On December 22, 2020 Congress passed the stimulus bill which provides for new for Paycheck Protection Program loans and other small business relief. Read more about that legislation and apply for a PPP loan here.

This article was update on June 15 with the updated PPP loan application and new guidance regarding previous felony convictions and how they impact a PPP loan application.

Applying for an SBA loan generally can be confusing. Even though the PPP is based upon the SBA’s 7(a) loan program, there are some modifications that have been made for the PPP—broadening the scope of the type of businesses that might qualify, for example. With so many questions regarding the application, we thought it would make sense to dive into the app and try to help make it easier for you to complete the SBA’s updated PPP loan application and take advantage of the financing provided by the CARES Act.

Individual SBA lenders might have you complete a different looking application than the attached PDF of the app, particularly if you are completing an online application, but the information included in the app will be the same. You should also expect that your lender will likely need additional information and documentation once your application is complete.

You should also be aware that not all SBA lenders will look at your application the same way. For example, some lenders prefer to work with bigger small businesses than others, so they will be looking for more employees (the number that will impact your loan amount) than fewer. Other lenders will focus on their current customers before offering a Paycheck Protection Plan loan to new customers. Knowing this before you apply will help you find the SBA lender that is most likely to approve your loan application.

Basic Information About Your Business

The application will start off asking about your business entity. Although “self-employed” means a lot of different things to different people, the SBA is going to ask you to identify your business entity with one of the following:

• Sole proprietorship
• Partnership
• C-Corp
• S-Corp
• LLC
• Independent contractor
• Eligible self-employed individual
• 501(c)(3) nonprofit
• 501(c)(19) veterans organization
• Tribal business (sec. 31(b)(2)(C) of Small Business Act)
• Other

The majority of loans being processed in the early days of eligibility tend to be small businesses with significant numbers of employees—hence larger small businesses. There has been some confusion regarding the eligibility of Sole Proprietorships and other eligible self-employed people who don’t compensate themselves with some kind of documented payroll. We, along with most other lenders who regularly work with this type of business, are waiting for further guidance from the SBA to better facilitate a successful application. 

Unfortunately, at the present time, without a documented payroll it is unlikely that a self-employed person with no employees will be able to make the loan amount calculation and be approved for a PPP loan. As a result, we are counseling people to apply directly to the SBA for an Economic Injury Disaster Loan, for now. You will still be able to apply in the future if direction from the SBA changes.

Business Specifics

In addition to identifying your business entity, the application will also require your business’ legal name, business address, and any DBA or Tradenames if you are known by one. The primary contact for your business, a phone number, and an email address.

You will also need to supply your businesses Tax Identification Number, whether you file your taxes with your Social Security Number or an Employer ID Number (EIN), which the IRS requires if you have employees.

PPP Payroll Calculation and Purpose of the Loan

This calculation will determine your loan amount for the PPP. Your average monthly payroll for 2019, x 2.5 + EIDL, Net of Advance (if applicable), will equal your total loan request. You will also be required to include your current number of employees.

Your payroll calculation should not include independent contractors you work with or anyone you pay on a 1099. They have the opportunity to apply for a PPP loan for themselves.

“For purposes of calculating “Average Monthly Payroll,” most Applicants will use the average monthly payroll for 2019, excluding costs over $100,000 on an annualized basis for each employee. For seasonal businesses, the Applicant may elect to instead use average monthly payroll for the time period between February 15, 2019 and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee. For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.” 

You will also be asked to provide what you intend to use the funds for and will be asked to identify all that apply of the following:

• Payroll
• Lease/Mortgage Interest
• Utilities
• You will be asked to explain any other intended uses

The PPP is intended to keep employees on the payroll and off the unemployment rolls for eight weeks and is not forgivable if more than 25% of loan proceeds are spent on anything else. If the loan does not meet the criteria to be forgiven, the 2-year term loan will carry an interest rate of 1%.

Business Ownership

The name, title. ownership percentage, tax identification number, and address of any owner with 20% or more of the equity in the business applying for the PPP will need to be disclosed. This should include any owner even if they have interests in other unrelated businesses.

There are also a series of questions about background of the business owner(s) that are required when completing the application:

1. Is the Applicant or any owner of the Applicant presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy? If you answer yes to this question, your application will automatically be rejected.
2. Has the Applicant, any owner of the Applicant, or any business owned or controlled by any of them, even obtained a direct or guaranteed loan from the SBA or any other Federal agency that is currently delinquent or has defaulted in the last 7 years and caused a loss to the government? If you answer yes to this question, you application will be automatically rejected.
3. Is the Applicant or any owner of the Applicant an owner of any other business, or have common management with, any other business? If yes, you will need to describe the relationship.
4. Has the Applicant received an SBA Economic Injury Disaster Loan between January 31, 2020 and April 3, 2020? If you answer yes, you will need to provide the details of that loan when you apply for a PPP loan.

“If Applicant is refinancing an Economic Injury Disaster Loan (EIDL): Add the outstanding amount of an EIDL made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan, to Loan Request as indicated on the form.” 

1. Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction,or presently incarcerated, or on probation or parole? If you answer yes, your application will be automatically rejected.
2. Within the last 5 years, for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance, or within the last year, for any other felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; or 4) been placed on any form of parole or probation (including probation before judgment)? [Note: the restrictions for felonies that do not include fraud, bribery, embezzlement, or false statement in a loan application or an application for federal assistance, has been reduced from five years to one year]
3. Is the United States the principal place of residence for all employees of the Applicant in the Applicant’s payroll calculation above?
4. Is the Applicant a franchise that is listed in the SBA’s Franchise Directory?

Certifications

In addition to the above questions, as an authorized representative of the Applicant, you will certify in good faith to the below:

• The Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC. 
• Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
• The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud. 
• The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan. 
•  I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.
• During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program. 
• I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
• I acknowledge that the lender will confirm the eligible loan amount using required documents submitted. I understand, acknowledge and agree that the Lender can share any tax information that I have provided with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews. 

What to Do if You Have Questions About Your Application?

If you have further questions about how to complete an application for your specific business, we suggest that you talk with your attorney or accountant. If you apply with a lender online, they will be able to review your application before you submit it and make sure you have the documentation you will need to complete your application.

Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. We encourage you to consult with your lawyers, CPAs and Financial Advisors. To review your real-time funding options with one of Nav’s lending experts, please contact us.