First Draw PPP Loan FAQ’s

Information provided here does not represent financial advice from Hickory Point Bank and Trust (“Bank”), or formal guidance from the Small Business Administration (“SBA”) and/or the United States Treasury Department (the “Treasury”).  Rather this information is being shared for informational purposes only and is based on Hickory Point Bank’s review and interpretation of the key provisions of the interim final rules, as amended from time to time, and other guidance previously provided by the SBA and the Treasury.  Interpretation of the interim final rules and guidance may vary, and the Program rules are subject to change and further clarification. 

Please consult your own professional advisors for clarification.  The Bank recommends consultation with a Certified Public Accountant for any technical questions regarding the interpretation of the Program rules and assistance with specific loan calculations for your business.

Borrowers are also encouraged to refer to the interim final rules and FAQs issued by the SBA and the Treasury for additional information. 

 


Frequently Asked Questions – First Draw PPP Loans:

On April 2, 2020, the U.S. Small Business Administration (the “SBA”) posted the interim final rules announcing the implementation of the Paycheck Protection Program (“PPP” or the “Program”).  Those interim rules have been amended from time to time.  On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Non Profits, and Venues Act (the “Economic Aid Act”) was enacted.  With the Economic Aid Act, a new round of PPP loans was funded, with multiple changes to Program requirements.

Following are some of the frequently asked questions for those that are interested in obtaining a PPP loan for the first time (a “First Draw PPP loan”).


Q1: Who is eligible for a First Draw PPP loan?

Generally, you are eligible for a First Draw PPP loan if you are:

  1. A small business concern under the applicable SBA revenue requirements
  2. An independent contractor, eligible self-employed individual, or sole proprietor
  3. A business concern or tax-exempt nonprofit organization described in section 501(c)(3) of the Internal Revenue Code (the “IRC”), a tax-exempt veterans organization described in 501(c)(19) of the IRC, or an eligible 501(c)(6) organization that is exempt from taxation under section 501(a) of such Code (subject to restrictions, including restrictions related to lobbying activities).
  4. A Tribal business concern described in section 31(b)(2)(C) of the Small Business Act
  5. You employ no more than 500 employees
  6. You were in operation on February 15, 2020

 


Q2. I have determined I am eligible. How much can I borrow?

Generally, the loan for First Draw PPP loans is calculated based on monthly payroll costs (as described later in this document) in 2019 or 2020 (as elected by the borrower). Borrowers applying for First Draw PPP loans in 2021, and who are not self-employed, may also use the precise 1-year period before the date on which the loan is made to calculate payroll costs, if they choose not to use 2019 or 2020 costs.

At no time can a First Draw PPP loan exceed $10 million.

In most situations, to calculate the maximum loan amount, aggregate payroll costs from 2019 or 2020 (as elected by the borrower) for employees whose principal place of residence is the United States.  Any gross compensation (wages, salaries, etc.) paid to an employee in excess of $100,000 on an annualized basis must be deducted from payroll costs.   Divide the total payroll costs (as adjusted) by 12 and then multiply by 2.5 to determine the maximum loan amount.  You may also add in the outstanding amount of an Economic Injury Disaster Loan (“EIDL”) loan made between January 31, 2020 and April 3, 2020 that you seek to refinance.   Do not include the amount of any EIDL advance, as those do not need to be repaid.

Loan Amount for Self-Employed Borrowers:

As of March 3, 2021, the SBA issued new rules related to the calculation of loan amounts for self-employed borrowers that file a Schedule C as part of the IRS Form 1040.  With these new rules, a self employed borrower may elect to calculate owner compensation by using either gross income as reported on line 7 of the Schedule C or net income as reported on line 31 of the schedule C. The exact calculation will also depend if the borrower employs other individuals, as summarized below.

Self-employed borrower with no employees:  the loan amount is calculated as follows:

  1. From the 2019 or 2020 IRS Form 1040, Schedule C (at the election of the borrower), select gross income as reported on line 7, or net income as reported on line 31.  The figure calculated in this step must be capped at $100,000.
  2. Calculate the average monthly payroll figure by dividing the figure from (a) by 12.
  3. Calculate the maximum loan amount by multiplying the figure from (b) by 2.5x

You may also add in the outstanding amount of any EIDL loan received between January 31, 2020 and April 3, 2020.   Do not include the amount of any EIDL advance.

Self-employed borrower with employees: the loan amount is calculated as follows:

  • From the 2019 or 2020 IRS Form 1040, Schedule C (at the election of the borrower), calculate owner compensation by selecting gross income as reported on line 7 minus employee payroll costs, as reported on lines 14, 19, and 26, or net income as reported on line 31. The figure calculated in this step must be capped at $100,000.
  • Calculate eligible employee payroll costs.
  • Determine total payroll costs by adding the figures from (a) and (b).
  • Calculate the average monthly payroll figure by dividing the figure from (c) by 12.
  • Calculate the maximum loan amount by multiplying the figure from (d) by 2.5x

You may also add in the outstanding amount of any EIDL loan received between January 31, 2020 and April 3, 2020.   Do not include the amount of any EIDL advance.

