I would greatly appreciate an explanation for this scenario. Thank you!

      • UWSmom says:

        If your employees quit, they would not be eligible for unemployment, as I understand it. If you laid them off or reduced their hours, they would be eligible.

    23. MIchael says:

      Thank you Mr. Tannenhauser. As the sole employee to my corporation, what supporting documents will I need for sbacares.boefly? I don’t keep payroll reports.

      • RT says:

        My pleasure. You’ll need evidence that tax was paid on your earnings. You’ll receive instructions once you submit your application.

    24. Michael Farrell says:

      If the govenment has mandated my business to close, how can I use the payroll protection plan?

    25. konstantin alenak says:

      trying to see if i qualify for loan I’m a subway store owner

    26. BC says:

      If a restaurant was under construction on 2/15 and opened shortly after, only to be limited to take out only rules immediately thereafter, is there any relief available?

      • RT says:

        Good question. Unfortunately, based upon the current rules, you would have to be in operation and have employees as of 2/15/2020 in order to be eligible for the PPP. You may be able to apply for an economic injury disaster loan from the SBA. Here’s the link: sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

    27. Michael says:

      TD Bank (94th St/ Bway) this morning told me they will not be processing any SBA loan applications until Monday. The federal paperwork just came out and they need to read it. Ugh!

      • RT says:

        The SBA just issued the new version of their application form. sbacares.boefly.com/ is accepting applications.

      • UWS is home says:

        Hi Michael, do you know if the TD Bank branch at 94th and Broadway is open? My preference would be to apply for the PPP in person but I don’t know if TD requires submission for the PPP via online only. If you could share your notes/results, they’d be much appreciated!

    28. MT says:

      I own a hair salon who was mandated to close down march 16 and are under stay at home orders thru april 30th. I have 5 employees, plus myself. My employees are receiving unemployment benefits at this time. Should I choose the PPP plan, but would I have to rehire my employees to pay them to stay at home, and HOPE that we are back to work and allowed to be open before the 8 week time period expires? Or do I go the ERTC route, since we are mandated to stay at home and we are not legally allowed to offer any business from home?

      • RT says:

        The ERTC applies to wages paid fire March 12th. So if you are not paying your employees during this period, you will not be eligible for the credit.

    29. Eric Miller says:

      Workers Comp amounts to $ 7.50 of every $ 100 payroll. Can I include this in my payroll calculation?

    30. Elizabeth says:

      I am self-employed and structure my private practice as an S-Corp. Would the loan only take into account the salary I pay myself through a payroll service or the total I make? Same question for pandemic unemployment assistance if I go that route rather than the paycheck protection program.


      • Carol Tannenhauser says:

        They base it on your earnings, which are evidenced by your tax filings. I don’t know how unemployment calculates their payments.

    31. Sarah says:

      Can your employer pay you for 32-36 hours when you normally work 40 hours and make you use vacation hours to make up the difference if they get the PPP?

      • RT says:

        If there is a reduction in hours or salary, the amount of the loan forgiven will be reduced proportionately.

    32. UWS is home says:

      Great article! Do you have expert answers to the following 2 questions, please:

      1) Regarding the time-frame to calculate the amount equal to 2.5 times the average monthly payroll: If a small business can make it through April and apply for the PPP on May 1st, can we use the “prior 12 months” as the timeframe from May 1, 2019 – April 30, 2020?

      2) If the one of the company owners (who owns at least 20% of the business) has a poor credit score (591) will that prevent the loan from being disbursed?

      Thanks, in advance!

      • RT says:

        Yes on #1, however, there is only a limited amount of funding available for this program and if you wait, you risk it running out.
        #2, your credit will not be a factor on loan approval.

        • UWS is home says:

          Many thanks for your quick reply! Given your reply to #1, we will plan on applying for PPP this week, and so here are related follow-up questions:

          3) If we submit the PPP application April 10th, may we consider April 11, 2019 – April 9, 2020 as the “prior year” to calculate the amount equal to 2.5 times the average monthly payroll? (Incidentally, we have been using Paychex since our inception.)

