As a small business owner since 2012, I believe the Paycheck Protection Program (PPP) is the best rescue program I have ever witnessed.
The PPP promises to lend out and forgive $350 billion to small businesses with under 500 employees if these small businesses keep their payroll.
My small business applied for a PPP loan on April 3, 2020 and got our funding deposited in the bank on April 17, 2020. If you have not got your PPP loan yet, keep the faith. It will come, especially with Congress deciding on more funds.
What Is The Maximum PPP Loan Amount You Can Get?
Here is the maximum PPP loan amount you can get according to the Small Business Association:
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.
Once you get the loan amount, after 8 weeks, if you use the funds for payroll costs, mortgage interest, rent, and utilities payments, 100% of the loan will be forgiven.
Further, not more than 25% of the forgiven amount may be for non-payroll costs.
Sounds pretty straightforward right? Due to the way the SBA and the government has worded the amounts, there is some conclusion.
If an employee makes over $100,000, is 100% of the employee's salary ineligible for calculation? The answer is no. The employee's salary will be pro-rated up to $100,000 for inclusion.
If an employee makes $240,000 starting on Oct 1, 2019, how is that employee's salary included in the calculation? Given the employee made $60,000 gross in 2019, I believe 100% of the employee's salary is included in the calculation since it is below $100,000.
But the biggest confusion in the maximum amount of PPP loan. Given we have applied for one, talked to our bankers, successfully read everything, and I am a veteran finance professional, here is the maximum PPP loan amount per employee:
$11,110 X 2.5 = $27,776
How did I get $11,110 X 2.5 = $27,776? Very simple.
The maximum annual salary that can be used for the PPP loan calculation is $100,000. Therefore, the maximum monthly salary is $8,333.
The maximum amount of the PPP loan that can be used for salary is 75%. Therefore, $8,333 divided by 75% = $11,110. In other words, $2,777.5 can be used to pay retirement benefits, health benefits, rent and other operating expenses associated with running a business.
From the SBA: “When calculating payroll costs, the exclusion of an employee salary that is greater than $100,000 annually applies only to cash compensation and not to non-cash benefits such as contributions to retirement or defined-benefit plans, payments for group healthcare coverage, including insurance premiums, or state and local taxes.”
Finally, the PPP allows for businesses to receive loans equal to 2.5X monthly payroll expense plus those other expenses. Therefore, $11,110 X 2.5 = $27,776.
Therefore, if you have 20 employees, and have been paying them at least $100,000, you can theoretically get $555,520 in PPP loans that will ultimately be forgiven if you pay your employees at least $100,000 and keep them on the payroll for at least 8 weeks.
The maximum PPP loan amount is NOT just $8,333 (1/12th of a $100,000 annual salary). Many people are confused by this.
PPP Loan Example
Here is a PPP loan example using my preschool.
There are 10 employees who average $75,000 a year in salary. They all get subsidized health insurance and some 401(k) matching.
The owners of the preschool can apply for the PPP and get $172,917 from the federal government. If they leave their payroll exactly as it is for at least 8 weeks after the loan is granted, the preschool can submit proof of documentation to its lender to have the entire $172,917 forgiven.
The preschool could theoretically get $277,760 in PPP loans if they paid their teachers the maximum $100,000. But still, getting $172,917 is still a great amount of money that will be forgiven eight weeks after the loans are disbursed.
The PPP Is Great
Good luck all small business owners! The PPP is certainly going to help our economy since 99% of all business are small businesses in America and small businesses employ roughly 48% of the entire working population.
If you are considering starting a business, I suggest starting an online business that can't be shutdown during a pandemic. Margins can be very high and it's much easier to pivot.
If you are still waiting for your PPP loan disbursement, keep the faith. It took two weeks for my PPP loan to hit my business bank account. Congress will be approving more PPP funds so do not worry.
If you haven't applied for a PPP loan yet, don't delay any longer. Apply for as much as possible. Good luck!