February 24, 2021 By Suzanne Robertson

The new round of SBA Paycheck Protection Program (PPP) Loans is very similar to the first round offered in early 2020. This program was designed to mitigate small business losses from the COVID-19 coronavirus.

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The loan amount available for these PPP loans is a formula based on the average monthly cost of the payroll for the business. Here’s what you need to know about one of the most important elements to determine your loan amount – payroll cost calculations. The intuitive SmartBiz Loans PPP application will calculate your loan amount for you.

Paycheck Protection Program details

Paycheck Protection Program (PPP) Loans outlined in the new CARES Act can only be offered until May 31, 2021 OR until the dollar cap is reached.

*Please note that SBA rules involving Paycheck Protection Program loans are subject to change given the fast-moving events in the U.S.

The average monthly payroll calculation is the most important part of the PPP loan application because it not only determines the size of the loan you can apply for, but it’s also the easiest area to miscalculate.

Paycheck Protection Program borrower application form

The first step to take is to download the SBA’s Paycheck Protection Program Borrower Application Form. Access a PDF of the form here. The expiration date is 7/31/2021

To start, an entrepreneur must identify the structure of their business like sole proprietor, partnership, S-Corp, LLC, etc. Independent contractors can also apply.

It’s important here to note that the Small Business Administration is not a lender. You’ll be working with another financial institution, like SmartBiz Loans.

Payroll calculation for PPP loan applications

After filling in general information, like your address and legal business name, you’re asked to calculate your average monthly payroll to come to your loan amount request.

It sounds fairly simple. However, new laws expand the definition of payroll in significant ways.

PPP Calculation Details

Payroll is calculated for most small businesses using payroll x 2.5 (or x 3.5 for NAICS 72 applicants in the hospitality industry) to equal the loan request amount (may not exceed $2,000,000). You must provide the following:

Number of employees
(including affiliates, if applicable; may not exceed 300):

Purpose of the loan

  • Payroll Costs
  • Rent / Mortgage Interest
  • Utilities
  • Covered Operations Expenditures
  • Covered Property
  • Damage
  • Covered Supplier Costs
  • Covered Worker Protection Expenditures

If you previously received PPP funding, you must provide the PLP loan number and amount on this form as well.

Gross receipts reduction

Reduction in gross receipts must be at least 25%.

2020 Quarter (e.g., 2Q 2020): Gross Receipts: $

Reference Quarter (e.g., 2Q 2019): Gross Receipts $

Excluded payroll costs

The costs below are not included in payroll calculations:

  • Taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees)
  • Proceeds from transactions between a concern and its domestic or foreign affiliates
  • Amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.

Maximum amount you are allowed to borrow under PPP

For most borrowers, the maximum loan amount of a PPP loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers in the Accommodation and Food Services sector (use NAICS 72 to confirm), the maximum loan amount for a 2021 PPP loan is 3.5x average monthly 2019 or 2020 payroll costs up to $2 million.

Steps to calculate payroll

Step 1

Pull the yearly payroll register by employee, either for 2019 or the last 12 months.

The report should show gross wages, tips, vacation and benefits payments, and taxes. If you use payroll processing software, many have special PPP reports they created specifically for this program. Payroll processing tools are available from these software companies to help you more easily calculate your costs. Here are popular payroll providers offering expert payroll calculation information and how you can access those reports:

Tax documentation alternative
Instead of using payroll documents, some businesses have found it easier to use IRS forms 941, 944, 940 and for those self-employed forms 1040, 1099-MISC. Some banks have also been requesting these, especially Form 941.

However, Form 941 has two key issues:

  1. Many businesses will not have filed their Q1 2020 Form 941 if using the last 12 months period, and
  2. Some payroll processing organizations file Form 941 for the businesses they serve and those businesses will not have individual forms.

PRO TIP: Most business owners find payroll documentation easier.

Step 2

Calculate your gross average monthly payroll and loan amount using the information above regarding employee costs.

Step 3

Complete your PPP application.

Next Steps

SmartBiz Loans® works with small business owners like you every day to help you apply for the funding you need. Since 2013, we’ve specialized in SBA (Small Business Administration) loans.

Learn more about the PPP program or start an application today.

The SmartBiz team of financial professionals has produced a short video to help walk you through the application steps easily.

What You Need to Know

The availability of PPP loans remains subject to SBA guidance and other factors, including the amount of funding available to banks and the quantity of eligible applicants considered on a first-come, first-served basis. The information provided above is for educational purposes only. Please consult the SBA website for 2021 rules and guidance.

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