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Spreadsheet for Some Paycheck Protection Program Borrowers

Posted on Apr. 9, 2020

Though not a tax provision, the Paycheck Protection Program (PPP) administered by the Small Business Administration will play a central role in tax policy and practice for the foreseeable future. The $349 billion of lending authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) will subsidize the wages of tens of millions of American workers. And both President Trump and congressional leaders are expressing their intent to expand the program.

Interactions

Employers obtaining PPP loans are ineligible for the refundable employee retention tax credit included in the CARES Act, so most small and midsize employers (generally, those with no more than 500 employees) must choose between a PPP loan and the credit.

The loan amount for each borrower is a function of its payroll costs. Sick- and family-paid-leave-generating refundable payroll tax credits made available by the Families First Coronavirus Response Act (P.L. 116-127) reduce payroll costs that increase loan amounts.

PPP loans can be forgiven if employers maintain payroll and employment, but loan forgiveness eliminates the deferral of 2020 employer payroll taxes enacted as part of the CARES Act.

Early Assessment

Unfortunately, the program has gotten off to a rocky start. Banks were first allowed to accept applications for these guaranteed loans on April 3, but many of them simply weren't ready. Some were not accepting any applications. Some were accepting applications only from existing customers. And instructions provided to borrowers were wildly inconsistent across lending institutions.

For the moment, chaos is a term that describes the situation. Many business borrowers that want to apply are still waiting. Confusion and frustration are widespread among borrowers and lenders. The rules — both in the statute and from the SBA — for both borrowers and lenders are vague and complex. Both groups are anxiously seeking more guidance.

A Spreadsheet for Employers

The spreadsheet provided here tries to navigate through the calculations that a borrower must undertake to apply for a loan. What is needed immediately by borrowers and lenders is the borrower’s average monthly payroll cost, which, when multiplied by 2.5, provides the maximum loan amount.

How that amount is calculated has been the subject of considerable confusion. This is especially true for self-employed individuals who are eligible for PPP loans. Because interpretation of these rules is still so unsettled, the spreadsheet does not attempt to provide the calculations for self-employed borrowers. It only provides the calculations for “traditional” employers that are not themselves employed by their business and who do not receive self-employment income from the business.

In addition to calculating the maximum loan amount, the spreadsheet calculates a borrower’s loan forgiveness amount. This is critical, but the need for detailed guidance on this amount is not immediate because the amount cannot be determined for each borrower until eight weeks after the date of loan origination (so not before the beginning of June at the earliest).

Looking Ahead

It is easy in hindsight to say Congress could have done a better job in drafting the PPP loan program statutory language (sections 1102 and 1106 of the CARES Act). And without the pressure of modifying and expanding a program to millions of borrowers and thousands of lenders in a matter of days, it is easy for commentators to say the SBA should be providing clearer and more complete guidance as soon as possible.

If, as seems likely, Congress expands the PPP, it should also consider modifying it to make it simpler or at least clarifying several unclear provisions. In the absence of legislative fixes, the success of the PPP will depend heavily on coming SBA guidance.

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