The federal relief package known as the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law on March 27, 2020. On Friday, April 3, small businesses that qualify will be able to apply for loans to cover up to 8-weeks of cash-flow assistance. (Some small businesses already have their appointments lined up as the past two weeks took a toll on businesses everywhere, and any or all financial reserves might already be depleted.)
While the CARES Act has many moving pieces and parts, the sections dedicated to protecting small businesses and the people they employ will be a salve amid a tragic month of anxiety. One of the specific offerings in the stimulus package is the Paycheck Protection Program. These loans come with stipulations but are equipped with some generous benefits to help protect payroll.
Keep on reading to find out what they might mean for your business.
Looking for more resources as we navigate this pandemic? Our Coronavirus hub is packed full of useful information for businesses. Start with this post, and then move onto Small Business Loans & Guides For Businesses Affected By The Coronavirus.
What PPP Loans Are & How They Work
The Paycheck Protection Program Loans are designed to protect payroll. Under this provision, the SBA is backing loans through local lenders to help provide immediate assistance for small businesses hurt by the Coronavirus. The PPP loans have a $10 million ceiling, but businesses will qualify for an amount 2.5 times the average from the last 12-months of payroll (Feb. 15, 2019-Feb. 15, 2020). For example, if the average monthly payroll is $30,000, that small business will qualify for $75,000 in Paycheck Protection Loans. These loans are capped at a 4% interest rate (but will start widely with a half-percent interest rate) and have a 10-year loan term. (Side note: If your business hasn’t been operational for a full year, the government provides alternate ways to measure average payroll.)
The PPP Loans are also designed to cover payroll costs, including salary, wages, retirement contributions, vacation/sick leave/family leave, and group health premiums. There are also provisions to cover rent, mortgage interest, utilities, or other interest on debts. (Businesses must cover and guarantee payroll first for a minimum of 8-weeks and after that, the money can go to loans/rent, etc.)
These loans are also extended to independent contractors, gig economy workers, sole proprietors, and tribal businesses. They cover an employee’s salary up to $100,000. This means that if an employee makes over $100,000, they can receive payment up to that amount; any overages are not covered under the PPP loans.
However, the best part of the PPP Loans is that if you use the loan on operational costs (payroll first) during the 8-weeks after the National Emergency was declared, some of your loan may be forgiven. Now, as always, it’s important to understand that the loan will only be forgiven if the borrower follows the guidelines outlined in the CARES Act. One of those stipulations is that your company maintains the same number of employees during the period from February 2019 – February 2020. In basic terms: You cannot qualify for loan forgiveness if you lay off your employees. Now, if you made the decision to lay off employees before the CARES Act became law, there is a provision where you can rehire employees with full wages and not incur the penalty.
Local lenders are providing these loans, so check with your lending institution to make an appointment–the interest in these loans is high and the need is extraordinary, so the time to get your ducks in a row is now. To prepare, use this helpful checklist from the US Chamber of Commerce.
Who Qualifies For A PPP Loan
While the terms are broad, the first qualification is that you must demonstrate a need based on the current COVID-19 world. Be sure to specify that you are seeking aid related to the COVID-19/Coronavirus disaster. In order to qualify for a PPP loan, your business must:
- Have fewer than 500 employees.
- Have been in business since February 15, 2020.
- Be able to demonstrate the economic impact of COVID-19.
Unlike other loans, you can already have an existing line of credit open and still qualify for the PPP loans, and you can already have loans with the SBA and still qualify.
When Paycheck Protection Loans Will Be Available & Where You Can Get One
Application for funds related to the CARES Act opens on Friday, April 3, 2020. At the moment, there are over 1800 banks and lenders pre-approved with the SBA to help meet the need and respond to the rush of applications. And yes, there will be a rush: So, get in there early and with all your information ready. Experts say it’s best to go through an FDIC-insured bank (other lenders might be brokering for a fee — best to go right to the source). As most banks are operating remotely, your meeting with a lender will be online. It’s always best to check with your local community bank, but not all small banks are equipped to work fast on SBA loans. As a next resource, check out the SBA Preferred Lending Partners.
April 3 is coming fast: Get your payroll information ready, and be one of the first to jump on the PPP loan train. With loan forgiveness options and generous terms, this is a great opportunity, but since the totality of these loans is capped at $350 billion, the need might outweigh the resources, and the key is quick efficiency. May the odds be ever in your favor.
Looking for more resources as we navigate this pandemic? Our Coronavirus hub is packed full of useful information for businesses. Start by reading the Small Business Loans & Guides For Businesses Affected By The Coronavirus.
The post Paycheck Protection Program (PPP) Loans Explained: How They Work, Who Qualifies, & Where To Get Them appeared first on Merchant Maverick.