Update: What to Know About the Paycheck Protection Program: Eligibility

Update 3/30/21: On Tuesday, March 30, President Biden signed into law a 2 month extension for the current round of Paycheck Protection Program funding. In order to receive funds through the program, eligible businesses will need to apply by May 31st. 

Update, 1/14/21: The Paycheck Protection Program began a phased reopening for loan applications on January 11; the program will be open to all participating lenders and eligible borrowers, including both first and second draw applicants, on January 19. First draw applicants can access the loan application here. There is a separate application form for eligible businesses seeking a second draw loan. Need to find an SBA-approved lender? We can help.

Update, 8/7/20: As of August 8, the SBA will no longer be accepting applications for Paycheck Protection Program loans. Learn about other small business financing options.

Update 8/5/2020: On August 4^th, the U.S. Small Business Association published new Paycheck Protection Program loan forgiveness FAQs. Our teams are working to review this new guidance and we will continue to keep you updated on how this may impact the loan forgiveness process, what is required as part of your forgiveness application, and how to use our in-app tools to support your application.

Update 7/4/2020: On July 4, 2020, President Trump signed into law an extension of the Paycheck Protection Program (PPP) loan application deadline to August 8.  Looking to apply for a loan? Find an SBA-approved lender. If you’re not sure if PPP is the right approach for your small business, start your research with these resources: maximizing PPP loan forgiveness and explore other small business financing options.

Update 7/2/2020: The Paycheck Protection Program is currently not accepting applications for loans, as the deadline to have a loan approved. As of July 1, both the U.S. Senate and House of Representatives have passed an extension of the application deadline to August 8. This now goes for President Trump's signature to become law. If you are planning to apply for a loan should the program reopen to new applications, get a head start: find an SBA-approved lender. While we await further news, you can learn more about maximizing PPP loan forgiveness and explore other small business financing options.

Update 6/30: As of June 30, 2020 applications for loans through the Paycheck Protection Program are closed. Looking for funding? Learn more about small business funding options that are still available.

Update, 6/22: SurePayroll customer? If you’re planning to apply for PPP loan forgiveness, you can now access an interactive forgiveness estimator and worksheet directly from your dashboard. Log in and click on the yellow banner to get started.

Update, 4/24/20: President Trump signed into law an additional allocation of funds for the Paycheck Protection Program (PPP) on 4/24/20. The law authorizes an additional $310 billion to the Paycheck Protection Program, $50 billion to the Economic Injury Disaster Loan (EIDL) program and $10 billion for EIDL grants. 

Notably, $60 billion of the allocated funds have been set aside for community lenders, including state and federal credit unions.

To help you move quickly to access these funds, we’ve put together a quick start guide. Link to: https://www.surepayroll.com/resources/blog/ppp-quick-start

Update, 4/16/2020: The SBA announced on April 16, 2020 that the initial $349 billion authorization for loans under the Paycheck Protection Program has been exhausted. Here’s what you need to know.

Update, 4/15/2020: Late on April 14^th, the Treasury and SBA issued additional guidance on eligibility criteria and requirements for self-employed applicants, impacting partnerships and self-employed 1040 Schedule C filers. The full guidance can be found here, and key points include:  

• A partnership is only eligible for one loan under the Paycheck Protection Program, not two separate ones.
• Self-employed individuals with no employees should use 2019 IRS Form 1040 Schedule C to assist in calculating their maximum loan amount.
• Self-employed individuals with employees should also use 2019 IRS Form 1040 Schedule C, and payroll processor records containing similar information to Form 941, along with evidence of any retirement and health insurance contributions, if applicable.

Update, 4/10/2020: We know that navigating the various relief options can be a challenge. Jackson Lewis has published a flow chart to help businesses understand their eligibility and opportunity for forgiveness under the Paycheck Protection Program.

Update 4/6/20: We’ve created a specialized report that is currently available for SurePayroll users to help make applying for a Paycheck Protection Program (PPP) loan simpler. Log into your account to get your report today! Note that household employers are not eligible for a PPP loan.

Update, 4/3/20: As of immediate guidance issued by the government last night, household employers are not eligible for a Paycheck Protection Program loan.

The below FAQs related to the Paycheck Protection Program are provided courtesy of Jackson Lewis.

Who is eligible for a “Paycheck Protection” (PP) loans under § 1102 of CARES?

Generally, businesses with less than 500 employees are eligible for PP loans. Businesses include any business concern, nonprofit organization, veterans organization or Tribal business concern.

Additionally, any business that qualifies as a small business under the criteria and size standards in 13 CFR 121.

Which employees are counted for purposes of the 500-employee threshold?

Employees for this purpose include full-time, part-time or employed on another basis.

Do employees of affiliates count towards the 500-employee threshold?

The general rule is that employees of affiliates are generally counted towards the 500-employee threshold under the SBA affiliation rules (13 CFR § 121.103.)

Are there exceptions?

