Small businesses affected by the coronavirus pandemic are eligible for financial help through the … [+]
The Paycheck Protection Program, a federal relief program intended to provide small businesses with forgivable loans to keep workers employed during the COVID-19 crisis, will be up and running again.
On Tuesday, the Senate approved an additional coronavirus relief package, which provides $310 billion more in funding for the Paycheck Protection Program. The bill is expected to be signed into law later this week. The program ran out of the initial $349 billion the federal government earmarked for it in just 13 days.
This time, smaller businesses may have a better chance at receiving funds. The new bill provides $30 billion specifically for community lenders, small banks and credit unions. An additional $30 billion will be allocated for medium-sized banks and credit unions.
The Paycheck Protection Program is intended to provide up to $10 million in loans per small business. It could play a crucial role in keeping businesses afloat while the economy is nearly shut down during the pandemic.
Here’s what small business owners need to know about the program.
What Businesses Qualify?
Small businesses with 500 or fewer employees can apply for loans through the Paycheck Protection Program. Small businesses in the hotel and food service industries, and that are franchises according to the SBA’s guidelines, may qualify if they have more than 500 employees; nonprofits qualify as well. One loan will be granted per business, and a taxpayer identification number (TIN) is required to apply.
How Much Money Can I Get?
The maximum loan granted from the PPP will be equal to 2.5 times the average monthly payroll costs for the previous calendar year, up to $10 million.
Payroll costs only apply to annual salaries up to $100,000; while calculating your monthly payroll costs, you’ll have to subtract any excess salary amount over that cap. For example, if an employee makes $125,000 per year, you’ll only be able to include $100,000 of their annual salary in your calculation.
Additionally, only employees whose principal place of residence is within the United States qualify in payroll costs.
Costs Covered Under the Paycheck Protection Program
The Paycheck Protection Program will give small businesses loans to continue to pay employees and cover other business expenses during the COVID-19 crisis. All loans have a 1% fixed interest rate, require no collateral or guarantor (meaning owners don’t need to put anything down to back the loan) and will be due in two years with no prepayment penalties or fees. Loan payments will also be deferred for six months; during that time, interest will accrue.
The goal of these loans is to keep workers employed during the pandemic. That means it’s important to know what your payroll costs are in order to determine how much to borrow. According to the U.S. Department of the Treasury, these costs include:
- Salary, wages, commissions and tips capped at $100,000 per year for each employee
- Costs of benefits including vacation, parental, family, medical and sick leave
- Allowance for separation or dismissal of employees
- Payments for health care benefits
- Payments for retirement benefits
- State and local taxes on compensation
- Sole proprietors and independent contractors are also eligible to be included in payroll costs. Their wages, commissions, income or net earnings from self-employment can be covered by loan funds, capped at $100,000 per year for each worker.
If a small business uses a Paycheck Protection Program loan for the specified expenses over an eight-week period, the loan will be forgiven. Mortgage interest, rent and utility payments are also eligible for payment with the loan funds.
How Will the Loans Be Forgiven?
Loans granted under the Paycheck Protection Program will be forgiven in full—essentially making them grants from the government—only if certain requirements are met. Companies must keep workers on their payrolls for an eight-week period after the loan is granted, and the businesses can only use the loan for the other costs listed above.
Loan forgiveness will be reduced depending on how businesses use the money. If staff counts are reduced, or salaries for employees who earn less than $100,000 annually are reduced by more than 25%, then the business must repay the loan. Businesses have until June 30, 2020 to restore full-time employment and salary levels that were changed between February 15 and April 26.
Businesses will need to submit a request for forgiveness to the lender that services their loan. According to the Treasury, the request must include documents verifying employees and pay rates, as well as what the loan money was used for.
Where Do I Apply?
Small business owners can apply through an existing U.S. Small Business Administration (SBA) lender or through any federally insured deposit institution. A list of SBA lenders can be found on the SBA’s website.
Although the program is open until June 30, the Treasury says small business owners should “apply as quickly as you can” due to funding caps and the time needed to process loans. Many applicants have also experienced roadblocks, including banks requiring applicants to have been existing loan customers. For the best shot at a loan using the newly available federal funds, businesses should get in touch with their potential PPP lender as soon as possible.