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.
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 (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.
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.
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.
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
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:
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.
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:
PRO TIP: Most business owners find payroll documentation easier.
Calculate your gross average monthly payroll and loan amount using the information above regarding employee costs.
Complete your PPP application.
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.
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.