The government passed CARES on Friday March 27th, a $2T economic stimulus plan to mitigate the economic effects of Covid-19. Included in this act is $350B in small business support through the Paycheck Protection Program.
Who Qualifies for Paycheck Protection Program Loans?
In general, small businesses and not-for-profits that were operational on February 15th, 2020 and have fewer than 500 employees qualify for the loan (there are exceptions for some larger businesses.) Even self-employed and “gig-economy” workers are encouraged to apply.
Will Paycheck Protection Program loans be forgiven?
Generally speaking, if you maintain your staffing level for 8 weeks following issuance of the loan, a portion or all of your loan will be forgiven. The amount to be forgiven is based on your payroll costs, rent, insurance, mortgage interest and utilities, so long as the non-payroll costs do not exceed 25% of the value of your loan. It’s also worth noting that annualized pay over $100k per employee (or $16.6k in the 8 week period) does not count towards loan forgiveness. In other words, the owner can’t just give themselves a bonus for the whole amount and call it “payroll.”
Does a Paycheck Protection Program Loan require a personal guarantee?
No! Isn’t that great?
What is the size and term of Paycheck Protection Program loans?
The size you qualify for will depend on your historic average payroll. The definition of average payroll is complex, but in essence it includes wages and certain benefits for employees and contractors for calendar year 2019. Seasonal businesses and new businesses in 2019 can use different calendar periods to increase their loan amount.
The maximum loan amount is $10M, and the interest rate for loans (that are not forgiven) is 1%.
How do I apply for a Paycheck Protection Program loan?
Apply through your bank or SBA lending institution as early as Friday 4/3/20. Most are only accepting existing customers as of 2/15/20, so if your institution is not offering PPP you may need to wait a few weeks. The application is very simple except for the calculation of the loan amount. To do this correctly, you need to follow specific rules about how to measure average payroll and which items to exclude.
CFOshare is happy to calculate loan application amounts and create supporting documentation for clients applying for loans. Email Chelsie@CFOshare.org if you would like our professional services to ensure your application the best chance of acceptance.
How to apply for an SBA disaster relief loan for Covid-19 (EIDL)
Separate from CARES/Paycheck Protection Program, the Small Business Association is offering disaster relief loans related to Covid-19. These are excellent opportunities for affected businesses to receive low interest capital – up to $2M at 3.75% APR.
The SBA has simplified this process, improved their website loading speed, and is offering a $10k loan advance to anyone who applies which does not need to be repaid. That means if you already applied you should go back and apply again. Thankfully it is much easier and only takes about 10 minutes (vs. 2-3 hours before.)
The new application process is fairly straightforward:
To apply for an SBA disaster relief loan, follow these steps:
- Determine if your business qualifies. In general, all small businesses, sole proprietors and independent contractors except cannabis and lobbying qualify.
- Prepare your documents. You will need the following to complete your application:
- Basic business details, such as legal name, EIN, and address
- Trailing twelve months’ revenue and cost of goods sold
- This would be from February 1st, 2019 to January 31st, 2020.
- Ownership detail including
- Social security numbers
- Date of birth
- Location of birth
- Business bank account and ABA routing number
- Select “apply online” to begin the application. Follow the step-by-step instructions.
- Elect to have the $10k advance by checking the appropriate box.
SBA disaster relief debt should be coupled with a comprehensive turnaround strategy plan. Make sure you are forecasting your use of funds to avoid wasting your precious resource.
Should I apply for an SBA Disaster Relief Loan?
If you’re reading this you are likely experiencing a loss of business due to Covid-19. If so, then apply for the loan. These loans generally do not reflect negatively on business credit, are very easy to qualify for, and bear extremely low interest rates. The worst thing that happens is you wasted time on the application or a little bit of money on the interest expense. Best case scenario you got your application in the queue for approval and receive the funding just in time to save your business.