Loan Amount for Farmers and Ranchers that are self-employed:

How the loan amount for self-employed farmers and ranchers that report farm income and expenses on a Schedule F of the IRS Form 1040 is calculated, depends upon whether the farmer/rancher employs other individuals, as summarized below.

If the borrower is a farmer or rancher that reports farm income on a Schedule F of the IRS Form 1040 and does not have any other employees, the loan amount is calculated by dividing the gross income of the borrower in 2019 or 2020 (as elected by the borrower), as reported on line 9 of the Schedule F (capped at $100,000), by 12, and then multiplying that figure by 2.5.   Add in the outstanding amount of any EIDL loan made between January 31, 2020 and April 3, 2020 that you seek to refinance.   Do not include the amount of any EIDL advance.

If the borrower is a farmer or rancher that reports farm income on a Schedule F of the IRS Form 1040 and has employees, the loan amount is calculated by:

  1. Calculate the difference between gross income (line 9 of the Schedule F) and employee payroll costs (calculated as the sum of lines 15, 22, 23, and 37 of the Schedule F) of the borrower in 2019 or 2020 (at the election of the borrower). That figure should not exceed $100,000.
  2. Calculate the employee payroll costs incurred or paid by the borrower during the same year as elected in (a) above.
  3. Add the figures in items (a) and (b).
  4. Divide the figure in (c) by 12.
  5. Multiply the figure in (d) by 2.5
  6. Add in the amount of any EIDL loan made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any EIDL advance.

Loan amount for Partnerships:

The amount of a First Draw PPP loan to borrowers that file taxes as a partnership is calculated by:

  1. Calculate the sum of net earnings from self-employment of individual general partners in 2019 or 2020 (at the election of the borrower), as reported on line 14a of the IRS Form 1065 K-1 (reductions may apply) multiplied by 0.9235 (capped at $100,000 per partner).
  2. Calculate the total employee payroll costs incurred or paid by the borrower during the same year as elected in (a) above.
  3. Add the figures in (a) and (b) above.
  4. Divide the figure in (c) by 12.
  5. Multiply the figure in (d) by 2.5.
  6. Add in the amount of any EIDL loan made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any EIDL advance.

Q3.  Are there any implications if a sole-proprietor elects to use gross income (line 7) to calculate the loan amount instead of net income (line 31)?

The SBA made the rule change to give sole proprietors the opportunity for larger loans. However, if a sole-proprietor elects to calculate the First Draw loan using gross income (line 7) and the borrower reported more than $150,000 in gross income on the Schedule C used to calculate the loan amount, the Borrower may lose the “safe harbor” related to the certification of need for the PPP loan.  Meaning the SBA may review the Borrower’s certification concerning the necessity of the loan and whether the Borrower complied with the PPP eligibility criteria.  The safe harbor related to certification of need for the PPP loan will still apply if the self-employed borrower elects net income (line 31) to calculate the loan amount, or elects gross income (line 7) and total gross income reported on the Schedule C is $150,000 or less.


Q4. What qualifies as payroll costs?

Generally (with some exceptions), a borrower’s average monthly payroll costs may be based on calendar year 2020 or calendar year 2019 (as elected by the Borrower). Borrowers that are not self-employed, sole proprietorships or independent contractors, may also use the precise 1-year period before the date on which the First Draw PPP loan is made to calculate payroll costs. In general, payroll costs shall include:

  1. Gross (pre-tax) compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation, but not to exceed $100,000 per individual on an annualized basis. Compensation may include payment for vacation, parental, family, medical or sick leave, and allowance for separation or dismissal (excluding such sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act).
  2. Payment by the employer for the provision of employee benefits consisting of health care, group life, disability, vision, or dental insurance, including insurance premiums.
  3. Retirement benefits paid by the employer
  4. Payments made by the employer for state and local taxes assessed on compensation paid to employees
  5. For independent contractors or sole-proprietors, payroll costs shall include net income or earnings from self-employment

Q5. What are the loan terms?

First Draw PPP loans will have a term of five (5) years and the interest rate will be 1.00%. First Draw PPP loans are unsecured, with no personal guarantees and are 100% guaranteed by the SBA.

If you submit a request for forgiveness with ten (10) months after the end of the covered period, you will not have to make any payments of principal or interest on your loan before the date on which the SBA remits the loan forgiveness amount to the Bank.

If you do not submit a request for forgiveness within ten (10) months after the end of the covered period, you must begin paying principal and interest after that period.


Q6. How do I submit an application?

An applicant must submit to the lender a fully completed application on Form 2483, or the lender’s equivalent, (or Form 2483-C for self-employed borrowers utilizing gross income on line 7 to calculate the loan amount) plus all required supporting documentation (as described below).

Hickory Point Bank will be utilizing an online portal that borrowers will use to submit a loan application and all required documents.

