Ultimate Guide to Paycheck Protection Program (PPP) Loans

The SBA is no longer accepting applications for PPP loans. If you received a PPP loan through Kabbage, sign into your dashboard for updates on loan forgiveness.

These unprecedented times have affected small businesses all over the country. From cash flow losses to temporary layoffs, small businesses are having to quickly adapt due to the COVID-19 outbreak. Thankfully, the government recently passed the Coronavirus Aid, Relief and Economic Security (CARES) Act to provide assistance to keep your business afloat with efforts like the Paycheck Protection Program.

ABOUT THE PROGRAM

Is Kabbage an authorized SBA lender?

At this time, Kabbage is offering Paycheck Protection Program (“Program”) loans on behalf of one or more approved U.S. Small Business Administration (“SBA”) lenders. Loan agreements will identify the lender to small businesses at signing, and any loan made under the Program must also be submitted to and approved by the SBA. Program funds are limited. Kabbage does not guarantee that applications will be processed and submitted before Program funding is no longer available. There is no cost to you to apply for a Program loan. Applying with Kabbage does not limit you from applying with other lenders and/or platforms.

What is the Paycheck Protection Program?

The Paycheck Protection Program (PPP) is a key section within the recently passed Coronavirus Aid, Relief and Economic Security Act (CARES) Act that allocates $349 billion for small business (< 500 employees) loans to support payroll and certain other expenses. Loans are available for up to 2.5 times of your average monthly payroll during the year preceding the application, with a maximum loan of $10 million. If employers maintain their payroll and use loan funds for allowed expenses like payroll, rent and utilities for the first 24 weeks after the loan is issued, the loan amount is forgiven. The PPP is retroactive to February 15, 2020.

Is my business eligible?

The following small businesses that were operational as of February 15, 2020 are eligible for PPP loans:

  • a small business with fewer than 500 employees, regardless of revenue
  • a small business that otherwise meets the SBA’s size requirements
  • sole proprietors, independent contractors, and self-employed individuals who regularly carry on any trade or business, including those in the “gig economy”
  • a hospitality or food service business (those with an NAICS code beginning with 72) if it has fewer than 500 employees per physical location
  • a non-profit entity under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (Internal Revenue Code), so long as that entity has fewer than 500 employees
  • a veterans organization under Section 501(c)(19) of the Internal Revenue Code that meets the SBA’s size requirements
  • a tribal business entity that meets the SBA’s size requirements

It is important to note that the SBA applies complex affiliation requirements, which generally require a business to aggregate all of its parent companies, affiliates, and subsidiaries in determining whether the business meets the small business size requirements and borrowing criteria. These affiliation requirements still generally apply under the PPP, except that they are waived for:

  • a hospitality or food service business classified under an NAICS code beginning with 72
  • a business operating as a franchise that is an SBA‑assigned franchise identifier code
  • any entity that receives financial assistance from a company licensed under Section 301 of the Small Business Investment Act of 1958, as amended

Who is not eligible for a PPP loan through Kabbage?

Certain business types are not eligible for a PPP loan due to SBA or Kabbage guidelines. Here is a list of ineligible businesses.

How much funding can I access?

The maximum loan you can access is 250% of your average monthly payroll during the year preceding the application, up to $10 million. However, Kabbage can only process loans of up to $2 million.

How can I use a PPP loan?

You can use the loan to fund payroll costs, employee salaries, costs related to the continuation of group healthcare benefits during paid leave (sick, family or medical), insurance premiums, mortgage interest payments, rent, utilities and interest on any other debt obligation incurred before February 15, 2020.

APPLYING*

When can I apply?

  • Starting April 3, 2020, small businesses and sole proprietorships can apply for loans to cover their payroll and other certain expenses through existing SBA lenders. 
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. 
  • Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program. 

What information do I need to provide to apply?

Here is a list of documentation you may need. Documents required vary by business type.

Do I need to pledge any collateral for these loans?

No collateral is required.

Do I need to personally guarantee this loan?

No, there is no personal guarantee requirement. However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.

Do I need to first look for other funds before applying to this program?

No, the SBA is waiving the requirement that you try to obtain some or all of the loan funds from other sources (i.e., Credit Elsewhere requirement).