          4) Will the company’s credit history or credit score be a factor on loan approval?

          5) We have been with the same local branch since inception (TD Bank) but our branch is now closed. We’ve not been able to reach our bank’s “Store Manager” by phone or email for two weeks. He knows us so this is disappointing. Given this scenario, what is now the best way to submit the PPP application, please? For example, would going in person to another TD Bank location make for a more effective application – this would be my preference, but would this be any more effective than submitting an application online?

          Thank you again, in advance!

    33. UP says:

      A few questions:
      I’m a bit confused because some people I know are talking about picking an appropriate time frame to start using money obtained through the PPP. If an employer applies for the PPP and gets it, why would they not start paying their employees right away (even if they are at home) instead of waiting until some time before 6/30/2020 to start using it to pay their employees?

      I’m in Ca and I’m an optometrist who works for another optometrist. I’m the only full time employee on her payroll. Lot of optometry practices here have closed because of our “shelter at home” order but some have chosen to stay open to offer emergency care. My employer has decided to stay open during this time. She applied for the PPP and said if/when she gets it she said she needs to have me on payroll and therefor will need
      me to come back to work. Is this true? Do I have to return to work in order for her to have me on payroll or can she pay me while I’m at home? Can she make me come into work even though most other practices have closed and SHE chose to stay open?

      • Carol Tannenhauser says:

        There’s no reason not to start paying it right away, once you get the loan.
        She can pay you while you stay home.

    34. Jean Stapf says:

      If you lost an employee on 2/7/2020 and didn’t plan to replace them will it be a factor on loan forgiveness? Filled out the application with the 2019 numbers (when the person was employed). Also, the business pays rent to the owner. Would those rent payments still be an acceptable use of the funds?

      • RT says:

        If you don’t replace the employee that would affect the amount forgiven. There does not seem to be a restriction on payment of rents to an owner at this time, however, I would caution that the rent should be a fair-market rent.

    35. Michael says:

      Just got off phone with TD Bank rep after 90 Min hold. Poor guy knows less than I did. There is no ability for single employee business (Sole proprietor) to apply as of this time. Application asks if you have employees and are paying salaries and payroll taxes. I’m not and they stopped me cold. For fun, I went back and said Yes and they allow me to move forward. I didn’t. I’m assuming on Friday when independent contractors are allowed to apply, this glitch will clear but since I an an S-Corp and do not receive 1099s, I am not that category. Is this just a TD Bank thing? Does anyone know?

    36. David J says:

      Can my guys still work part time and I pay them the remaining unworked hours up to 40 combined hrs using the PPP?

    37. Elyse Candella says:

      I am a 1099 employe commercial real estate broker who gets a draw that is a “recourse” draw Am I eligible

    38. joel rayman says:

      I have a very unique situation. I’m a sole proprietor doing business as a DBA and the only employee. Everything runs through one bank account. I have a mobile business and use my home as the base. Am now able to separate my rent and utilities from my “personal payroll” without penalty?
      Someone mentioned I’d still be eligible for unemployment. I don’t think so.
      What about the SBA disaster loan, it’s going to be a long struggle getting things rolling again.
      Thank you for your advice.

      • RT says:

        You can apply for PPP and also for an EIDL – SBA disaster loan – for a $10,000 advance on that application. Generally, you would have to have a separate designated space in your residence as an office.

        • UWS is home says:

          Hi RT, I’m interested in going into TD Bank to submit the PPP application in person, with all documentation and answers ready. Our dollar figure is relatively low and I’m concerned that our application will be deprioritized for funding (since it would result in smaller fees for those who process it). Do you think it would make a difference to sit with an actual rep in a bank and get this done in person, able to answer any questions that may arise and provide all necessary documentation on the spot?

          • RT says:

            Due to the large volume of loan requests, most banks are prioritizing their customers and processing the loans online by specialists familiar with the program. Many bankers are working remotely due to social distancing.

