CARES Act: Paycheck Protection Program
Update for Business Customers
As part of the federal stimulus measures to address the COVID-19 pandemic, the Coronavirus Aid, Relief, and Security Act (CARES Act) was signed into law on March 27, 2020. A key piece of this legislation is the Paycheck Protection Program (PPP). This program authorizes up to $349 billion in low-interest, forgivable loans for small businesses and nonprofits to encourage them to retain or rehire their employees.
Current Customers Only
A Bank of the Sierra PPP loan applicant must be a current Bank of the Sierra customer with a business banking relationship that started on or before March 31, 2020.
One of the most notable features of PPP loans is that all, or some, of the loan amount will be forgiven if:
- The loan is used to cover payroll costs not exceeding $100,000 in annualized compensation per employee, mortgage interest, rent, and certain utility costs over the 8-week period after the loan is made; and
- No more than 25% is for non-payroll costs.
Other Notable Features of PPP Loans
PPP loans are offered by the Small Business Administration (SBA) through SBA-approved lenders, like Bank of the Sierra. Features include:
- Available to all businesses, nonprofits, veterans organizations, tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors with 500 employees or fewer as well as certain types of larger multi-site businesses that meet certain criteria.
- No collateral and no personal guarantee are required.
- Loans are up to 2.5x a business's average monthly payroll costs from 2019, up to a maximum of $10 million.
- There are no fees.
- The term is for 2 years with a 1% fixed interest rate.
- Loan payments are deferred for 6 months (interest will accrue during this time).
- There is no prepayment penalty.
Permitted Uses for PPP Loan Funds
Small businesses that receive funds through the program can use them to pay for the items listed below:
- Payroll costs, including salaries, wages, tips, commission, etc. up to $100,000 annualized per employee whose principal residence is in the U.S.
- Employer-paid state and local payroll taxes (not federal employment taxes)
- Employer-paid vacation, parental, family, medical, or sick leave except for payments for which a credit is allowed under the Families First Coronavirus Response Act (FFCRA)
- Employer-paid group health insurance premiums
- Employer-paid retirement benefits
- Mortgage interest (not principal payments or prepayments)
- Interest on debt obligations that originated before Feb. 15, 2020 (not principal payments)
- Utilities, including electricity, gas, water, transportation, telephone, and internet for services that began before Feb. 15, 2020
- Refinancing an SBA EIDL loan made between Jan. 31, 2020, and April 3, 2020.
Please Note: If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Any advance up to $10,000 will be deducted from your PPP loan forgiveness.
Parameters for Loan Forgiveness
Assuming the PPP loan funds are only used for approved purposes, they are eligible for forgiveness. However, the amount that will be forgiven will be reduced if:
- You do not use the loan funds within 8 weeks of loan origination
- You use more than 25% for non-payroll costs (e.g., rent)
Estimating Your Potential Loan Amount
Small businesses can receive 2.5x the average of their monthly payroll costs from Jan. 1, 2019, through Dec. 31, 2019. If your business is seasonal, you have the option to choose the time period of Feb. 15, 2019, to June 30, 2019, instead. And, if your business is new, you can choose the time period of Jan. 1, 2020, to Feb. 15, 2020. These items can be included in your calculation:
- Salaries, wages, commissions, and tips up to $100,000 per employee on an annual basis
- Employer-paid vacation pay and parental, family, medical, and sick leave not credited through FFCRA
- Employer payments for group medical insurance benefits (i.e., premiums)
- Employer payments for retirement benefits
- Employer-paid state and local payroll taxes
If you have any employees whose principal residence is outside of the U.S., their compensation must be excluded.
A list of the required business documents can be found in our online application.
You can learn more about the PPP by reading the U.S. Department of the Treasury’s Information Sheet for Borrowers and Frequently Asked Questions Sheet. Information on the PPP and other small business relief options available through the federal government is available at the U.S. Small Business Administration’s Coronavirus Relief Options site.