Ultimate Guide to Paycheck Protection Program (PPP) Loans

the ultimate guide to paycheck protection program loans

The content of these FAQs is for informational purposes only and is subject to change. These FAQs and other information from K Servicing are not designed or intended to provide financial, tax, legal, investment, accounting, or other professional.

PPP Second Draw fast facts:

  • Businesses with fewer than 300 employees are eligible
  • Loan amounts are 2.5x average monthly payroll up to $2M (K Servicing can process loans up to $2M). (Loan amounts are 3.5x average monthly payroll for businesses with an NAICS code of 72.)
  • 1% fixed interest rate
  • Payments are deferred for 6-months
  • 5 year repayment period
  • Loans are 100% forgivable if 60% of funds are used toward qualifying payroll costs and employment levels are maintained.
  • Only businesses that took a First Draw loan through Kabbage can apply through K Servicing for a Second Draw loan.

ABOUT THE PROGRAM

What is the Paycheck Protection Program?

The first round of the Paycheck Protection Program (PPP) is a key section within the Coronavirus Aid, Relief and Economic Security Act (CARES) Act that allocates $349 billion for small business (< 500 employees) loans to support payroll and certain other expenses. Loans are available for up to 2.5 times of your average monthly payroll during the year preceding the application, with a maximum loan of $10 million (and 3.5 times for restaurants). If all employees are kept on payroll, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest or utilities – for up to 8 weeks after the loan is issued and up to 100% of the loan. The PPP is retroactive to February 15, 2020.

With the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), the SBA has introduced a Second Draw PPP Loan for eligible businesses that have already received a PPP loan. This Act has allocated $284 billion for both First and Second Draw loans.

Is my business eligible?

The following small businesses that were operational as of February 15, 2020 are eligible for a First Draw PPP loan:

  • a small business with fewer than 500 employees, regardless of revenue
  • a small business that otherwise meets the SBA’s size requirements
  • sole proprietors, independent contractors, and self-employed individuals who regularly carry on any trade or business, including those in the “gig economy”
  • a hospitality or food service business (those with an NAICS code beginning with 72) if it has fewer than 500 employees per physical location
  • a non-profit entity under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (Internal Revenue Code), so long as that entity has fewer than 500 employees
  • a veterans organization under Section 501(c)(19) of the Internal Revenue Code that meets the SBA’s size requirements
  • a tribal business entity that meets the SBA’s size requirements

It is important to note that the SBA applies complex affiliation requirements, which generally require a business to aggregate all of its parent companies, affiliates, and subsidiaries in determining whether the business meets the small business size requirements and borrowing criteria. These affiliation requirements still generally apply under the PPP, except that they are waived for:

  • a hospitality or food service business classified under an NAICS code beginning with 72
  • a business operating as a franchise that has an SBA‑assigned franchise identifier code
  • any entity that receives financial assistance from a company licensed under Section 301 of the Small Business Investment Act of 1958, as amended

The Second Draw eligibility requirements are the same as the First Draw, with a few changes. Small businesses must:

  • Have started operating before Feb 15, 2020, and still be operational
  • Have fewer than 300 full-time, part-time and seasonal employees.
  • There are exceptions: According to the SBA, "a single business entity that is assigned a NAICS code beginning with 72 is eligible to receive a Second Draw PPP Loan if it employs no more than 300 employees per physical location and meets the revenue reduction requirements and otherwise satisfies the eligibility criteria ... [T]he same standard applies to certain news organizations."
  • Be able to demonstrate a revenue reduction of at least 25% in at least one quarter in 2020 relative to 2019.
  • Use the full amount of the First Draw PPP Loan on or before their Second Draw PPP Loan is disbursed.

Who is not eligible for a PPP loan through Kabbage?

Certain business types are not eligible for a PPP loan due to SBA or Kabbage guidelines. Here is a list of ineligible businesses.

How much funding can I access?

The maximum loan you can access is 250% of your average monthly payroll during the year preceding the application. (If your business’s NAICS code is 72, your maximum loan will be 350% of your average monthly payroll.) However, K Servicing can only process loans of up to $2 million.

How can I use a PPP loan?

First Draw PPP loans can be used to fund payroll costs, employee salaries, costs related to the continuation of group healthcare benefits during paid leave (sick, family or medical), insurance premiums, mortgage interest payments, rent, utilities and interest on any other debt obligation incurred before February 15, 2020.

Second Draw PPP Loan can be used to cover the above, as well as covered operational expenditures, property damage, supplier costs and worker protection expenditures.

Can I apply for a PPP loan if my business is still operating?

Yes, you can apply for a PPP loan if your business is still operating.

How can I avoid SBA loan scams?