    39. Sarah says:

      My place of employment was forced to shut down on March 22nd due to the stay at home order and being a non essential business. The owner’s immediately had us get on line to apply for our unemployment benefits. Now just last week I received a call from one of my bosses letting me know they have submitted an application for the payroll protection, and given that they’re approved We would then be put back on the payroll and no longer need to file for unemployment. That’s great! But here’s my question. Many people currently eligible for unemployment are receiving half a normal pay check plus soon an additional 600$ in benefits. That 600$ alone is more than I make in a week. What am I supposed to do here? Is it possible he was unclear about no longer filling for unemployment, and I should still be applying? Or did this program make myself and my coworkers no longer eligible for unemployment? Or should we decide that obviously remaining on unemployment is economically more beneficial for me during this time and given the circumstances, that I should opt to remain off of the payroll until I return to work? I don’t want to sound ungrateful or greedy but the last few weeks have already been financially burdening. What’s the more appropriate/ responsible corse of action I should pursue?

      Thank you in advance to anyone who may shed some light on this for me. I’ve been searching for hours on line trying to find answers!

      • RT says:

        if your employer keeps you on payroll you are no longer unemployed. You would have to quit, making you ineligible for unemployment.

    40. Arlan Colton says:

      Thank you for this column. We are a small non-profit and have just applied for a PPP loan on Friday, based on 4.5 employees. On Tuesday, the half time employee resigned to focus on their college studies per their letter of resignation. We have not received the loan, just heard that it was in queue for processing. No layoffs or salary reductions. If an employee quits unexpectedly, does this invoke the forgiveness aspect, or does that just apply to layoffs and salary reductions?

    41. Susan says:

      We have had to cutback 60% of our employees due to the virus as we are a restaurant and only doing to go. In order to get the forgiveness of the PPP loan do we need to put on payroll all former employees even though they are not needed to work?

      • RT says:

        If you put them all on payroll you will be able to maximize the loan you receive, of which 25% can be used for other purposes, such as payment of rent and utilities.

    42. Sandy Harrison says:

      I have a question about the GAP between March 15th (stay at home order) when we shut our doors and employees stayed at home – and when /if our PPP loan is funded. The gap will probably be 5-6 weeks. Do my employees file for unemployment for those 6 weeks and then I bring them back on my payroll once loan is funded (while keeping them home) for the following 8 weeks?

    43. Autumn Galyon says:

      If employer gets funds under PPP loan and wants employee to come back to work but the employee is afraid to come back under possible exposure to virus, will the be eligible for the forgiveness part of the loan if they come back before the June date or do they have to come back as soon as the loan is deposited?

    44. I am an independent contractor with a small boutique that has closed due to Covid19. The boutique owner suggested I contact my bank regarding the PPP. I am a customer with USAA and they do not participate with SBA.
      What is my next move?

      • RT says:

        Go to https://sbacares.boefly.com/ It’s an online platform that matches borrowers with lenders. I co-founded it in 2010 and since sold it to ConnectOne, for which I am a consultant. They are one of many banks in the Boefly network that are “ready to roll.” No fees or charges. But, please, study the site and make an informed decision. I offer it as a resource.

    45. M P says:

      We are a restaurant shuttered by NYS on March 16. We immediately laid off all but one employee, and have since applied for both the EIDL and the PPP. We rely on the summer season revenue in order to stay in business. If we get the PPP loan, and we re-hire as many workers as possible, pay our rent, utilities, etc. .withiin the 8 weeks of loan origination (as required), we will likely have to lay everyone off again until we open— unless magically the ban is lifted in 8 weeks time. We suspect that many workers who have since begun receiving the very attractive UI pay, they will be unlikely to want to return to our payroll for less money.
      Can we accept the loan but delay the origination until we are allowed to open. That is when the funds will be most needed. Can any funds remaining after payroll and rent expenses be used to pay vendors, albeit if interest is paid on that amount?
      If my payroll resumption is less than 75% of the loan, and my rent payment more than 25%, will those expenses be forgiven? Are clearer guidelines from the SBA forthcoming? Can unused funds be returned without penalty?

    46. Scott says:

      Wondering if your a small business owner and are approved for the PPP program if you can also collect NYS unemployment as well? One is federal program and one a state program. How does that work?