April 6, 2020 9 min read

Opinions expressed by Entrepreneur contributors are their own.

Many small-business owners are completing their Paycheck Protection Program (PPP) loan applications and are running into common questions and roadblocks. The immediate question right now revolves around two issues: First, how do I work with my bank or find a bank to get it submitted? And second, how to do I properly calculate the loan amount on the application? If you’re unfamiliar with the PPP loan and how it can be used and forgiven, please refer to my prior article here. 

What if my bank still hasn’t launched its PPP application?

Most large banks have yet to launch their PPP loan application, and it appears that nearly all of the large banks are planning to do this process entirely online and that initially they will only work with their existing business-banking customers. As of April 4, Bank of America is the only large bank that has been taking and processing PPP applications and reported taking 85,000 apps on Friday alone, comprising loan amounts totaling $22 billion. They are only taking applications from current customers.

Smaller banks, often referred to as community banks, have been the most active in getting apps submitted, according to Treasury Secretary Steve Mnuchin. Most banks, large and small, are working with their existing business-banking customers first. This puts many businesses who only use one bank at the mercy of that one bank. For example, if you bank with Wells Fargo, which has yet to take applications, it’s not like you can just jump over to Bank of America now and start doing their loan app.

We have seen many of our business clients in our law firm go instead to community banks or credit unions where they currently don’t bank and some have seen success because of relationships and network contracts, but most have heard the same bad news that even those smaller institutions are only working with their existing customers right now. It’s messy out there, and many business owners are working every contact to get a business banker who can submit their PPP application.

Related: 8 Ways Business Owners Can Take Advantage of the Federal Stimulus Package

If you’ve chased down every banking contact you have and your bank has yet to launch their PPP application, you may have no other option than to wait for your bank to get their application and process up. This is frustrating, as many small-business owners are already in financial-survival mode and worry that the $350 billion funded by Congress for PPP loans will run out.  

Are PPP loans first-come, first-served?

In their final interim rule, the SBA answered numerous questions about the PPP loan with detailed responses and examples. One question answered in their final rule and guidance on April 4 was shockingly short: “Is the PPP first-come, first-served? Yes.” The reality of limited funds is what has many small-business owners scrambling and begging their banks to get their applications up and running. There’s a possible scenario that Bank of America and the community banks could claim all of the $350 billion available as the other large banks continue to delay in getting their applications up and running. Some of the larger banks, and their small business clients, may be left out if they’re last to get their applications up and running.

Secretary Mnuchin was quizzed by reporters about whether the $350 billion was enough and responded that if the funds run out that they’d go back to Congress to request more. President Trump echoed that message and said that if the funds run out they would “immediately” request more from Congress. The initiative has bipartisan support, but it’s troubling for many small-business owners who are already stressed to have to rely on a second bill and funding measure to allow them to take advantage of this program. Who knows what changes or new restrictions may be included and what delays may arise?

I’m waiting on my bank to get started. What do I do now?

If you’re still waiting on your bank to get its application up and running, I would recommend reviewing and completing the SBA PPP loan application, even if your bank will be using an online process and application. Going through the application now will force you to gather your records and information to properly answer and calculate the questions on the application. While many of these questions are straightforward, such as your company name and federal Employer Identification Number, plenty of businesses have stumbled on calculating the loan amount. And if you haven’t already, you’ll also want to gather your company’s payroll records, such as your payroll reports and 941 IRS payroll filings. 

How do I calculate the loan amount?

The loan amount seems simple, but coming up with the correct average monthly payroll is confusing. The loan amount is determined by taking your company’s average monthly payroll over the prior 12-month period and multiplying that by 2.5. In the end, the amount you will obtain will be 2.5 times your average monthly payroll. As we’ve been helping our law firm clients and answering questions via Entrepreneur webinars, we’ve identified a few common issues that seem to be tripping up applicants. Let’s run through a few of those common questions.

• My bank has told me to calculate my average payroll based on my 2019 payroll (Jan 1, 2019 to December 31, 2019) and not the prior 12 months (April 1, 2019 to March 31, 2020) Is that accurate? The CARES Act does specifically say the prior 12-month period should be used, but we are seeing most banks use 2019 annual numbers for payroll costs as first quarter 2020 payroll filings (form 941) aren’t currently due to the IRS, and there is no government form to verify the payroll. Generally, you’re going to stick to your bank’s parameters in answering this question, so if they ask for 2019, I’d provide and use 2019. If your payroll from April 1, 2019 to March 31, 2020 is significantly higher, you could attempt to base you loan on those amounts, but you may need to file your first-quarter 941 payroll report to the IRS now so that you have a record of this amount in your loan application. Right now, we’re in limbo between those who have first-quarter 2020 payroll done, and as a result the banks will have some inconsistency here. We suspect the time period banks will use will change in May once the first-quarter 2020 941 deadline has passed. This will be a more accurate number.
• What is “payroll,” and does it include wages withheld for 401(k) or health benefits? Payroll costs include salary, wage, commission and tips, as well as vacation, medical, parental and sick pay. It also includes payment for group healthcare benefits, including insurance premiums paid. These amounts are straightforward. The retirement benefits seem to be tripping up many small businesses that offer a 401(k) or similar company retirement plan.
• Do payroll costs include employer contributions? Yes, they should include employer contributions, as those amounts are considered “compensation with respect to employees.” 
• But what about employee contributions? Yes, those amounts should be included as well, and depending on what records and numbers you are relying on, you could mess this one up. For example, many small-business owners have relied on their 941 payroll reports over the prior 12 months, as those generally are submitted with the PPP loan application to document payroll costs. However, if you take box 2 on form 941, which is wages paid, this amount does not include traditional retirement-plan contributions made to a 401(k) or other profit-sharing plans. As a result, when relying on your 941 forms, you will need to add in traditional retirement-plan contributions that employees made under 401(k)s or other plans. This is good news though, as it increases your payroll costs and will increase the total loan amount. There’s just one caveat here: Roth contributions or other after-tax contributions made by an employee, say to a Roth 401(k), are not tax-deductible and are already included in form 941 box 2 wages paid. Consequently, you will not add in employee Roth contributions to payroll, as those amounts are already in the wage number in box 2 of form 941.  
• What’s included in payroll taxes? The other common misstep in calculating average payroll costs relates to payroll taxes. The CARES Act and the SBA guidance is clear that payroll costs include state and local payroll taxes paid (e.g. state unemployment taxes), but does not include federal payroll taxes known as FICA (e.g. social security and medicare payroll taxes).

Related: How to Obtain a PPP Loan and Have It Forgiven

Getting your PPP loan application submitted is stressful, and hopefully the larger banks, which have millions of small-business customers waiting, will have their applications up within days. If you’re currently waiting on your bank, your best option is reaching out to your network and contacts for a business banker whose bank is taking applications. There’s really little else you can do other than being ready for the moment when your bank starts taking applications. I’d also highly recommend going through the actual SBA PPP loan application by making your payroll calculations and gathering supporting payroll records so that you’re ready and aren’t scrambling when your bank’s PPP loan app goes live. And good luck.