Can I get a PPP loan if I have other SBA loans?

Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). For example, if you use your PPP to cover payroll for the 24-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers.

Can I also apply for an Economic Injury Disaster loan (EIDL) under the act?

Yes. The act likewise expands access to SBA’s Economic Injury Disaster Loans (EIDL) program to businesses with fewer than 500 employees. The same affiliation issues described above apply. Eligible businesses that suffer substantial economic injury as a result of a disaster or emergency, which now includes COVID-19, can apply for a loan under this program between January 31, 2020, and December 31, 2020.

No personal guarantee is required for EIDLs under $200,000, and the loan can be made solely upon the applicant’s credit score. Initial advances of up to $10,000 can be issued within three days and need not be repaid. The loan will bear a low rate of interest; however, unlike PPP 7(a) loans, the act does not provide for forgiveness for EIDLs. Businesses may receive both PPP loans and EIDLs, so long as both loans are not used for the same purpose or otherwise duplicative.

Can I get more than one PPP loan?

Each Taxpayer Identification Number is only eligible for one PPP loan. There is no limit to the number of lenders you can apply with, BUT you can only receive one PPP loan.

What if I have multiple businesses?

At this time, Kabbage can only process one application/EIN/one deposit account per email address. If you have multiple businesses that do not fit that criteria, we recommend applying at other eligible lenders.

How long will this program last?

Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there are a limited amount of funds available, and the program is first-come first-served.

Who is my lender?

Your lender will be identified on your loan documentation which will be provided to you prior to signing.

Are there any origination fees or other fees Kabbage is charging for PPP loans?

No. It’s free to apply for a PPP loan and there are no origination fees for the Borrower. Please be wary of any third party that asks you to provide up-front fees to apply for PPP loans as the SBA guidance explicitly prohibits such fees.

If I apply and am eligible, am I guaranteed a loan?

Program funds are limited. We cannot guarantee that your application will be processed and submitted before SBA funding is no longer available. Applying with Kabbage does not limit you from applying with other lenders and/or platforms.

What if I haven’t filed one of the 2019 IRS forms requested?

Even if you haven’t filed a requested form, you should work with your CPA or refer to your tax software to fill it out and submit it for your loan application. Since 2019 payroll forms like 940, 941 and W3 weren’t included in the COVID-19 extension, they should be filed and submitted as part of your application.

Can I submit a K-1 as proof of payroll?

No, that is considered owner’s draw compensation and is not considered payroll. Sole proprietors should submit Form 1040 with Schedule C attached.

I have an LLC with several employees, but I do not file a W2 on myself as the owner. Am I included in the payroll calculation?

No, if you are an LLC, take draws from the company and file on your 1040, that is not included in the payroll calculation.

What if I have a single-member LLC?

You will submit your Form 1040 with Schedule C to verify payroll.

I am concerned about security. Can I password protect my documents before I submit them?

Please do not submit password protected documents. We won’t be able to open them to verify your information, which will delay your application.

What documents are considered organizational documents?

Examples of organizational documents include: Articles of Incorporation, Certificate of Existence, Certificate of Organization, State LLC Agreement, Certificate of Formation, or the Articles of Information. (This does not apply if you are a sole proprietor or independent contractor.)

What goes into the payroll calculation if I am not a sole prop or independent contractor?

  • Any salaries, wages, commissions, tips and bonuses, including severance pay found on W3 (excluding contractor pay and owner draw compensation)
  • Any paid leave (no FFCRA paid leave) found in 940 or 944
  • Employee-paid state and local taxes found in W3
  • Employee-paid group health benefit contributions found in uploaded statements
    Employee-paid retirement contributions
  • W2 for any employee making over $100K and/or living abroad

What if I don’t have any employees?

  • For Sole Props, single member LLCs and self-employees we will need:
  • For Independent contractors we will need 1099s and proof of payment such as paid invoices

What if I don’t have those payroll documents?

Kabbage won’t be able to submit your application to the SBA if we can’t verify your payroll costs through this documentation. We recommend going to SBA.gov and finding another eligible lender, you can search for providers here.

Can I withdraw my application?

