The Paycheck Protection Program (PPP) Loan is a type of small business loan that is designed to help small businesses keep their workers on payroll during these difficult times. In late December, Congress approved a further $284 billion in funding for these loans. The good news is that if you happen to be a partner in a multi-member LLC or partnership, you may be eligible to apply.
In this article, we will dive into how the PPP is working for Partnerships. For an overview of Round 2 of the Paycheck Protection Program, check out our introductory article.
Know the Basics: Are partnerships eligible?
Yes! If you happen to be a partner in a multi-member LLC or partnership, you may be eligible to apply for the latest round of PPP loans. The only criterion is that the business must have been operational as of February 15, 2020. Unfortunately, if your business started after this date, you will not be eligible.
Businesses (and partnerships) that can apply include the following:
Small businesses, nonprofit organizations, veteran’s organizations, Tribal business concerns, and small agricultural cooperatives that meet the SBA size standards.
Multi-member LLC or partnerships, sole proprietors, self-employed individuals or even independent contractors.
New: Certain small news organizations, destination marketing organizations, housing cooperatives, and 501(c)(6) nonprofits may now also be eligible.
The other qualifying criteria remain the same as specified in the earlier CARES Act. There are additional requirements if this is your second draw loan. Full details can be found in our Introductory article.
What can the funds be spent on?
The PPP Loans are primarily meant to help businesses keep workers on the payroll. Hence,
borrowers will need to spend at least 60% of the loan amount on qualified payroll expenses.
The other 40% may be spent on other qualified non-payroll expenses. Eligible non-payroll expenses include:
Rent
Mortgage interest
Utilities
Covered operations expenditure
Covered property damage cost
Covered supplier cost
Covered worker protection expenditure
In order to secure PPP Loan forgiveness, you will also need to maintain proper accounting and payroll records to demonstrate that the funds were spent appropriately.
Calculating the Partnership Payroll Cost
If you’re an owner in a partnership and do not give yourself a salary through a payroll service, you are likely still eligible for the PPP Loan as long as your earnings are reported on your Schedule K-1.
In order to calculate each partner's individual salary, use the following process:
Schedule K-1 (Self-Employment Income) will specify the individual salary of each partner.
Add and multiply this amount by 0.9235. This deducts the partnership entity's share of self-employment tax.
Add all employer contributions (i.e., for health insurance), gross wages, and tips.
The salary must be capped at $100,000 for each partner and each employee.
Add 2019 employer contributions for employee retirement plans (IRS Form 1065 line 18), if applicable
Add 2019 state and local payroll taxes. Do not include Federal payroll taxes in your calculation.
Divide the total sum by 12 months. If your business was not operational for the whole year, use the number of months your business was in operation.
Please note: Your business must have been operational as of February 15, 2020.
If you want to understand your specific partnership situation and need help in calculating your partnership payroll cost, schedule a discovery call with us.
Calculating Other Covered Business Expenses
60% of PPP loan proceeds should be spent on qualified payroll expenses. The remaining 40% can be spent on other qualified non-payroll expenses which include:
Rent
Mortgage interest
Utilities
Covered operations expenditure
Covered property damage cost
Covered supplier cost
Covered worker protection expenditure
Check out the full forgiveness requirements from the SBA, effective January 19th, 2021.
How Partnerships can apply for PPP Loans
The PPP Loans are primarily meant to help your partnership keep workers on the payroll. As such, the lender will need to see all documents related to any wage, commission, income, or net earnings that you or your employees have received.
As a Partnership, you should be ready to provide the following documents:
IRS Form 1065 for 2019 (including Schedule K-1s)
IRS Form 941 or 944 for 2019 (if you have payroll)
State quarterly wage unemployment insurance tax reports or their equivalent from your payroll processor
Records of any retirement or health insurance contributions
An invoice or bank statement showing you were in operation as of February 15, 2020
A payroll statement or similar documentation showing you had employees on February 15, 2020
PPP Loans are processed through any SBA-backed lender. Ideally, you should apply through the financial institution you already have an existing relationship with. It makes the process simpler and in some cases, current customers are prioritized among applicants.
Even as a partnership, it is recommended that you submit a single application. Do NOT make separate applications as individuals. Several questions we've helped others with are dependant on the specific nature of your partnership. If you need help with navigating this, schedule a call with us.
We understand that this is a lot of information to process and that you want to get this right the first time around. To help you understand this better, we've created a short video featuring our CEO Kara Janowsky as she talks about the latest developments on the Paycheck Protection Program, including:
The latest round of additional PPP funding
What the loan amounts will be?
How to determine if you qualify?
Specific details of interest to partnerships
Check out the video and see how you can benefit from this timely program. Let us know what you think and any questions!
Disclaimer: While we are attempting to present the latest and most accurate information, please understand that the full details are still being released. We will continue to monitor and update the information as it becomes available.
