Stay-at-home orders across the U.S. have paused revenue streams for 30 million small businesses, resulting in massive employee-layoffs during the COVID-19 crisis. The Small Business Administration (SBA) is stepping up with additional assistance for these small companies and their employees in the form of a forgivable loan of up to $10 million each to cover payroll and other costs.
Released on April 3, 2020, The Paycheck Protection Progam (PPP) loan, or 7(a) loan, amends the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act), providing $349 billion to small business. The Paycheck Protection Program is a loan specifically designed to incentivize small businesses to keep their workers on the payroll.
PPP applicants can expect a streamlined application process, less documentation requirements, and fewer restrictions than earlier programs released under the CARES Act.
Who Qualifies?
Any small business with 500 or less employees may be eligible. This includes small businesses, sole proprietors, S corporations, C corporations, LLCs, independent contractors, self-employed people and private nonprofits.
In addition, any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern with the greater of 500 employees, or meets the SBA industry size standard if more than 500. Businesses with a NAICS Code beginning with 72 (Accommodations and Food Services) that have more than one physical location and employs less than 500 per location may also be eligible.
Ineligible businesses are designated as those engaged in illegal activities, owners more than 60 days delinquent on child support obligations, farms and ranches, sex businesses, lobbyists and gambling establishments.
What are Terms?
In an effort to extend the assistance being offered to small businesses, the government has built in generous terms associated with the PPP loans. Borrowers may be awarded two and a half times their average monthly payroll costs (excluding payroll for people earning more than $100,000 per year) incurred 12 months before the date the loan is awarded.
The loan money must be primarily used for payroll (75%), with no more than $100,000 annual salary per employee, and may also be used towards benefits (including paid sick leave and insurance premiums) and taxes on compensation. Up to 25% of the loan may be used to cover mortgage interest, rent, utilities and interest on pre-existing loans.
Any portion of the loan that is not forgiven will carry an interest rate of 1.0% and is due to be paid in full within two years. However, payments for the first six months can be deferred, and there is no pre-payment penalty.
Loan Forgiveness
Loans will be forgiven if the borrower uses 75% of the money for payroll and 25% for designated expenses. Participants are eligible for loan forgiveness for the amount spent over the eight weeks after receiving the loan. The amount of forgiveness is equal to the total amount of payments for payroll, mortgage interest, rent and utilities. No more than 25% of the forgiven amount may be for non-payroll costs.
To get the entire amount of the loan forgiven, the full-time employee headcount cannot decline, nor can employers cut salaries or wages. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.
How to Apply
Banks began accepting PPP loan applications from small businesses and sole proprietorships starting April 3. Independent contractors and self-employed individuals, including freelancers, may apply beginning April 10. The Paycheck Protection Program will be available through June 30, 2020 however prospective borrowers are encouraged to apply as soon as possible. Our firm is ready to assist you with determining the appropriate program for your specific business, and answer any questions you may have. Contact us today to get started right away.
Call The Neal Group today at 414-325-2040 for more information.
NOTE: Congress is in progress of approving additional Funds to the SBA Loan programs. Please keep in touch with us for further information.