Paycheck Protection Program Loan Application Overview April 2, 2020

Paycheck Protection Program Loan Application Overview April 2, 2020

On March 27, 2020, the United States Congress passed, and President Trump signed, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help support businesses and families through the ongoing novel coronavirus (COVID-19) pandemic. In particular, the CARES Act expanded the SBA Section 7(a) loan program, to include the Paycheck Protection Program (PPP), which aims to support small businesses on a “first-come, first-served” basis.

On April 2, the Small Business Administration issued an interim final rule that provides additional implementation guidelines and requirements in the new guidance, SBA makes significant changes from its original plan, including raising the fixed interest rate on loans made under the program from 0.5% to 1%. We are encouraging all our small business borrowers who are impacted by COVID-19 to consider applying for a loan under this new program.

Freedom Bank has been an SBA approved lender for the 7(a) program since 2002 and effective April 1, 2020 has been certified to submit PPP loans to the SBA with delegated decision authority. We see this as a critical tool for businesses in the midst of this crisis and Freedom Bank has the capital, liquidity and experience to serve borrowers very well on this compelling program.

Here are some of the critical benefits to small business of the PPP program:

• Provides cash to cover select business expenses (such as employee salaries and payroll support, rent or mortgage and utilities payments, health insurance premiums)
• At least 75% of the PPP loan proceeds shall be used for payroll costs.
• You will not have to make any payments for six (6) months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-months.
• A portion, or possibly all, of your loan may be forgiven (explained below)
• No collateral is required
• No personal guarantee required

These are the key terms of the PPP loan:

• The Loan term is 2 years
• Interest rate on a PPP loan is fixed at 1.0%
• Maximum dollar amount of a PPP loan: 2.5x of your average total monthly payments for payroll costs of the business during the 1-year period before the loan is made. Payroll costs include salary, wage, vacation, parental, family, and medical or sick leave, severance, health care benefits, and local taxes.
• Last day to apply for a PPP loan: June 30, 2020
• Each borrow is only allowed to apply for one loan through a single lender

Freedom Bank’s PPP Application Process

We will be launching a digital platform at www.freedom.bank to manage the lending process in the immediate future, but in the interim, please fill out the application form and submit it to your banker at Freedom Bank, and include other required documentation.  Here is a shortlist of the items we will need to process your loan:

• Completed Application
• Articles of Incorporation/Organization of each borrowing entity
• Bylaws/Operating Agreement of each borrowing entity
• Driver’s Licenses for all Owners

We have provided in the attached documents the application form and more program specifics about the PPP and Borrower factsheet published by Treasury. 

• Application Form (SBA Form 2483)
• Borrower Fact Sheet

Information on the Paycheck Protection Program

SBA will allow lenders to rely on certifications of the borrower in order to determine eligibility of the borrower and use of loan proceeds and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for loan forgiveness. On the PPP application, an authorized representative of the applicant must certify in good faith to all of 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 a Form 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; if the funds are knowingly used for unauthorized purposes, the federal government may hold borrower legally liable such as for charges of fraud. As explained above, not more than 25 percent of loan proceeds may be used for non-payroll costs.
• Documentation verifying the number of full-time equivalent employees on 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 will be provided to the lender.
• Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. As explained above, not more than 25 percent 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 this program.

Freedom Bank does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless Freedom Bank if we rely on such borrower documents and attestation from a borrower.

If you use PPP funds for unauthorized purposes, SBA will direct the borrower to repay those amounts. If funds are knowingly used for unauthorized purposes, borrower will be subject to additional liability such as charges for fraud. If one of the shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.

Calculating the Loan and Forgiveness Amounts

The following methodology, which is one of the methodologies contained in the Act, will be most useful for many applicants.

• Step 1: Aggregate payroll costs (defined in detail below in f.) from the last twelve months for employees whose principal place of residence is the United States.
• Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
• Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
• Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
• Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).

