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Updated . What changed?
The SBA reopened the Paycheck Protection Program (PPP) applications to all eligible lenders on January 19, 2021. But it's only accepting applications from businesses with fewer than 20 employees between February 24 and March, 10 2021. Applications will be avail to all eligible businesses until March 31, 2021.
Calculating payroll costs is the most complicated part of the SBA’s two-page Paycheck Protection Program (PPP) loan application. You’ll need to make sure you’re including all eligible expenses to get the full funding you’re entitled to borrow.
The SBA uses the following formula to calculate the maximum amount you can borrow through the Paycheck Protection Program:
However, it's not exactly that straight forward. How much you receive depends on your employee's salaries and whether you got an Economic Injury Disaster Loan (EIDL) and grant.
Follow these steps to get an accurate count of your payroll costs.
Add up all eligible payroll costs before federal taxes in 2019 or 2020. Only include costs from employees who primarily live in the US, excluding independent contractors that your business has hired — they can apply for a PPP loan on their own.
New and seasonal businesses also have the option of using these payroll costs instead:
The Paycheck Protection Program doesn’t cover anything over $100,000 for an individual employee’s annual salary before federal income taxes. If none of your employees make over $100,000 a year, skip ahead. Otherwise, you can follow these steps:
If you have a new or seasonal business, follow these steps:
Divide the results you calculated in Step 2 by 12.
Multiply the average monthly payroll cost you calculated in Step 3 by 2.5.
If your business didn’t receive an EIDL that you used to cover payroll costs between January 31, 2020 and April 3, 2020, you’re finished. Otherwise, there’s one more step.
You’re required to refinance any EIDL your business received to cover payroll costs during the coronavirus outbreak.
The resulting number is the maximum amount you can borrow through the Paycheck Protection Program.
The SBA uses the same formula to calculate the maximum you can borrow for a second PPP loan with one exception. Businesses in the accommodation and food services industry can borrow 3.5x the average monthly payroll costs. All Second Draw PPP loans are capped at $2 million.
You have three choices when it comes to which period to consider for your average monthly payroll cost.
The SBA recommends using a calendar year to calculate payroll costs to make things easier in an Interim Final Rule issued on January 8, 2021. Since all Second Draw loans will be made in the first quarter of 2021, the SBA doesn't expect it to make much of a difference if you rely on 2020 payroll costs or the 12 months before.
Self-employed individuals need to follow three steps to determine the maximum amount they can borrow:
If you have an Economic Injury Disaster Loan (EIDL) that wasn’t issued during the COVID-19 pandemic, you can add it to your final amount in Step 3 to refinance it through the PPP.
According to the SBA, it’s up to you, the borrower, to calculate your maximum loan amount when you apply for the PPP. In fact, it’s one of the first steps of the application. And you’ll have to back up that number with documentation. That’s why it’s essential to understand which costs count and which don’t count.
The SBA allows you to use the following documents to confirm your payroll expenses — though some lenders might have more specific requirements.
Lenders might accept other types of documentation of payroll costs, depending on the circumstances. And if you haven’t filed your 2019 taxes as a self-employed applicant, the SBA will issue additional documentation guidelines. Check with your lender to ensure you have all the correct documents when you apply.
If your business relies on a professional employer organization (PEO) or other payroll provider to process payroll expenses, you might have to submit different documents. If you live in a state where you’re required to report payroll provider data in your state taxes, submit the following documents — if possible:
Otherwise, ask for a statement from your provider stating the wages and payroll taxes your company paid.
The following costs count when you calculate your PPP loan amount. When calculating your loan amount, use the cost before federal taxes.
These costs do not count toward payroll calculations for a PPP loan:
Below is a list of online lenders offering SBA Paycheck Protection Program loans. We recommend applying as soon as possible, since funds are available on a first-come, first-served basis. Get help filling out the application with our guide.
You’re responsible for calculating the correct loan amount when you apply for a Paycheck Protection Program loan — and to back it up with documents. If you have a payroll cost that you aren’t sure is eligible, reach out to an expert — such as a CPA, your lender or your local Small Business Development Center.
Read our guide to funding your business during the coronavirus outbreak to learn about your other options.
Answers to common questions about calculating your PPP loan amount.
The SBA requires independent contractors and sole proprietorships to submit IRS Form 1099-MISC in addition to income and expense reports.
You can. However, independent contractor payroll costs don’t count toward your payroll costs, so only your compensation will be covered.
No, the PPP doesn’t cover costs of household employees. You must be a registered business to qualify.
Finder.com received a PPP loan in May 2020.
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