Guidance on Calculating Maximum PPP Loan Amounts

Dear Clients and Friends,

On Friday, May 15, 2020, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) Loan Forgiveness Application. If you borrowed from the PPP program, you can now apply for loan forgiveness. If you have not yet borrowed from the PPP, funds are still available to help meet your payroll costs during this pandemic. Before you begin the application, there are two primary questions to ask:


  1. How much can you borrow? and
  2. How can you ensure as much of that loan as possible qualifies for forgiveness?

In the earlier stages of the process, and in their eagerness to help their customers, some banks miscalculated the maximum amount of the loans. If you believe this applies to you, please reach out to us. We can help you determine the amount of forgiveness you qualify for, which will allow you to plan more effectively. We may also be able to provide tips on how to use your funds appropriately so they may be forgiven within the eight-week requirement.   

What is your maximum loan amount?

In general, the maximum amount of the loan is based on your average 2019 payroll costs. The maximum eligible for forgiveness for each employee or self-employed person is $100K of their total payroll costs for the year, prorated over eight weeks. (New businesses that were not operating prior to June 30, 2019 can use average monthly costs for January and February 2020.)

The SBA’s guidance on calculating the maximum loan depends on the structure of your entity.

– In the case of self-employed individuals* with no employees, your loan equals 250% of your average monthly net profit in 2019 capped at the maximum annual amount of $100K.

– In the case of self-employed individuals* with employees, your loan equals the lesser of $10 million or 250% of your average monthly net profit and payroll costs, employer contributions to employee health insurance, and retirement plans.

– In the case of partnerships, your loan equals the lesser of $10 million or 250% of average monthly K-1 Profit for each partner and payroll costs, employer contributions to employee health insurance and retirement plans. Individual partners may not apply for separate loans.

– Finally, in the case of S-corporations, C-corporations and non-profit organizations, your loan equals the lesser of $10 Million or 250% of average monthly payroll costs, employer contributions to employee health insurance and retirement plans, and the employer’s portion of state and local taxes.

How do you maximize your loan forgiveness?

It is important to note that the amount of a PPP loan eligible for forgiveness is not necessarily the total amount you receive, but the total amount you spend – and document – during the eight-week period following the disbursement of your PPP loan. At least 75% must be spent on payroll costs (paid, or incurred and paid, by the next billing date), and the remaining 25% can be spent on other eligible expenses. We defined these in our last article

We are aware that self-employed individuals* with no employees could find it challenging to meet the minimum amount of 75% payroll/profit, and will possibly not have enough eligible expenses for the remaining 25%. With that in mind, we can help suggest other ways to use your funds to help maximize the forgiveness portion.

Finally, when applying for your PPP loan, you can refinance any previous Economic Injury Disaster Loans (EIDL) within the PPP. In the application, you are required to declare any previously granted EIDL advances, which will reduce your PPP forgiveness by that amount. This means that funds from both loans cannot be used for the same purpose – no double dipping.

As the current pandemic has hastened virtual globalization and many are working from home, companies are now hiring employees from around the globe. It’s important to keep in mind that all employees and self-employed individuals that you include in the loan calculation must have their primary residence in the USA. Payroll costs for any employees residing outside the USA must be subtracted from the maximum loan calculation.

Documents required to prove costs will vary based on the financial institution’s requirements. We can work with your bank to ensure they have all the required documents for submitting your loan application as well as assist you with your Loan Forgiveness Application.  

We will continue to issue updates as new guidance becomes available. In the meantime, please reach out to us if you have any questions regarding the PPP so that we may provide guidance and advice tailored to your specific situation. Together, we will continue to get through this.

Stay safe and healthy,

The CJBS Team

* Self-employed individuals include: farmers, independent contractors, and others operating as sole proprietors.