The most important part of the application process is the “payroll” calculation, because it determines the maximum amount of money you can borrow. Your maximum loan amount is calculated by multiplying 2.5 X your average monthly payroll over the previous year. To optimize your maximum loan amount, you need to include ALL eligible expenses that qualify as payroll under the program rules. By Including all the eligible expenses into your payroll calculation, your maximum loan amount will be higher, by 250% of any eligible expenses that are added to payroll.

Eligible Expenses Under “Payroll”:

Eligible Expenses Include:

• Compensation to employees, such as salary, wage, commissions, cash, etc (capped at $100,000 on annualized basis for each employee).
• Paid leave
• Severance payments
• Payment for group health benefits, including insurance premiums
• Retirement benefits
• State and local payroll taxes

The loan application asks for documentation verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs.

Below is a list of the documentation that lenders may require at some point to complete your loan application. Request these documents from your advisors and accountant before they are overwhelmed with similar requests.

Preliminary Checklist for Paycheck Protection Program:

• 2019 Payroll Cost and YTD Payroll Cost through February 15, 2020
• Number of employees as of December 31, 2019
• Number of employees as of February 15, 2020
• What industry does the business fall under?
• 2019 Business Tax Returns or Year End Financial Statements as of December 31, 2019

Payroll Expense Verification Documents to Include:

• IRS Form 940 Employers Annual Federal Unemployment Tax Return (FUTA)
• IRS Form 941 Employer’s QUARTERLY Federal Tax Return
• Payroll Summary Report 2019 with corresponding bank statements
• W2 Summary
• Breakdown of payroll benefits (vacation, allowance for dismissal, group healthcare benefits, retirement benefits, etc.)
• Copy of 2019 W2s for wage earners
• 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

Here is a list of documents you may need to fill out loan application and the lender MAY ask you to submit so having them available will save time if the lender asks for more documents.

Potentially Required Documentation:

Here is a list of documents you may need for the loan application. Having these available will save time in case the lender asks for more documents.

Company documents to include:

• Articles of Incorporation/Organization of your company
• By Laws/Operating Agreement of your company
• Ownership or Capitalization Table
• Copy of Driver’s Licenses for owners

Financial statements and expenses documents:

• Trailing twelve-month profit and loss statement (as of the date of application) for all applicants
• Most recent Mortgage Statement
• Most recent Rent Statement (Lease)
• Most recent Utility Bills (Electric, Gas, Telephone, Internet, Water)

The amount of loan forgiveness calculated above will be reduced proportionally by any reduction in the number of employees and by the reduction in pay of any employee, greater than 25% of their compensation in prior quarter. Specifically:

Reduction of loan forgiveness, based on reduction of number of employees

• The maximum available forgiveness under the rules described above multiplied by:
• Average Number of Full-Time Equivalent Employees (FTEs) Per Month for the loan period beginning on loan disbursement date divided by either (at election of the borrower) –
• Option 1: Average number of FTEs per month employed from February 15, 2019 to June 30, 2019; or
• Option 2: Average number of FTEs per month employed from January 1, 2020 until February 29, 2020;

Here’s an example of a reduction of number of employees

You received a loan for $100,000. During the loan period, you spent $100,000 in payroll, rent, utilities and mortgage interest. Your loan forgiveness amount would be $100,000 before any adjustments for reductions in number of employees.

If your business had an average of 100 employees between January 1, 2020 and February 29, 2020, but had some layoffs between February 15, 2020 and June 30, 2020, resulting in an average of 80 employees during the loan period, here is how much you would receive:

The loan reduction formula would be:

Step 1: Divide 80 employees by 100 employees | 80 ÷ 100 = 0.80

Step 2: Multiply $100,000 by 0.80 | $100,000× 0.80=$80,000

Your business would be eligible for $80,000 in forgiveness in this scenario, based on the number of employees lost. Reduction of Loan Forgiveness, based on reduction in wages.

If you reduce the wages of any employee, whose annual salary or wages was less than $100,000 in the most recent quarter, by more than 25%, during the loan period, the dollar amount of that wage reduction will directly reduce your loan forgiveness amount.

The formula is maximum available forgiveness minus the amount of any reduction in total salary or wages of any individual employee (as described above).

Example of reduction in wages:

You received a loan for $100,000. During the loan period, you spent $100,000 in payroll, rent, utilities, and mortgage interest. Your loan forgiveness amount would be $100,000 before any adjustments for reductions in wages.

If an employee was paid $5,000 per month in most recent quarter before loan date, but their wages were reduced 30% to $3,500 per month during the loan period.

Here is the formula that calculates how much you would receive:

The loan reduction formula would be:

Step 1: Add up the total wage amount reduction
$7,000

Step 2: Subtract wage amount reduction from loan forgiveness amount
$100,000 – $7,000 = $93,000

Your business would be eligible for $93,000 in forgiveness in this scenario, based on the wage reduction.