President Donald Trump has passed the CARES bill of $2 trillion Coronavirus Stimulus Package into law on Friday, March 27th as support for the U.S. economy that has affected by the Coronavirus outbreak. The CARES Act includes different support options for businesses and employees including a Paycheck Protection Program, Direct payments to taxpayers, unemployment benefits, and small business financing to struggling entrepreneurs nationwide. The purpose of this Coronavirus Stimulus Package is to provide financial support to small businesses.
Paycheck Protection Program (PPP) Loans
Under the Paycheck Protection Program, the U.S. Small Business Administration (SBA) will provide a $350 billion to businesses with less than 500 employees. The purpose of the Paycheck Protection Program loan is to assist small businesses in maintaining their payroll costs during the Coronavirus pandemic.
This cash-flow assistance will be made via 100 percent federally guaranteed loans to businesses that maintain their payroll during the Coronavirus outbreak. The loans will be excused for those businesses that maintain their payroll and employees’ job. This orderly will help affected businesses and the economy to overcome quickly after the crisis.
The salient features of the Paycheck Protection Program include forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral.
If your business is affected by COVID-19 between February 15, 2020, and June 30, 2020, you can apply for PPP loans. These loans are available through June 30, 2020.
You don’t have to visit government institutions to apply as thousands of banks already participate in the SBA’s lending programs. Simply call your bank or look for SBA-approved lenders online. You can also apply for an SBA loan directly via the SBA website.
How to Apply for PPP loans
You can make a loan application to all current SBA 7(a) lenders. The Department of Treasury will also be in charge of authorizing new lenders, including the alternative lenders. The loan application deadline is June 30th, 2020. Applicants can apply for the PPP loan on the SBA website.
The Loan Terms and Interest Rate
The maximum loan term is 10 years with a maximum interest rate of 4 percent for any amounts not forgiven without any loan fees and prepayment fees. However, the SBA will establish application fee caps for lenders.
Paycheck Protection Program Loan Amount Calculation
The PPP loan size is calculated based on a business situation. The maximum loan amount available is $10 million. Examples of loan calculations:
For businesses affected during February 15, 2019 – June 30, 2019, the maximum loan equates to 250 percent of your average monthly payroll costs during that time range. For businesses with seasonal workers, you can opt to choose March 1, 2019, as your time period start date.
For businesses not in this time range, the maximum loan equates to 250 percent of your average monthly payroll costs between January 1, 2020, and February 29, 2020.
For businesses that want to refinance an already taken out Economic Injury Disaster Loan (EIDL) into PPP loan, they can add the outstanding loan amount to their payroll sum.
Costs covered by the Paycheck Protection Program
The following costs are covered by the PPP loan:
- Salary, wages, commission, and similar compensation
- Cash tips or equivalent
- Payment for sick leave, medical, vacation, or family
- Dismissal or separation allowances
- Group health care benefits, such as insurance premiums
- Retirement benefit payment
- Payment of taxes evaluated on the employees’ compensation
The Eligible Criteria for Paycheck Protection Program
Any nonprofit, tribal business concern, self-employed individual, independent contractor and sole-proprietor that fulfills the SBA’s standard business size definition and veterans organizations organized under 501(c)(19) with fewer than 500 employees are eligible to apply for small business loans under the Paycheck Protection Program. The business needs to be operational as of Feb. 15. According to a fact sheet published by the U.S. Chamber of Commerce, the 500-employee cap is applied on a per-physical-location basis for food servicing businesses. If you submit deceitful information to apply for the loans, you will be charged with criminal penalties of up to $1 million.
The Use of the Loan Proceeds
The loan proceeds can be used for the following costs:
- Payroll costs
- The continuation cost of group health care benefits during periods of paid sick, medical, or family leave,
- Any insurance premiums
- Salaries, commissions, or similar compensations
- Interest payments on mortgages (excluding prepayment or payment of principal on a mortgage debt)
- Rent and utilities
- Interest on any other debt obligations that were incurred before Feb. 15, 2020
How PPP Loans Match with SBA’s Existing Loans
You can apply for PPP loans with other SBA loan programs, such as Economic Injury Disaster Loans (EIDLs), SBA 7(a) loans, SBA 504 loans, and SBA microloans as well as investment capital from the Small Business Investment Corporations (SBICs). You cannot use a PPP loan for the same purpose as your other SBA loans particularly during the covered period of February 15, 2019 – June 30, 2019.
The Documentation Requirement for PPP Loans
You need to have the following in place to apply for PPP Loans:
- Basic business information
- Business NTN number
- Average monthly payroll
- The number of jobs your business supported
- The purpose of using the loan proceeds
- List all owners that hold 20 percent ownership (and confirm they are not involved in federal crimes)
- Employees over time and payroll costs.
Can the loan be forgiven?
The PPP loan includes loan forgiveness covering costs for the first eight weeks of the loan for businesses to keep employees on payroll or continue paying bills throughout the COVID19 outbreak. The forgiven amount will also include payroll costs for individuals below $100,000 in annual income, mortgage, and rent obligations. The total amount can be reduced if employees’ wages are reduced. If you have to lay your employees off due to economic conditions, you can still preserve some of your loan guarantees by hiring them back.
If you need more details on the Paycheck Protection Program, read it here in detail in an FAQ here. You can also find more details on SBA support during Coronavirus on the SBA Coronavirus resources page.