  • Fraudsters have already begun targeting small business owners. Beware of anyone who:
  • Proactively contacts you and claims to be from the SBA
  • Requests sensitive personal information over email
  • Requires upfront loan payment or offers a high interest bridge loan in the interim
  • Charges broker fees over 3% for loans under $50,000; 2% for loans $50,000 – $1,000,000; or 2.25% for loans over $1,000,000

Click here or call the Office of Inspector General’s hotline at 800-767-0385 to report any suspected fraud.

APPLYING*

When can I apply for a Second Draw PPP Loan?

  • Starting January 19, 2021, all small businesses can apply.
  • Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

What information do I need to provide to apply?

Applicants must provide the following documents:

  • Borrower certification required by the SBA
  • Any payroll filings and Form 1099-MISC reported to the IRS, and state income, payroll, and unemployment insurance filings
  • Borrower loan application
  • Good Faith Certification stating that the loan is necessary to support ongoing operations; funds will be used toward eligible expenses; and you’ve only applied for one loan under the program
  • Form 941 (or other tax forms containing similar information)

Learn more here. As the program evolves, additional documents may be requested.

Do I need to pledge any collateral for these loans?

No collateral is required.

Do I need to personally guarantee this loan?

No, there is no personal guarantee requirement. However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.

Do I need to first look for other funds before applying to this program?

No, the SBA is waiving the requirement that you try to obtain some or all of the loan funds from other sources (i.e., Credit Elsewhere requirement).

Can I get a PPP loan if I have other SBA loans?

Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period, although you could use it for payroll not during that period or for different workers.

Can I also apply for an Economic Injury Disaster loan (EIDL) under the CARES act?

Yes. The act likewise expands access to SBA’s Economic Injury Disaster Loans (EIDL) program to businesses with fewer than 500 employees. The same affiliation issues described above apply. Eligible businesses that suffer substantial economic injury as a result of a disaster or emergency, which now includes COVID-19, can apply for a loan under this program between January 31, 2020, and December 31, 2020.

No personal guarantee is required for EIDLs under $200,000, and the loan can be made solely upon the applicant’s credit score. Initial advances of up to $10,000 can be issued within three days and need not be repaid. The loan will bear a low rate of interest; however, unlike PPP 7(a) loans, the act does not provide for forgiveness for EIDLs. Businesses may receive both PPP loans and EIDLs, so long as both loans are not used for the same purpose or otherwise duplicative.

Can I get more than one PPP loan?

Each Taxpayer Identification Number is only eligible for one PPP loan. There is no limit to the number of lenders you can apply with, BUT you can only receive one PPP loan.

What if I have multiple businesses?

At this time, Kabbage can only process one application/EIN/one deposit account per email address. If you have multiple businesses that do not fit that criteria, we recommend applying at other eligible lenders.

How long will this program last?

At this time the SBA PPP general fund is depleted and is no longer accepting applications.

Who is my lender?

Your lender will be identified on your loan documentation which will be provided to you prior to signing.

Are there any origination fees or other fees Kabbage is charging for PPP loans?

No. It’s free to apply for a PPP loan and there are no origination fees for the Borrower. Please be wary of any third party that asks you to provide up-front fees to apply for PPP loans as the SBA guidance explicitly prohibits such fees.

If I apply and am eligible, am I guaranteed a loan?

Program funds are limited. We cannot guarantee that your application will be processed and submitted before SBA funding is no longer available. Applying with Kabbage does not limit you from applying with other lenders and/or platforms.

What if I haven’t filed one of the 2019 IRS forms requested?

Even if you haven’t filed a requested form, you should work with your CPA or refer to your tax software to fill it out and submit it for your loan application. Since 2019 payroll forms like 940, 941 and W3 weren’t included in the COVID-19 extension, they should be filed and submitted as part of your application.

Can I submit a K-1 as proof of payroll?

No, that is considered owner’s draw compensation and is not considered payroll. Sole proprietors should submit Form 1040 with Schedule C attached.

I have an LLC with several employees, but I do not file a W2 on myself as the owner. Am I included in the payroll calculation?

No, if you are an LLC, take draws from the company and file on your 1040, that is not included in the payroll calculation.

What if I have a single-member LLC?

You will submit your Form 1040 with Schedule C to verify payroll.

I am concerned about security. Can I password protect my documents before I submit them?

Please do not submit password protected documents. We won’t be able to open them to verify your information, which will delay your application.

What documents are considered organizational documents?

Examples of organizational documents include: Articles of Incorporation, Certificate of Existence, Certificate of Organization, State LLC Agreement, Certificate of Formation, or the Articles of Information. (This does not apply if you are a sole proprietor or independent contractor.)

What goes into the payroll calculation if I am not a seasonal business and not a sole prop / independent contractor?

