Congress is expected to pass an additional $484 billion, with a major portion to be allocated to help small businesses through the COVID-19 pandemic. Authorization could come as soon as today.
The legislation includes:
- $321 billion for the Paycheck Protection Program (PPP), $60 billion of which is set aside for “underbanked businesses”
- $60 billion for economic disaster assistance through the SBA EIDL program, for which agricultural enterprises WILL now be allowed to apply
- $75 billion for hospitals
- $25 billion for coronavirus testing
WHAT YOU NEED TO KNOW
The Paycheck Protection Program (PPP) is a $300+ billion program to provide eight weeks of cash-flow assistance to small businesses through 100 percent federally guaranteed loans to employers who maintain their payroll during the COVID-19 pandemic.
The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval by the SBA.
PPP may become a forgivable loan. The Forgiveness Calculation requires the employer to:
- Maintain its employment levels
- Use at least 75 percent of the funds for covered payroll costs
- Use no more than 25 percent for other purposes, like interest on mortgage obligations, rent, and utilities.
In the event these conditions occur, an application to the SBA can be made to request Forgiveness. Only the SBA can approve Forgiveness. Banks recommend customers establish a separate checking account to track the usage of the funds to aid the Forgiveness calculation, which will be made after June 30, 2020. In the event employment headcount is reduced, the percentage of eligible loan forgiveness will likely be reduced by the same ratio. The concept is for businesses to retain their trained staff to quickly resume business once closure orders are lifted. Likewise, it helps workers to remain employed. Affected small businesses and our economy should recover more quickly from this approach. This proposal would be retroactive to February 15, 2020 to help bring workers who may have already been laid off back onto payrolls.
It is important to note: The CARES Act excludes qualified sick and family leave wages as an eligible PPP expense.
WHAT CAN YOU DO NOW?
The most important thing you can do is be ready to apply and have all your paperwork together and up to date:
- Business name(s), address, and contact
- Company formation documents or details of business’s legal organization, structure, and ownership
- 2019 W-3 annual payroll reporting form, summary full-year payroll reports, detailed by employees (as max salary per employee is limited to $100,000) and proof of employer-paid health insurance and retirement contributions, which can be included in the calculation of eligibility. For self-employed individuals, copies of 1099’s and/or Schedule C income to be filed with 2019 1040 returns may suffice.
- Mortgage or rent documents
- Documentation of utility expenses
WHERE DO I GO?
Community banks were critically important in disbursing the initial $343 billion in SBA loans, and having a personal relationship with the lender seemed to help. Almost 20 percent of the original PPP money was processed by lenders with less than $1 billion in assets, and about 60 percent from banks with $10 billion or less in assets. Call your local banker today, or use the SBA PPP Finder tool.
On April 16, a number of online lenders were approved to participate in the PPP. While you will always be better served at a local bank, if your bank is not lending or if you have been denied, applying online could be an acceptable option and worth exploring. PayPal, QuickBooks, Inuit, Square, Womply, Lendio, and Kabbage are some of the FinTech companies recently authorized.
WHAT IF I ALREADY APPLIED?
If you already applied for a PPP Loan, contact your bank and ask if they still have your application and whether or not it will be submitted when the SBA begins accepting new PPP loan applications. The Treasury Interim Final Rule specifically states you can only apply for one PPP loan.