New PPP Borrowers: First Draw PPP FAQ section

As of January 15, 2021; information subject to change without notice

Does this FAQ apply to me?

This FAQ applies to you if you have never previously received a PPP Loan from any financial institution. For additional information, please visit the Small Business Administration website (SBA.gov).

How can I apply for a PPP loan with Watertown Savings Bank?

We are accepting SBA PPP Loan Applications for review through our WSB PPP Application portal. Once reviewed and pre-approved by WSB, completed applications can be submitted by WSB to the Small Business Association (SBA) for formal approval starting on Tuesday, January 19th. This portal will lead you through your PPP Loan application.

If you are not currently a WSB customer, upon submission of your application, we will require that you open a WSB checking account. This will enable us to take the government-required identification and documentation steps necessary to grant the loan. If your loan is approved, we will fund your SBA loan using this account. You are under no obligation to continue to use the account after loan funding and you are not required to be a WSB customer to apply for a PPP Loan.

What support will I have when applying for a PPP Loan?

The WSB PPP Application portal will walk you through the PPP application process. In the meantime, this FAQ is designed so that you will understand how PPP loans work and therefore be able to identify the information that will be required from you when applying for a PPP Loan. Our experience is that once the program opens, we will likely have hundreds of organizations applying at the same time. We do our best to address individual questions, however, you should consult with your financial advisor and work to understand the requirements as outlined in this FAQ before starting the application process.

Who is eligible for a New, First Draw PPP Loan?

First-draw PPP loans are available to borrowers that were in operation on Feb. 15, 2020, and come from one of the following groups:

Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
Sole proprietors, independent contractors, and eligible self-employed individuals.
Not-for-profits, including churches.
Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 500 employees per physical location.
Sec. 501(c)(6) organizations such as chambers of commerce, economic development organizations, visitors’ bureaus, etc., that employs no more than 300 employees.
News organizations.

What steps has the SBA taken to ensure increased access to PPP loans for minority, underserved, veteran, and women-owned businesses?

SBA set aside $15 billion across first and second draw PPP loans in this round of funding for lending by community financial institutions like Watertown Savings Bank. SBA will be accepting PPP loan applications only from community financial institutions for at least the first two days when the PPP loan portal re-opens.

In addition, SBA has added a demographic reporting section on the PPP borrower application. We strongly encourage all borrowers to report the optional information that has been added to better inform us and SBA on the success of our efforts to reach underserved, minority-owned, veteran-owned, and women-owned businesses.

I am a business entity with employees, how do I calculate the maximum PPP Loan amount I can borrow?

Calculate your total payroll costs from 2019 or 2020 for employees whose principal place of residence is the United States.
Subtract any compensation paid to an employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred.
Calculate average monthly payroll costs (divide the amount by 12).
Multiply the average monthly payroll costs from Step 3 by 2.5.
Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance.

What payroll documentation must I provide?

If you use a payroll company to process your payroll, they can typically provide a “PPP Payroll Report” to you. Call your payroll company and ask for a PPP Report before starting the application process. Otherwise, you must provide your Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever you used to calculate loan amount), or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions.

A payroll statement or similar documentation from the pay period covering February 15, 2020 must be provided to establish that you were in operation as of that date.

I am Self-Employed and file a Form 1040, Schedule C, how do I calculate the maximum amount I can borrow and what documentation is required?

How you calculate your maximum loan amount depends upon whether or not you employ other individuals.

If you are self-employed and have no employees, the following methodology should be used to calculate your maximum loan amount:

Find your 2019 or 2020 IRS Form 1040 Schedule C line 31 net profit amount (if you are using 2020 to calculate payroll costs and have not yet filed a 2020 return, fill it out and compute the value). If this amount is over $100,000, reduce it to $100,000. If this amount is zero or less, you are not eligible for a PPP loan.
Calculate the average monthly net profit amount (divide the amount above by 12).
Multiply the average monthly net profit amount from Step 2 by 2.5.
Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance.

You must provide the 2019 or 2020 Form 1040 Schedule C (whichever you used to calculate loan amount – most will use 2019) with your PPP loan application to substantiate the applied-for PPP loan amount and a 2019 or 2020 IRS Form 1099-MISC (whichever you used to calculate loan amount) detailing nonemployee compensation received, invoice, bank statement, or book of record that establishes you are self-employed.

Your 2020 tax returns are not required to be filed with the IRS if you’re using 2020 tax information to calculate your loan amount. In either case, you must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.