We have developed a PPP Application Spreadsheet to help you quantify the loan amount your business is eligible for and how much of the loan might be forgivable in the future, pursuant to how proceeds are spent over the ensuing 60 days. You will need to assemble the following Payroll Expense verification documents:

Borrowers must submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.

• IRS Form 940 and 941
• Payroll Summary Report for 2019 and year to date 2020 (to include a listing of compensation for an individual employee that is in excess of $100,000 annual salary) with corresponding bank statements
• If a Payroll Summary Report is not available, Employee Pay Stubs as of February 15, 2020 (or corresponding period) with corresponding bank statements, and,
• Breakdown of payroll benefits (vacation, allowance for dismissal, group healthcare benefits, retirement benefits, etc.)
• Self-employed individuals, independent contractors and sole proprietorships – payroll tax filings for 2019 and year to date 2020, 1099-Miscellaneous forms and 2019 and year to date 2020 income and tax expense from the sole proprietorship
• Certification that all employees live within the United States. If any do not, provide a detailed list with corresponding salaries of all employees outside the United States
• Most recent Mortgage Statement or Rent Statement (Lease)
• Most recent Utility Bills (Electric, Gas, Telephone, Internet, Water)

Within the spreadsheet, you will be seeking to calculate a number of key items to maximize loan proceeds and forgiveness amount: 

• Calculate the average monthly payroll costs for the past 12 month period and multiply by 2.5x to estimate the maximum PPP loan amount. If you want to attempt to have the full principal balance of the loan forgiven, make sure to subtract the portion of payroll costs that exceed $100,000 on a prorated basis over the period for employees that make over $100,000 annually because they won’t count toward the payroll cost for the purposes of determining the loan amount forgiven.
• Determine how many full-time equivalent (FTE) employees were on your payroll from 2/15/2019 to 6/30/2019 and all your payroll costs (see definition above) during that period. The average number of full-time equivalent employees is determined by calculating the average number of full-time equivalent employees for each pay period falling within a month. It appears that in order to maximize loan forgiveness, after you obtain the loan you will need to keep the number of FTEs at least equal to the number of FTEs from 2/15/2019 to 6/30/2019 and your payroll costs cannot decrease by more than 25% compared, relative to the period from2/15/2019 to 6/30/2019. We anticipate further guidance in the coming days which we believe will provide greater clarity.
• Create a budget for all expenses that commenced on 2/15/2020 and run until 6/30/2020.  Not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs. This budget should be as detailed as possible and should include all operating costs (Payroll, Insurance, Utilities, Rent/Mortgage Interest, etc.).  Again consider the amount of payroll expense that is not eligible for forgiveness.  Any amount borrowed in excess of the amount that is eligible to be forgiven will need to be repaid.  In most cases you may not want to borrow the maximum that can be borrowed, but limit it to the approximate amount that could be forgiven.

After seven weeks, lenders may request that SBA purchase the expected forgiveness amount of PPP loans; these requests may be submitted in advance, and SBA will purchase the expected forgiveness amount of the loan within 15 days after it receives a complete report.

Next Steps

Freedom Bank will be extending these SBA services to its clients and other borrowers throughout its footprint in Virginia, Maryland and District of Columbia. Please reach out to your banker at Freedom Bank. We are taking applications now and have been approved by the SBA to submit them on April 3, 2020 for small business and sole proprietorships and on April 10 for self-employed individuals.

We will take your application SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation, as described above. We will then submit SBA Form 2484 (Paycheck Protection Program Lender’s Application for 7(a) Loan Guaranty) electronically in accordance with program requirements to the SBA and maintain the forms and supporting documentation in our files.

Freedom Bank is showing its continued commitment to the communities we serve. We are coordinating with local business owners to get them the relief they need during this trying time. In this difficult time for our nation, it is our responsibility to be an active part of providing relief to our communities and economy through the CARES Act. Our team is actively working to deploy capital to those businesses that have been impacted by COVID-19.

For more information, please feel free to contact:
Joseph J. Thomas
President  & Chief Executive Officer
Phone: 703-667-4161
Email: jthomas@freedom.bank