There are two exceptions that make it much easier for businesses in the accommodations and restaurant industries to qualify for PP loans:

• For businesses with more than one physical location, any business concern that employs not more than 500 employees per physical location and that is assigned a North American Industry Classification System code beginning with 72 (see Exhibit A for a complete list) at the time of disbursal is eligible to receive a covered loan (NOTE: These include businesses in Subsector 721 (Accommodation) such as hotels and casino hotels and Subsector 722 (Food Services and Drinking Places) such as bars and restaurants.)
• There is also a general waiver of the affiliation rules (See Q&A 2, above) for any business concern described in the preceding paragraph with not more than 500 employees

Can entities with more than 500 employees that are not assigned a North American Industry Classification System code beginning with 72 potentially qualify for a PPP loan?

Yes.  The PPP loan eligibility provision provides:

• During the covered period, in addition to small business concerns, any business concern, nonprofit organization, veterans organization, or Tribal business concern described in section31(b)(2)(C) shall be eligible to receive a covered loan if the business concern, nonprofit organization, veterans organization, or Tribal business concern employs not more than the greater of:
  • 500 employees; or
  • if applicable, the size standard in number of employees established by the Administration for the industry in which the business concern, nonprofit organization, veterans organization, or Tribal business concern operates.
• Thus, any small business concern is also eligible for a PPP loan.

What is a small business concern?

According to the SBA, a small business concern is a business that is independently owned and which is not dominant in its field of operation and in conformity with specific industry criteria. These criteria are expressed as “size standards” of revenue or number of employees:

• SBA's size standards define whether a business entity is small and, thus, eligible for Government programs and preferences reserved for “small business” concerns. Size standards have been established for types of economic activity, or industry, generally under the North American Industry Classification System (NAICS). See13 CFR § 121.101(a).
• The SBA provides a size standard tool that can be found at: https://www.sba.gov/size-standards/
• A list of size standards can be found at: https://www.ecfr.gov/cgi-bin/text-idx?SID=b919ec8f32159d9edaaa36a7eaf6b695&mc=true&node=pt13.1.121&rgn=div5#se13.1.121_1201

Are nonprofits eligible for PPP Loans?

To be eligible for a PPP Loan, a nonprofit must be (a) organized under sections 501(c)(3) (charitable)or 501(c)(19) (veterans organizations) of the Internal Revenue Code AND (b) have less than 500employees.  All other nonprofit entities are ineligible.

The CARES Act increases eligibility for SBA loans.  Consistent with this “increased eligibility”, two categories are potentially eligible for PPP loans: (a)any small business concern(NOTE: These are entities that are eligible for SBA loans under current law); and (b) any “business concern, nonprofit organization, veterans organization, or Tribal business concern described in section 31(b)(2)(C)” that has fewer than 500 employees. (NOTE: These are the entities for whom eligibility is expanded under the CARES Act.)

Eligibility as a Small Business Concern

According to the SBA, a small business concern is a business concern that is independently owned and operated, and which is not dominant in its field of operation and in conformity with specific industry criteria.  These criteria are expressed as either number of employees or annual revenue.

A business concern is a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.See13 CFR § 121.105(a).  A nonprofit entity therefore cannot qualify as a business concern.

Eligibility Under Expanded CARES Act Eligibility Criteria

Certain nonprofit organizations are potentially eligible under these criteria.  “Nonprofit organization” is defined as “an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and that is exempt from taxation under section 501(a) of the Code.  There is also a specific eligibility provision for veterans organizations organized under Code Section501(c)(19).  Accordingly, any other nonprofit entity is not eligible for a PPP loan.

What is the amount of a PP loan that is available to an eligible recipient?

An eligible recipient of a PP loan is eligible to receive a loan in the amount of 250% of the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made. There is also an overall limit of $10 million dollars.

The Act provides that during the covered period, the requirement that a small business concern is unable to obtain credit elsewhere does NOT apply to a covered loan. We are currently analyzing whether this language applies to the SBA test that requires lenders to analyze the resources of individuals and entities that own 20 percent or more of the loan applicant in order to determine if any of the owners have liquid assets available that can provide some or all of the desired financing. If this provision does apply, it could limit the amount of the
available loan.

Are PP Loans available to dispensaries and other marijuana-related businesses?

No because federal law currently prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, many businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance. See 13
CFR § 120.110 (h).

Under the SBA’s Policy Notice dated April 3, 2018, the following businesses are ineligible:

(a) “Direct Marijuana Business” -- a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to personal use and medical use even if the business is legal under local or state law where the applicant business is or will be located.

(b) “Indirect Marijuana Business” -- a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana.

Examples include businesses that provide testing services, or sell grow lights or hydroponic equipment, to one or more Direct Marijuana Businesses. In addition, businesses that sell smoking devices, pipes, bongs, inhalants, or other products that may be used in connection with marijuana are ineligible if the products are primarily intended or designed for such use or if the business markets the products for such use.

Certain “Hemp-Related Businesses” are ineligible unless the business can demonstrate that its business activities and products are legal under federal and state law. Examples of legal hemp products include paper, clothing and rope.

The PP loan program is based upon the SBA loan program. Absent a specific override in the CARES Act of the illegal activity limitation, marijuana-related businesses would continue to be ineligible.