If you are self-employed and have employees, the following methodology should be used to calculate your maximum loan amount:

Compute 2019 or 2020 payroll (using the same year for all items, but most will use 2019) by adding the following:

Calculate your 2019 or 2020 Form 1040 Schedule C line 31 net profit amount (if you are using 2020 and have not yet filed a 2020 return, fill it out and compute the value), up to $100,000 on an annualized basis. If this amount is over $100,000, reduce it to $100,000. If this amount is less than zero, set this amount at zero.
Calculate your 2019 or 2020 gross wages and tips paid to your employees whose principal place of residence is in the United States using 2019 or 2020 IRS Form 941 Taxable Medicare wages & tips (Line 5c, Column 1) from each quarter of 2019 or 2020 plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips. Subtract any amounts paid to any individual employee in excess of $100,000 on an annualized basis.
Calculate your 2019 or 2020 employer contributions to employee group health, life, disability, vision and dental insurance (portion of IRS Form 1040 Schedule C line 14 attributable to those contributions); retirement contributions (Form 1040 Schedule C line 19); and, state and local taxes assessed on employee compensation (primarily under state laws commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms).
Calculate the average monthly amount (divide the amount from ## 1, 2, 3 and 4, above, by 12).
Multiply this amount by 2.5.
Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that you seek to refinance.

You must supply your 2019 or 2020 Form 1040 Schedule C, Form 941 (whichever you used to calculate loan amount) or other tax forms or equivalent payroll processor records containing similar information, and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever you used to calculate loan amount) or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable.

How do Partnerships calculate the maximum loan amount?

The following methodology should be used to calculate the maximum amount that partnerships can borrow:

Compute 2019 or 2020 payroll (using the same year for all items) by adding:
- Net earnings from self-employment of individual general partners in 2019 or 2020, as reported on IRS Form 1065 K-1.
- 2019 or 2020 gross wages and tips paid to your employees, subtracting any amounts paid to any individual employee in excess of $100,000.
- 2019 or 2020 employer contributions for employee group health, life, disability, vision and dental insurance.
- 2019 or 2020 employer contributions to employee retirement plans.
- 2019 or 2020 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms), if any.
Calculate the average monthly payroll costs (divide the amounts in Steps a through e, above, by 12).
Multiply the average monthly payroll costs in Step 2 by 2.5.
Add any outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that you seek to refinance.

You must supply 2019 or 2020 IRS Form 1065 (whichever you used to calculate loan amount), including K-1s, and other relevant supporting documentation if the partnership has employees, including the 2019 or 2020 IRS Form 941 (whichever you used to calculate loan amount) and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements) along with records of any retirement or health insurance contributions.

If the partnership has employees, a payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the partnership was in operation and had employees on that date. If the partnership has no employees, you must provide an invoice, bank statement, or book of record establishing the partnership was in operation on February 15, 2020.

What qualifies as “payroll costs?”

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) 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 or group life, disability, vision, or dental insurance, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation.

Do independent contractors count as employees for purposes of PPP loan calculations?

No, independent contractors, such as those that you provide a 1099 have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.

How can PPP loans be used by my businesses?

Borrowers are still required to spend at least 60% of the funds on payroll over a covered period of either 8 or 24 weeks to receive full forgiveness.

You may use the proceeds of a PPP loan for:

payroll costs (must be at least 60% of expenditures);
costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums;
mortgage interest payments (but not mortgage prepayments or principal payments);
rent payments;
utility payments;
interest payments on any other debt obligations that were incurred before February 15, 2020;
refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020;
certain covered 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);
certain covered property damage costs (costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation);
certain covered supplier costs;
certain covered worker protection expenditures operating or a capital expenditures to facilitate the adaptation of the business activities due to Covid (e.g., PPE, glass barriers, etc.).

How can PPP loans be used by individuals with income from self-employment who file a Form 1040, Schedule C?

The proceeds of a PPP loan can used for the following:

Owner compensation replacement, calculated based on 2019 or 2020 (using the same year that was used to calculate the loan amount).
Employee payroll costs if you have employees.
Mortgage interest payments (but not mortgage prepayments or principal payments) on any business mortgage obligation on real or personal property (e.g., the interest on your mortgage for the warehouse you purchased to store business equipment or the interest on an auto loan for a vehicle you use to perform your business), business rent payments (e.g., the warehouse where you store business equipment or the vehicle you use to perform your business).
Business utility payments (e.g., the cost of electricity in the warehouse you rent or gas you use driving your business vehicle). You must have claimed or be entitled to claim a deduction for such expenses on your 2019 or 2020 (whichever you used to calculate loan amount) Form 1040 Schedule C for them to be a permissible use. For example, if you did not claim or are not entitled to claim utilities expenses on your 2019 or 2020 Form 1040 Schedule C, you cannot use the proceeds for utilities.
Interest payments on any other debt obligations that were incurred before February 15, 2020.
Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.
Items 8-10 above.

Can my PPP loan be forgiven in whole or in part?

Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. You will not be responsible for any loan payment if you use all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained or an applicable safe harbor or exemption applies.

To receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to non-payroll costs.

Are my business expenses paid for with the proceeds of my forgiven PPP loan tax deductible?

Yes. Corresponding expenses are now deductible for all PPP loans.