What is the SBA Paycheck Protection Program (PPP) and are you eligible for it? Pssstt…. It could save your business.
In this confusing era of the COVID-19 pandemic and the sudden closing of many businesses in America, we’re all trying to make sense of how to look at the future and stay afloat. Not only that, but our workers are looking to us to keep them safe and secure the business even without customers coming through the door. It’s a tall order but the government has stepped in to ease the burden with the Paycheck Protection Program (PPP).
In the most basic of terms, the PPP was established by section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act) to provide a direct incentive for small businesses to keep their workers on payroll. This helps not only keep the economy on a more even keel without letting workers become unemployed, but also shows a strong vote of confidence that we will need to keep businesses as whole as possible for when the pandemic is over. Small businesses can borrow up to $10 million dollars under this plan and best of all, it can be completely forgiven by the government if the business follows the terms and conditions established.
So let’s get started on getting to the specifics of the PPP!
What can I use PPP loan funds for?
There’s been a lot of talk about what the loan actually covers in order to be eligible for up to 100% forgiveness with the government. To stay within the legal limits of the funds usage, companies need to ensure they are using them for the following expenses:
- Payroll costs, including benefits
- Interest on mortgage obligations, incurred before February 15, 2020
- Rent, under lease agreements in force before February 15, 2020
- Utilities, for which service began before February 15, 2020
Did you know? Neither the government nor lenders will charge small businesses any fees.
When do I have to pay the loan back to the government?
- Loans under the PPP program have a 1% fixed interest rate and are due in two years. All payments are deferred for six months, however, interest will continue to accrue over this period. In addition, no personal guarantees or collateral are required.
How do I qualify for 100% forgiveness under the PPP loan?
- As long as you use your loans for qualified expenses (see above) over the 8-week period, you can qualify for 100% forgiveness. Your loan forgiveness may be reduced if:
- You decrease your full-time employee headcount
- You decrease salaries and wages by more than 25% for employees making less than $100K annually
- If you restore employees or salary levels before June 30, 2020, you may still qualify for full forgiveness.
Who can apply?
The following entities affected by Coronavirus (COVID-19) may be eligible:
- Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)© of the Small Business Act) with the greater of:
- 500 employees, or
- That meets the SBA industry size standard if more than 500
- Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
- Sole proprietors, independent contractors, and self-employed persons
Some industries are excluded from eligibility, so make sure you do not fall into any of the categories listed in 13 CFR § 120.110.
How can I apply?
- You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program (coming soon!). You should consult with your local lender as to whether it is participating in the program.
In short, there is money to be had if you apply for the PPP loan to keep your business alive for this stop gap period. It’s a matter of cutting through the clutter and paperwork to get to the funds, but it will be well worth it. After all, you’ll be positioned to take advantage of the market upswing when the economy returns with all your employees intact. If you have any questions about the PPP loans and how to get access to funds, please contact us!