**UPDATE: SBA Participating Lenders will begin accepting applications for the Paycheck Protection Program soon. Here are the US Treasury’s Application and Instructions for small businesses that are looking to apply.
When can I apply?
- Small businesses – April 3rd, 2020
- Independent contractors and self-employed individuals – April 10th, 2020
The COVID-19 pandemic is hitting the economy hard. According to estimates, coronavirus could cost the global economy $2.7 trillion.
To counter the cash shortage and help meet the working capital requirements of certain businesses, the U.S. Federal Government passed the CARES Act into law on March 27, 2020. It includes a $2 trillion economic stimulus package to help with the coronavirus crisis.
The following is a summary of certain provisions intended to deliver important financial relief to small businesses, helping them to keep workers employed.
As more details emerge, we will do our best to keep you informed and update this blog post with the latest information.
Key details of the CARES Act’s PPP
The CARES Act plans to expand the SBA 7(a) Loan Program to meet the working capital requirements of certain businesses by creating the “Paycheck Protection Program” (“PPP”). In general, businesses and nonprofits with fewer than 500 employees should be eligible.
Through the PPP, the Small Business Administration (SBA) will enable private lenders to provide 100 percent federally-backed, low-interest loans, up to a maximum amount to eligible businesses to help pay operational costs for the Covered Period (Feb.15 to June 30, 2020). Most importantly, these loan amounts are forgivable if your business meets specific criteria (which we will cover further in this post).
Generally, the maximum loan amount is calculated by a formula based on average total monthly payments for payroll costs over the prior year, multiplied by 2.5, up to $10 million.
Avg monthly payroll cost x 2.5 = Loan amount (up to $10 million)
In addition to the usual business expenses these SBA loans are used for, this particular cash infusion can also be used for:
- Rent and Mortgage interest costs
- Health benefits
- Insurance premiums
- Interest on other debt obligations incurred before the covered period
Deferred payment and waiver
Complete payment of a PPP loan may be deferred for impacted businesses for six months up to one year.
Businesses that were already in operation as of Feb. 15, 2020 with a pending or approved loan application under the program are presumed to qualify for complete payment deferment relief for up to one year.
In addition, subject to certain conditions and limitations, some or all of the loan could be forgiven. The degree of loan forgiveness is conditioned on how much the company’s workforce is retained during the eight-week period following the date the loan was originated. The amount forgivable will be reduced in proportion to any reduction in the average number of full-time equivalent employees during the covered period compared to that of either (i) the period between Feb. 15, 2019 to June 30, 2019, or (ii) the period between Jan. 1, 2020, to Feb. 15, 2020. The forgivable amount will also be reduced for certain reductions in employee compensation greater than 25 percent.
Generally, the PPP is for businesses that employ 500 or fewer employees. For those in that category, there are very few obstacles to applying. Though, among other things, you do have to certify in good-faith that:
- The loan is needed to continue operations during the COVID-19 emergency
- Funds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments
- The applicant does not have any other application pending under this program for the same purpose
- From Feb. 15, 2020 until Dec. 31, 2020, the applicant has not received duplicative amounts under this program (you can’t get multiple PPP loans from different lenders).
If these conditions apply, your company could receive help from the PPP during these challenging times.
The SBA’s Economic Injury Disaster Loan (EIDL) Program
The CARES Act also addresses small business needs by modifying the terms and criteria for EIDLs, making available low-interest emergency loans up to $2 million for the period between Jan. 31, 2020, and Dec. 31, 2020. The repayment terms can vary by application, up to a maximum of 30 years.
These loans are available to certain small businesses, private non-profits, small agricultural cooperatives, and small aquaculture businesses.
To be eligible for these loans, a business must meet certain SBA size standards. You can use this online SBA tool to determine if you qualify. Generally, if you have 500 or fewer employees, this program is for you.
The CARES Act also waives the usual EIDL requirements such as personal guarantees, the inability to find credit elsewhere, and provisions stating that you must be in business for one year prior to the disaster.
This expanded EIDL program allows applicants to request an emergency advance of up to $10,000 which doesn’t have to be repaid if the loan is denied.
In response to the financial hit businesses are taking as an effect of the COVID-19 Pandemic, The CARES Act creates and expands some very beneficial programs for small businesses just like yours.
Both the new Paycheck Protection Program and the relaxed Emergency Injury Disaster Loan program are poised to give you the financial relief you need to keep your employees on the payroll, keep the lights on, and keep your business open.
If anything changes, we will update this blog post and add new information. Stay tuned.
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