If you are not a current Hickory Point Bank customer, please click here to submit a virtual meeting request  or call us today at 217-875-3131 to discuss your application.

If you are an existing Hickory Point Bank customer, please click the link below to get started.  Remember, Chrome is the preferred browser.  As always, if you have any questions or need assistance with your application, please call 217.875.3131, contact your Relationship Manager, or request a Virtual Meeting.

Hickory Point Bank PPP Loan Application

If you would like to begin the process for forgiveness of an existing PPP loan, click here to access the forgiveness portal


Q7. What documentation is required with the application?

At the time of application, the applicant must provide the following.

If the applicant is not self-employed:

  • The applicant’s Form 941 (or other appropriate tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever is being used to calculate payroll).
  • Payroll records for the applicable year, along with evidence of any retirement and employee group health, life, disability, vision, and dental insurance contributions, if those items are included in the payroll costs used to calculate the loan amount.
  • Partnerships must also provide its IRS Form 1065 K-1s.
  • A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation as of that date.

If the applicant is self-employed:

  • The applicant’s 2019 or 2020 (whichever is being used to calculate payroll) IRS Form 1040, Schedule C. If using 2020 to calculate the loan amount, the Schedule C is required regardless of whether you have a filed the 2020 tax return with the IRS.
  • A 2019 or 2020 (whichever is being used to calculate payroll) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement or book of record that establishes you are self-employed.
  • If the applicant has other employees, the applicant’s Form 941 (or other appropriate tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever is being used to calculate payroll).
  • If the applicant has other employees, payroll records for the applicable year, along with evidence of any retirement and employee group health, life, disability, vision, and dental insurance contributions, if those items are included in the payroll costs used to calculate the loan amount.
  • A payroll statement or similar documentation must also be provided to establish the applicant was in operation on February 15, 2020.

If the applicant is a self-employed farmer or rancher:

  • The applicant’s 2019 or 2020 (whichever is being used to calculate payroll) IRS Form 1040, Schedule F. If using 2020 to calculate the loan amount, the Schedule F is required regardless of whether you have a filed the 2020 tax return with the IRS.
  • A 2019 or 2020 (whichever is being used to calculate payroll) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement or book of record that establishes you are self-employed.
  • If the applicant has other employees, the applicant’s Form 941 (or other appropriate tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever is being used to calculate payroll).
  • If the applicant has other employees, payroll records for the applicable year, along with evidence of any retirement and employee group health, life, disability, vision, and dental insurance contributions, if those items are included in the payroll costs used to calculate the loan amount.
  • A payroll statement or similar documentation must also be provided to establish the applicant was in operation on February 15, 2020.

Please be aware, for all borrowers, the Bank may request additional documentation if it is deemed necessary to complete a good-faith review of the borrower’s loan amount calculation, or to satisfy loan policy requirements.


Q8. How can I use PPP funds?

The proceeds of First Draw PPP loans must be used for eligible purposes within the covered period, generally including:

  • Payroll costs, as defined in the CARES Act and as amended per the Economic Aid Act
  • Costs associated with group health care, life, disability, vision, or dental benefits, including insurance premiums
  • Mortgage interest payments (but not mortgage prepayments or principal payments)
  • Interest payments on any other debt obligations that were incurred before February 15, 2020
  • Rent payments (conditions apply if the owner of the property is a related entity)
  • Utility payments
  • Eligible operations expenditures (payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses)
  • Covered supplier costs (expenditures made by a borrower to a supplier of goods for the supply of goods that are (i) essential to operations at the time the expenditure was made and (ii) is made pursuant to a contract or purchase order in effect at any time before the covered period, or with respect to perishable goods, in effect before or at any time during the covered period.
  • Covered personal protection expenditures to facilitate or adapt business activities to comply with requirements established or guidance issued by various governmental agencies.

For individuals with self-employment income who file a Schedule C as part of the IRS Form 1040, proceeds can also be used for owner compensation replacement, calculated based on 2019 or 2020 (using the same year that was used to calculate the loan amount) net profit.   Other nonpayroll uses, as described above, are generally eligible to the extent they are deductible on the Schedule C.

At no time can First Draw PPP loan proceeds be used for lobbying activities or expenditures.

At least 60% of the First Draw PPP loan proceeds must be used for payroll costs.


 Q9. What is the covered period?

The covered period is the period beginning on the date the First Draw PPP loan is disbursed and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is eight (8) weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement.

Q10. Can my First Draw PPP loan be forgiven in whole, or in part?

The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest.  An eligible borrower will not be responsible for any loan payment if the borrower uses all the loan proceeds for forgivable purposes and employee and compensation levels are maintained, or, if not, an applicable safe harbor or exemption applies.  The actual amount of forgiveness will depend, in part, on the total amount of eligible expenses paid during the covered period.   To receive full forgiveness, a borrower must use at least 60% of the PPP First Draw loan for payroll costs, and not more than 40% of the loan forgiveness amount may be attributable to nonpayroll costs.