The average monthly payroll calculation is the most important part of the PPP loan application because it not only determines the size of the loan you can apply for, but it’s also the easiest area to make a mistake. We know this because Our Lendee has reviewed thousands of PPP applications in the past few days while discussing the final rule published by the SBAand the application itself with our bank partners. Here is a step-by-step guide as to how to accurately calculate the average payroll number used for the PPP application to ensure that your application is submitted successfully the first time and you get your funding as quickly as possible.

Step 1: Pull the necessary documents.

Although calculating an average monthly payroll number to enter on your application may not be difficult, banks need to see the backup documentation and they will likely prioritize applications that are complete and clearly organized. Payroll registers, tax documents, and even bank statements can be used as documentation for your average monthly payroll calculation. We recommend that you pull documents that are at the intersection of easiest for you and requested by the bank you’re applying to. Keep in mind that the SBA has confirmed that payroll records are sufficient documentation to establish average monthly payroll and we also recommend reading the FAQs published April 7 by the SBA and the Dept. of the Treasury.

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Payroll Documentation

Generally speaking, you’ll need to pull the annual payroll register by employee, either for 2019 or the last 12 months. The report should show gross wages, tips, vacation and benefits payments, and taxes. If you use a PEO or payroll processing software, many have special PPP reports they created specifically for this program. Additionally, while you’re in your payroll system, we recommend downloading a payroll statement for February as the SBA requires proof of payroll as of 2/15/2020.

Here’s our summary of the PEOs / payroll software providers that have provided tailored reports:

Payroll Provider	Link to Special PPP report
ADP	2020 CARES Act SBA-PPP Reports
Gusto	Paycheck Protection Program Report
Justworks	Paycheck Protection Program Report
Patriot Software	I need payroll data for the SBA PPP
Paychex	What Is the Small Business Paycheck Protection Program?
Paycor	Paycheck Protection Program (PPP)|Infographic|Payroll Protection
TriNet	Your Guide to the CARES Act: How to generate a report for your PPP application

Tax Documentation

In lieu of using payroll documents, some businesses have found it easier to use IRS forms 941, 944, 940 and for those self-employed forms 1040, 1099-MISC. Some banks have also been requesting these, especially Form 941. However, Form 941 has two key issues: 1. Many businesses will not have filed their Q1 2020 Form 941 if using the last 12 months period, and 2. if you use a PEO like ADP, Justworks, or TriNet, those organizations file Form 941 for the businesses they serve and those businesses will not have individual forms. 

In summary, most businesses will be better served using payroll documentation.

Step 2: Calculate your gross average monthly payroll and loan amount.

Now that you have your documents you’ll need to use them to calculate your average monthly payroll for 2019 or the last 12 months which determines the loan amount you’ll be eligible for.  If you’re lucky enough to work with one of the PEOs that has a PPP-specific report then you’ll either have the answer or all the required inputs ready to. No matter what documents you’re using, we created a calculator with references that you can use to help you find your loan amount.

Free PPP Loan Calculator – Google Sheets | MS Excel

Common Mistakes to Avoid

• Time period used: It is important to ensure you are using the correct timeframe when calculating average monthly payroll. Determine whether your business classifies as a regular, seasonal, or new business, and use the timeframe recommended on the PPP application under the “Instructions for Completing This Form” section to calculate your average monthly payroll. Most businesses will use calendar year 2019 but some will want to use the last 12 months—both are acceptable.
• Excluded Expenses: The SBA explicitly excludes the following expenses from being factored into average monthly payroll:
  • Any compensation of an employee whose principal place of residence is outside of the United States.
  • The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary. More detail on this to follow. 
  • Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees.
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

• Employees earning over $100,000: The SBA has issued explicit guidance to exclude any wages paid in excess of $100,000 on an annualized basis to any individual employee. This means that for employees earning greater than $100,000 on an annualized basis, only $100,000 annualized pay ($4,167 on a bi-weekly pay period) can be included in the calculation of monthly payroll. 
• The multiplier: The PPP loan is issued to cover ~10 weeks of monthly payroll expenses (hence the multiplier of 2.5x). Ensure you are correctly calculating (monthly payroll expense x 2.5) to arrive at your requested loan amount.
• Supplemental Documentation: Our recommendation is to submit a brief summary of how you calculated average monthly payroll expense as a supplement to your application. This can be in the form of a simple table in Excel (such as the calculator we provide above). This document should help the bank processing your application to audit your calculation with the goal of expediting the time it takes to approve your loan.

Step 3: Fill in your application and submit.

You can apply through Muevo using our online application and we’ll submit your application to one of our partner banks.  If you have an established relationship with a bank that is accepting applications we encourage you to consider submitting your application through them.

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Economic Injury Disaster Loan (EIDL) Existing Program 

• Click Here To Apply
  Loan Amounts up to $2,000,000
• 3.75% Interest rate for For-Profit Businesses
• 2.75% Interest rate for Non-For-Profit Businesses
• Loan Terms will not exceed 30 Years 
• Collateral required is only when the loan is over $25,000
• Credit History: Must be acceptable to SBA and show the ability to repay.
• Only available in states with SBA approved declarations of disaster.  Check to see if your area is on the list, click here.
• If you receive the EIDL, you will not be eligible for the SBA 7(a) Relief Loan

*Our sources indicate that there are currently over 25,000 applications submitted so far, with at least 3-weeks  for approvals to be processed. It can be assumed that approval times will only increase as more applicants apply

Get a $10,000 Emergency Advance 

You can get up to a $10,000 grant from the SBA for your small business while you wait for your larger CARES Act Paycheck Protection Program (PPP) Loan or SBA Economic Injury Disaster Loan (EIDL) Follow the below steps:

• Go to https://covid19relief.sba.gov/#/
• Fill out the application
• On the page titled “Additional Information”, make sure to click on “I would like to be considered for an advance of up to $10,000”
• Complete application

*This grant provides an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL).  

**If you’ve applied for CARES Act PPP financing with us, your place is safe in our queue. Although your application is on-hold pending SBA guidance, we are working diligently to complete your file for an assignment, underwriting, and funding as soon as possible.

SBA 7(a) Relief Loan (Paycheck Protection Program) New Program – CARES Act 

• Click Here To Apply
  Loan amounts up to $10,000,000**
• .5% Interest rate for For-Profit and Non-For-Profit businesses
• 2 year full payout loan, and payments may be deferred for 6 months
• Unsecured and no personal guarantee
• No minimum credit score requirements
• Eligible for loan forgiveness***
• Can only be used for payroll support including medical leave, costs related to health benefits, employee salaries, mortgage payments, rent, utilities, insurance, and any other debt payments incurred before 2/15/2020
• No prepayment penalties
• SBA guarantee fees and lender fees are waived

*A borrower with a current EIDL loan can only also receive the SBA 7(a) Relief loan if the EIDL loan is unrelated to COVID-19

**The maximum loan amount is the lesser of $10,000,000 or the product obtained by multiplying average total monthly payments for payroll costs during the 1-year period before the loan is made by 2.5. So if the loan was made on April 1, 2020, and average monthly payroll costs for the period April 1, 2019, to April 1, 2020, were $1,500,000, the maximum loan amount would be $3,750,000. Payroll amounts over $100,000 per person, will be excluded from the calculation

***Small businesses that take out these loans can get some or all of their loans forgiven. As long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven. Any loan amounts not forgiven at the end of one year are carried forward as an ongoing loan with terms of a max of 10 years at 4% interest. The 100% loan guarantee remains intact.