Small businesses that maintain their payroll during the COVID-19 crisis, can borrow money from the Small Business Administration (SBA). The new Paycheck Protection Program can help small-business owners and their employees ride out this economic storm by businesses by forgiving a portion of that loan.
Eligibility for the SBA’s Paycheck Protection Program
· Small businesses with fewer than 500 employees are eligible to apply to the Paycheck Protection Program including:
o Sole proprietorships,
o Self-employed individuals
o Independent contractors
· The small business must certify that their business has been affected by the coronavirus slowdown.
· Businesses must have been in operation as of February 15, 2020.
· Business owners’ credit scores will be evaluated.
o However, lenders will not require collateral or a personal guarantee.
When to apply
· The Paycheck Protection Program loans applications start on Friday, April 3, 2020.
· Loans are on a first-come, first-served basis.
· Attached is an application.
Amount available
· The amount of the loan can be up to 2.5 times the borrower’s average monthly payroll costs.
· The maximum amount that can be borrowed is $10 million.
· The date range for calculating that average cost is different for seasonal businesses, nonseasonal businesses, and firms that opened in 2020.
Payroll cost calculation
· Payroll costs include:
o Salaries
§ Employee‘s salary in excess of $100,000 is excluded
o Bonuses
o Retirement benefits
o Parental leave
o Health care benefits
· The gray area
o It is not clear yet, but payroll costs maybe able to include payroll taxes and workers comp insurance.
Loan payback
· Within 60 days of forgiveness submission, a decision on forgiveness of the Paycheck Protection Program loan will be made.
o Borrowed money used for the following list in the eight weeks following the date of origination can be forgiven:
§ payroll,
§ mortgage interest,
§ rent, or
§ utilities
· That means business owners will not have to pay the government back the full principal amount of the money borrowed.
· Borrowers will need to provide documentation of these expenses in their loan forgiveness application.
· The loans will be forgiven as long as the funds are used to keep employees on the payroll.
· The forgiven money will be reduced for employers that lay off employees or reduce wages by more than 25%.
· Laid-off employees must be rehired by June 30 for companies to recoup their wages through loan forgiveness.
How to apply
· Borrowers should talk to their current bank to see if they already offer SBA loans.
· If not, small businesses can apply at banks that already offer Small Business Administration loans.
· The number of lenders offering loans through the Paycheck Protection Program will end up being greater and includes many more traditional banks, credit unions, and fintech firms.
· Businesses can apply for a loan and be approved on the same day.
Cost of the loan
· There is no cost to apply for this loan
· Businesses will be charged a fixed interest rate
Interest rate
· The Paycheck Protection Program will have a 0.5% fixed interest rate.
· The first payment is deferred for six months.
When will funds be available
· The loans process has been streamlined.
· The approval process will be far more quickly than previous SBA-backed loans.
· The “stripped down” applications will not require SBA approval and funds could be made available on the same day you apply.
Should I apply?
· Short answer. Yes.
· It’s a great deal for small businesses, contractors, and self-employed people.
· A forgivable loan like this should help you retain payroll during the coming weeks when they’re likely to watch sales continue to dry up.
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