Michigan Hospitality Industry | Government Affairs
PAYCHECK PROTECTION PROGRAM
The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.
SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
How Does It Work?
• Loan is 100% SBA guaranteed
• Must apply by June 30, 2020
• Loan amount is lesser of 2.5x average monthly payroll costs or $10 million
• No collateral or personal guarantees required
• No payments required for up to one year
• Loan forgiveness available for loan proceeds applied to eligible payroll costs, mortgage interest, rent payments and utilities during the 8 week period following loan origination.§
How Can the Proceeds be Used?
Working capital costs, which include:
• Payroll costs, rent payments, interest payments, and utilities
• Cost related to the continuation of group health care benefits during periods of paid sick, medical, or family leave and insurance premiums
• Refinance of an SBA Disaster Loan (EIDL) that was made between the period of January 31, 2020 and the date of the loan application for the PPL loan
Who Is Eligible?
• Must have been in operation on February 15, 2020 and had employees for whom salaries and payroll taxes were paid or independent contractors
• Small businesses, as well as any other businesses or Section 501(c)(3)) with 500 or fewer employees; certain industries have higher thresholds
• Sole proprietors, self-employed individuals and independent contractors may be eligible
75% Rule
The Interim Rule provides that the SBA has determined that 75% of loan proceeds are to be used to cover payroll costs. The Interim Rule does not specifically set forth a consequence(s) of not meeting this threshold. However, as described below, the amount of loan proceeds used to cover payroll costs clearly impacts the potential amount of loan forgiveness as at least 75% of the amount of eligible loan forgiveness must represent payment on payroll costs. As a result, if a borrower uses less than 75% of loan proceeds on payroll costs, it will reduce the total amount eligible for loan forgiveness.
What Qualifies as Payroll Costs
“Payroll costs” are defined as consisting of compensation to employees (whose principal place of residence is the U.S.) in the form of:
What Does Not Qualify as Payroll Costs
“Payroll costs” do not include the following:
Other Costs include:
The MRLA is actively advocating on behalf of the hospitality industry to initiate changes to the Paycheck Protection Program to make more sense for business owners. In doing so, the MRLA has sent a letter to congress asking for the following:
Enact More Flexibility in the Paycheck Protection Program (PPP)
SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
How Does It Work?
• Loan is 100% SBA guaranteed
• Must apply by June 30, 2020
• Loan amount is lesser of 2.5x average monthly payroll costs or $10 million
• No collateral or personal guarantees required
• No payments required for up to one year
• Loan forgiveness available for loan proceeds applied to eligible payroll costs, mortgage interest, rent payments and utilities during the 8 week period following loan origination.§
How Can the Proceeds be Used?
Working capital costs, which include:
• Payroll costs, rent payments, interest payments, and utilities
• Cost related to the continuation of group health care benefits during periods of paid sick, medical, or family leave and insurance premiums
• Refinance of an SBA Disaster Loan (EIDL) that was made between the period of January 31, 2020 and the date of the loan application for the PPL loan
Who Is Eligible?
• Must have been in operation on February 15, 2020 and had employees for whom salaries and payroll taxes were paid or independent contractors
• Small businesses, as well as any other businesses or Section 501(c)(3)) with 500 or fewer employees; certain industries have higher thresholds
• Sole proprietors, self-employed individuals and independent contractors may be eligible
75% Rule
The Interim Rule provides that the SBA has determined that 75% of loan proceeds are to be used to cover payroll costs. The Interim Rule does not specifically set forth a consequence(s) of not meeting this threshold. However, as described below, the amount of loan proceeds used to cover payroll costs clearly impacts the potential amount of loan forgiveness as at least 75% of the amount of eligible loan forgiveness must represent payment on payroll costs. As a result, if a borrower uses less than 75% of loan proceeds on payroll costs, it will reduce the total amount eligible for loan forgiveness.
What Qualifies as Payroll Costs
“Payroll costs” are defined as consisting of compensation to employees (whose principal place of residence is the U.S.) in the form of:
- salary, wages, commissions or similar compensation;
- cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
- payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal;
- payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums and retirement;
- payment of state and local taxes assessed on compensation of employees; and
- for an independent contractor or sole proprietor, wage, commissions, income or net earnings from self-employment or similar compensation.
What Does Not Qualify as Payroll Costs
“Payroll costs” do not include the following:
- any compensation of an employee whose principal place of residence is outside of the U.S.;
- 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 the Federal Insurance Contributions Act (FICA) and Railroad Retirement Act (RRA) taxes, and income taxes required to be withheld from employees; and
- qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act (FFCRA).
Other Costs include:
- Rent only-no CAM (auto leases are not considered rent)
- Business loan interest
- Utilities-gas, water, electric, telephone landline and internet
The MRLA is actively advocating on behalf of the hospitality industry to initiate changes to the Paycheck Protection Program to make more sense for business owners. In doing so, the MRLA has sent a letter to congress asking for the following:
Enact More Flexibility in the Paycheck Protection Program (PPP)
- Allow restaurants and hotels to choose an eight-week loan period that works best for them, that is at least three weeks after applicable shelter at home order is lifted.
- Revise the loan forgiveness restrictions—which currently require 75 percent of the loan to be spent on payroll—to better reflect the unique challenge of closures and travel restrictions that have particularly hampered the hospitality industry.
- Restore a ten-year loan repayment timeline for PPP as Congress intended. The two-year repayment mandate invoked by the Treasury Department further exacerbates the problem for an industry that will be slow to return to anything approaching normal sales and profitability.
SBA ANNOUNCES PPP LOAN FORGIVENESS FOR UNDER $50,000
Restaurants who received Paycheck Protection Program (PPP) loans under $50,000 can now access a new forgiveness application designed to simplify the forgiveness and loan review process, as announced by the Small Business Administration (SBA) last night.
This streamlined PPP forgiveness form does not require businesses to show the calculations used to determine their loan forgiveness amount. However, SBA may request information and documents to review those calculations as part of its loan review process.
Important to note – this is not “automatic PPP loan forgiveness,” as borrowers are still required to submit documentation to lenders on payroll costs, rent/lease payments, and utilities. Additionally, there is a restriction for any otherwise eligible applicants if they have affiliated businesses receiving PPP loans totaling $2 million or greater. The National Restaurant Association is following up with SBA to ensure the “Affiliation Rules” are waived for restaurants and hotels as outlined in earlier PPP guidance.
This streamlined PPP forgiveness form does not require businesses to show the calculations used to determine their loan forgiveness amount. However, SBA may request information and documents to review those calculations as part of its loan review process.
Important to note – this is not “automatic PPP loan forgiveness,” as borrowers are still required to submit documentation to lenders on payroll costs, rent/lease payments, and utilities. Additionally, there is a restriction for any otherwise eligible applicants if they have affiliated businesses receiving PPP loans totaling $2 million or greater. The National Restaurant Association is following up with SBA to ensure the “Affiliation Rules” are waived for restaurants and hotels as outlined in earlier PPP guidance.