Yes, please email us at ppp@kabbage.com from the email address associated with your application with your request to withdraw.

REPAYMENT

Will my PPP loan be forgiven?

Your loan forgiveness eligibility increases if:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 24 week period after the loan is made; and 
  • Employee and compensation levels have remained consistent since Feb. 15, 2020. 

How much of my PPP can be forgiven?

The amount of your loan that is forgiven is equal to the amount you spend during the 24 weeks following loan origination toward eligible expenses, including:

  • Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
  • Interest on the mortgage obligation incurred in the ordinary course of business in place before February 15, 2020
  • Rent on a leasing agreement in place before February 15, 2020

You can only use up to 40% of the loan on non-payroll costs to receive full loan forgiveness.

Can the amount forgiven be reduced?

The amount of loan forgiveness is reduced if there is a reduction in the number of employees, or a reduction of more than 25% in wages paid to employees. Reductions in the number of employees or compensation occurring between February 15, 2020, and April 26, 2020, will generally be ignored if the action (layoff or salary reduction) is reversed by June 30, 2020.

How do I apply for loan forgiveness? 

You must submit an application for forgiveness through the lender that is servicing the loan and provide:

  • Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and state income, payroll and unemployment insurance filings
  • Documentation verifying payments on covered mortgage obligations, lease obligations and utilities
  • Certification that documentation is true and correct, and that the amount that is being considered for forgiven was used in accordance with the Paycheck Protection Program’s  guidelines for use

The lender has 60 days from receipt of a completed application to submit a decision to the SBA.

If my loan amount covers 2.5x my monthly payroll and other costs, but only eight weeks of those expenses are forgivable, will I owe the remainder back to the lender?

Yes, the act allows for a maximum forgiveness of 24 weeks of approved costs. The remainder will be treated as a loan. Remember that the approved costs subject to forgiveness are broader than just payroll, and also include mortgage interest, rent and utilities.

What is my interest rate?

Loans through PPP have a fixed interest rate of 1%.

When do I need to start paying interest on my loan?

All payments (principal, interest and fees) are deferred for 10 months after your loan is disbursed; however, interest will continue to accrue over this period.

When is my loan due?

The loan is due in 5 years, but you can repay early without any prepayment penalties or fees.

ELIGIBLE EXPENSES

What interest expenses are considered eligible?

Any business-related interest payments on a mortgage or other debt obligation (excluding any prepayment or principal obligation) that was incurred before February 15, 2020.

What rent expenses are considered eligible?

Payments for business-related rent under a leasing agreement that was in force before February 15, 2020.

What utility expenses are considered eligible?

Payments for business related utilities (for the distribution of electricity, gas, water, transportation, telephone, or internet access) for which service began before February 15, 2020.

What counts as payroll costs?

Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee) for employees whose principal place of residence is the U.S.
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit
  • State and local taxes assessed on compensation
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

Are any payroll costs excluded?

Yes, the following payroll costs are excluded:

  • Any compensation of an employee whose principal place of residence is outside of the United States
  • The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary
  • Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
  • Contractor pay (i.e. any issued 1099s)
  • Payroll reimbursements
  • Owner’s draw compensation (except for sole props)
  • Worker’s compensation fees
  • Fringe benefits (i.e. commuter benefits, HSAs)
  • Ancillary benefits (i.e. short-term disability, long-term disability, life insurance)

Do independent contractors count as employees for purposes of PPP loan calculations?

No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.

What is the maximum recoverable salary for each employee?

For any employee whose salary is $100,000 or more, only $8,333 per month can be included in the calculation of average monthly payroll costs, in addition to that employee’s cost of health and retirement benefits and state and local taxes prorated for the covered period.

How can PPP loans be used?

In addition to the approved uses for a Section 7(a) loan made in the ordinary course, a PPP loan may, for the period from February 15, 2020 to June 30, 2020, be used for the following:

  • payroll costs;
  • insurance benefits;
  • employee salaries, commissions, or similar compensations;
  • mortgage payments;
  • rent payments;
  • utilities;
  • interest on existing debt; and
  • as noted above, to repay or refinance an EIDL incurred by the borrower between January 31, 2020 and the date on which PPP loans become available.

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