Pay Check Protection Plan for small businesses

Small business especially restaurants are hit hard due to novel coronavirus, with mandatory shutdown to slow the spread. Restaurants are finding it difficult to manage payroll, rent, and other operating expenses. Many business owners fear that they might have to go out of business in around 3 months.

To counter and protect small business US govt have come up with “The paycheck protection program” a $349 Billion fund administered by Small Business Administration(SBA) to provide emergency lending.

This program helps restaurants to cover operating expenses & incentivize business owners to retain employees. The program allows eligible restaurants to get loan deferment for six months to a year, and the loan may be forgiven if the restaurant maintains its payroll for eight weeks at normal salary levels

Below are the restaurants that would be eligible

• Restaurants that employ fewer than 500 employees per physical location
• Franchises that are approved on SBA’s Franchise directory

The key feature of the program

• No collateral or personal guarantee shall be required for the covered loan
• The maximum loan amount must be less than 250% of the monthly average payroll or $10 million.
• There are restrictions regarding payroll calculation. It does not include
  - Any salaries excess of $100,000 per year
  - Any qualified sick or family leave wages for which tax credit is allowed.
• The loans can be used for the following purposes
  - Employees salary
  - Mortgage payment, rent or utilities
  - Interest on debt obligation previous to Feb 15, 2020
  - Payment required for group healthcare benefits

How will the loan forgiveness work?

• Loan recipients can be eligible for forgiveness for an amount equal to the total amount paid for the following expenses over eight weeks starting with the loan’s origination date.

o Eligible payroll costs

o Mortgage interest, rent, and utilities provided that the mortgage, lease, and utility services were in place before Feb. 15, 2020.

• The program includes a possible reduction in the forgiveness amount corresponding to any reductions in the number of full-time equivalent employees or in employee pay compared with 2019 numbers.

o However, this penalty will not apply to employers that reduced these numbers at the beginning of the pandemic disruption and then raise them again by June 30, 2020.

• Those seeking loan forgiveness must provide certain documentation to their lenders, such as payroll tax filings and documentation of payments on the mortgage, rent, and utilities.
• Any loan amounts remaining after this forgiveness is applied will be carried forward, with a maximum maturity of 10 years and a maximum interest rate of 4% with an option to defer payments of interest and principal no more than 1 year.

How to Apply

You can call your bank or find SBA-approved lenders in your area through SBA’s online Lender Match tool. You can call your local Small Business Development Center or Women’s Business Center and they will provide free assistance and guide you to lenders. The last day as of now to apply for the program is June 30, 2020.