  • Any salaries, wages, commissions, tips and bonuses, including severance pay found on Form W-3 or your quarterly Form 941 (excluding contractor pay and owner draw compensation)
  • W2 for any employee making over $100K and/or living abroad

What goes into the payroll calculation if I am a seasonal business?

  • Salaries, wages, commissions, tips and bonuses, including severance pay found in 941s for every quarter you were in business and/or monthly payroll statements
  • W2 for any employee making over $100K and/or living abroad

What if I don’t have any employees?

  • For Sole Props, single member LLCs and self-employees we will need:

    • 1040 Schedule C
    • First Draw only: EIDL statement if you are refinancing it through the PPP

What if I don’t have those payroll documents?

Kabbage won’t be able to submit your application to the SBA if we can’t verify your payroll costs through this documentation. We recommend going to SBA.gov and finding another eligible lender, you can search for providers here.

Can I withdraw my application?

Yes, please email us at support@kservicing.comfrom the email address associated with your application with your request to withdraw.

REPAYMENT

Will my PPP loan be forgiven?

Your loan forgiveness eligibility increases if:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8- to 24-week period after the loan is made; and
  • Employee and compensation levels are maintained.

How much of my PPP can be forgiven?

The amount of your loan that is forgiven is equal to the amount you spend during the 8 to 24 weeks following loan origination toward eligible expenses, including:

  • Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
  • Interest on the mortgage obligation incurred in the ordinary course of business
  • Rent on a leasing agreement
  • Payments on additional wages paid to tipped employees
  • Second Draw loan forgiveness includes all of the above as well as covered operational expenditures, property damage, supplier costs and worker protection expenditures.

Forgiven amounts will not be considered cancellation of indebtedness income for federal tax purposes. Given the amount of interest in the program, it is anticipated that not more than 40% of the forgiven amount may be for non-payroll costs.

Can the amount forgiven be reduced?

The amount of loan forgiveness is reduced if there is a reduction in the number of employees, or a reduction of more than 25% in wages paid to employees. Reductions in the number of employees or compensation occurring between February 15, 2020, and April 26, 2020, will generally be ignored if the action (layoff or salary reduction) is reversed by June 30, 2020.

**How do I apply for loan forgiveness? **

You must submit an application for forgiveness through the lender that is servicing the loan and provide:

  • Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and state income, payroll and unemployment insurance filings
  • Documentation verifying payments on covered mortgage obligations, lease obligations and utilities
  • Certification that documentation is true and correct, and that the amount that is being considered for forgiveness was used in accordance with the Paycheck Protection Program’s guidelines for use

The lender has 60 days from receipt of a completed application to submit a decision to the SBA.

If my loan amount covers 2.5x my monthly payroll and other costs, but only eight weeks of those expenses are forgivable, will I owe the remainder back to the lender?

Yes, the CARES Act allows for a maximum forgiveness of 8 to 24 weeks of approved costs. The remainder will be treated as a loan. Remember that the approved costs subject to forgiveness are broader than just payroll, and also include mortgage interest, rent and utilities.

What is my interest rate?

Loans through PPP have a fixed interest rate of 1%.

When do I need to start paying interest on my loan?

All payments (principal, interest and fees) are deferred for 10 months after your loan is disbursed; however, interest will continue to accrue over this period.

When is my loan due?

The loan is due in 5 years, but you can repay early without any prepayment penalties or fees.

ELIGIBLE EXPENSES

What expenses are included in the Second Draw only?

Covered operational expenditures, property damage, supplier costs and worker protection expenditures. For full guidance, please see page 49 of the SBA guidelines.

What interest expenses are considered eligible?

Any business-related interest payments on a mortgage or other debt obligation (excluding any prepayment or principal obligation) that was incurred before February 15, 2020.

What rent expenses are considered eligible?

Payments for business-related rent under a leasing agreement that was in force before February 15, 2020.

What utility expenses are considered eligible?

Payments for business related utilities (for the distribution of electricity, gas, water, transportation, telephone, or internet access) for which service began before February 15, 2020.

What counts as payroll costs?

Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee) for employees whose principal place of residence is the U.S.
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit
  • State and local taxes assessed on compensation
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee

Are any payroll costs excluded?

Yes, the following payroll costs are excluded:

  • Any compensation of an employee whose principal place of residence is outside of the United States
  • The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary
  • Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
  • Contractor pay (i.e. any issued 1099s)
  • Payroll reimbursements
  • Owner’s draw compensation (except for sole props)
  • Worker’s compensation fees
  • Fringe benefits (i.e. commuter benefits, HSAs)
  • Ancillary benefits (i.e. short-term disability, long-term disability, life insurance)