The $2 Trillion Coronavirus aid package (CARES Act) includes the Paycheck Protection Program (PPP) which, is intended to provide short-term cash flow assistance to eligible small businesses to help these businesses and their employees deal with the economic impact due to the COVID-19 pandemic.
How Does It Work?
Small Business Administration (SBA)-approved lenders provide low-interest loans to businesses with 500 employees or fewer. Loans can be used to cover payrolls costs, paid sick leave, supply chain disruptions, salaries, health insurance premiums, mortgage/rent, and utilities. The program is retroactive from February 15, 2020 and will last until June 30, 2020. To be eligible for loan forgiveness, businesses must retain their employees and pay them at least 75% of their compensation.
What are the Details?
To qualify for participation, businesses must have been operational as of February 15, 2020, and have 500 or fewer employees including self-employed individuals, those part of the “gig economy,” and restaurant industry businesses with less than 500 employees per location.
Businesses can be approved for loans up to $10 Million with a maximum fixed APR of 4% and a 10-year repayment period (loan amount will be calculated by the lender based on 2.5 times the pre-disaster trailing twelve month (TTM) average monthly payroll costs).
No collateral or personal guarantees are required. The SBA is waiving fees and prohibiting lenders from collecting fees from small businesses as well.
All payments are deferred for the first year; however, interest continues to accrue. If deferred, the payback period is 9 years (on a 10-year loan).
Businesses must retain their employees and pay them at least 75% of their compensation to be eligible for loan forgiveness, which will be calculated based on the sum of covered expenses (payroll, rent, utilities, etc.) over an 8-week period from loan disbursement. The forgiven amount must not result in taxable income to the business.
To participate, talk to your lender (or find one that is participating via the U.S Small Business Administration website). Businesses must make a good faith certification that the loan is necessary and provide evidence of salaries and payroll taxes paid or proof of payment to independent contractors (Form 1099 – MISC recommended) prior to February 15, 2020.
Special thanks to additional authors: Angela Bidnick and Carson Mullins Pigg.