On March 27, Congress officially passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which allocated $350 billion to help small businesses keep workers employed. The act was created in order to provide new resources and financial help to small business owners with whatever needs they have right now.
Today many businesses are looking into ways to cover the costs of keeping their employees and push through our current situation. One of the newest financial resources is the Payment Protection Program (PPP).
As shared by the U.S. Senate Committee on Small Business and Entrepreneurship through their Small Business Owner’s Guide, the PPP will “provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency.” This provides financial support to small businesses being adversely affected by COVID-19 in an effort to help the economy recover from the crisis. It also aims to help workers remain employed.
What Is Included in the Loan and When Is This Available?
The Payment Protection Program has been set up with numerous benefits, including up to 100% forgiveness of up to 8 weeks of payroll based on employee retention, salary levels, and other qualifying expenses, no Small Business Association (SBA) fees, and at least six months of deferral. Maximum deferrals are up to a year for any remaining amounts that don’t qualify for forgiveness.
Businesses are also able to receive both the SBA’s Economic Injury Disaster Loans (EIDL) and Paycheck Protection loans, as long as they don’t go toward the same expenses. In addition, businesses can apply for both programs without the requirement of accepting anything that’s offered.
The small business loan size is 2.5 times the borrower’s average monthly payroll costs, with the maximum being $10 million
In regards to interest rates, a business’s interest rate will be determined by the loan officer. However, with the PPP one of the benefits is that it is possible for businesses to obtain all or partial loan forgiveness if they manage to avoid layoffs. For those that may have needed to, they are able to receive forgiveness if they restore everything afterward.
Small businesses and other eligible entities can apply if they were harmed by COVID-19 between February 15, 2020, and June 30, 2020. This program is retroactive to February 15, 2020, which helps bring workers who may have already been laid off back onto payrolls. Loans will be available through June 30, 2020.
How Do I Know If I Qualify For the Payment Protection Loan?
The Payment Protection loans are open to any business with 500 or fewer employees that can demonstrate “economic uncertainty” due to COVID-19. The employee count includes all full-time, part-time, independent contractors, and any other status employees.
To qualify for the business loan, your business must meet the SBA definition of a small business. This includes:
- Small businesses or non-profit 501(c)(3) organizations with 500 or fewer employees
- Small businesses, 501(c)(3) veteran’s organizations, or tribal concerns that meet the SBA size standards
- An individual who operates as a sole proprietor or independent contractor
- An individual who is self-employed who regularly carries on any trade or business
- Businesses in the food or hospitality industry (NAICS codes beginning in (72) may be eligible on a per-location basis)
Fortunately, according to the SBA, PPP loan qualifications are pretty simple with a few additional requirements.
- Must be operating your business within the United States
- You must also have been in operation before and by February 14th
- Have had employees you covered salaries and payroll taxes for on a full-time, part-time, or another basis. You can also have paid independent contractors.
- Not have any existing debt obligations to the government
- Will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
Another benefit is that no collateral or personal guarantee is required for the business loan.
How Can I Prepare to Apply for a Paycheck Protection Loan?
Before you apply, determine exactly how much money you truly need to borrow to efficiently run your business. A list of lenders can be found on the SBA website, which will be expanded to include nonbank lenders as determined by the Department of Treasury. The expansion will mean that there will be more lenders available to help meet the needs of small business owners. Currently, all SBA lenders are qualified to offer a PPP loan.
Due to COVID’s impact, it is expected that numerous businesses will be applying for business loans. Speed is critical once the application window opens on April 3rd for small businesses and sole proprietorships. As you wait for the ability to submit your application, take advantage of this time to collect all the documentation needed to showcase your needs.
- Gather payroll documentation and determine what amount you should apply for.
- Pull together your utility expenses and payroll costs from before February 15, including employee salary, wages and commissions, payment of tips, payments for vacation, parental, family, and sick leave, group health and retirement benefits, and other related expenses.
- Pull together documentation on your business’s payroll, mortgage, rent, and utility payments for the previous 12-month period.
- Be sure to have your most recent IRS Form 941—Employer’s Quarterly Federal Income Tax Return.
- Get a copy of your complete 2019 financials, including the business’s profit/loss and balance sheet.
If you are an individual who currently operates under a sole proprietorship or as an independent contractor and eligible self-employed individuals be sure to collect any payroll tax filings reported to the Internal Revenue Service, Forms 1099-MSC, and income and expenses from the sole proprietorship.
Monitor Your Credit
While the crisis may have already started to have a negative effect on credit for some businesses, your personal credit score and FICO SBSS score will still be part of the decision-making process. This is because the SBA will be using your score, and not your ability to pay, as a way to determine the business loan amount.
For many small businesses, meeting the loan qualifications will not be difficult. While predictions are being made that the SBA and banks won’t truly be ready for a few more weeks, it is highly important to make sure you are prepared for when that time comes. Keep in mind this information is based on our current understanding of the program, which you can learn more about on the U.S. Treasury CARES website.
Changes can happen as the program begins in earnest and we highly encourage you to consult with your lawyers, CPAs, and Financial Advisors. In the meantime, be sure to look into additional ways to immediately reduce costs and increase savings.
If you have any questions on how our team can help you quickly save on credit card processing fees, reach out to Stax today. We will be happy to answer your questions and help see how we can best support your business.