Despite its name, the Paycheck Protection Program (PPP) does not require the business to write paychecks.  The owner’s income, IRS Schedule F line 34 or Schedule C line 31, is considered the owner’s paycheck.  

PPP provides loans at 1% interest, 2-year term, deferred for six months but interest accrues during that time.  These loans can be up to 100% forgivable under certain circumstances.  

All loan proceeds used to cover payroll costs, including benefits, over the eight-week period after the loan is made, can be forgiven.  Payroll costs are capped at $100,000 annualized for each employee.  Up to 25% of the loan can be forgiven for loan proceeds used to pay rent, utilities, and interest on mortgage over the eight-week period after the loan is made.  

The loan forgiveness amount will be reduced if there is a decrease in full-time employee head count or if salaries and wages are decreased by more than 25% for any employee that made less than $100,000 annualized in 2019.  In applying the applicant will need to certify in good faith that current economic uncertainty makes the loan necessary to support ongoing operations as well as other considerations.   

To calculate the potential loan amount for the self-employed who have no employees, use the 2019 IRS Form 1040 Schedule F line 34 (or Schedule C line 31) net profit amount.  If the 2019 return has not yet been filed, fill it out and compute the value.  If this amount is over $100,000, reduce it to $100,000.  If this amount is zero or less, discontinue calculating.  A PPP loan is not available to any business that this amount is zero or less.  Divide this amount by 12 to get the average monthly net profit.  Multiply this average monthly net profit amount by 2.5.  This is the maximum loan amount.

To calculate the potential loan amount for a business that has employees, start with the owner’s income as described above.  Add the 2019 gross wages and tips paid to employees and the employer contributions for employee health insurance, retirement plans, and state unemployment insurance tax.  Divide this amount by 12 to get the average monthly payroll.  Then multiply the average monthly payroll amount by 2.5.  This is the maximum loan amount.

In either case, if the business received an Economic Injury Disaster Loan, EIDL, between January 31, 2020 and April 3, 2020, it could be refinanced by adding it to the PPP application.

PPP loans are made through a local banker.

For a second loan program, Economic Injury Disaster Loan, EIDL, application is made directly with the Small Business Administration, SBA.  It is only available through an on-line application, so there are volunteers to assist non-computer users in completing it.  Contact the Clay County Economic Development Group’s office to learn more about these volunteers.

The EIDL program may provide an advance of up to $10,000 based on $1,000 per employee.  Advances do not need to be repaid. The initial application takes about 15 minutes if sales, cost of goods sold, and cost of operation (excluding depreciation) has already been calculated.  

After receiving the advance, it may take a week or longer to receive word of either approval or denial of the loan.  If approved, the SBA will send an email to the applicant with instructions to create an on-line loan portal account.  In this account, a loan minimum and maximum amount will be offered.  The applicant can choose an amount within this range or none at all.  Loans have a 30-year term at 3.75% interest.   

SBA calculates the offer based on the 12 months prior to the disaster declaration, Jan. 31, 2019 to Jan. 30, 2020.  However, for businesses that have a fiscal year the same as the calendar year, their 2019 Schedule C or F can be used instead.  The loan is calculated by subtracting Cost of Goods Sold from Gross Sales to arrive at a Gross Profit Margin.  The maximum loan amount is 50% of this gross profit margin.   

Loans under $25,000 are based on the owner’s credit score and require no further documentation.  Loans under $500,000 require additional information, while loans over $500,000 require the most information and scrutiny.

Loans may be denied at any point in the process.  Reasons for denial could include credit history; not an eligible business activity; delinquent child support; criminal activity; and unverifiable information, among others. The application can be made at https://covid19relief.sba.gov/#/.

Other aid specifically for the Covid-19 disaster is unemployment insurance.  In rare cases, farmers and some small agri-business owners who do not qualify for tradition unemployment, may qualify for the new Covid-19 Pandemic Unemployment Assistance, PUA, if they are not working as a direct result of Covid-19.  Direct causes include being diagnosed with Covid-19; seeking medical treatment for Covid-19 symptoms; a household member diagnosed with Covid-19; caring for family or household member who has been diagnosed with Covid-19; or primary care giver to someone who is unable to attend school or another facility that is closed because of Covid-19 and the attendance is necessary to allow the individual to work. There are other causes that do not apply to farmers such as place of employment being closed as a direct result of Covid-19.

Business owners, which includes farmers, who are experiencing financial difficulties are encouraged to visit with their local banker.  They are up to date on assistance available and willing to help determine best options.

 -- Lori Huber, Clay County Economic Development