Assistance to Keep Your Business Afloat During the COVID-19 Pandemic
The “Paycheck Protection Program,” part of the recently enacted federal CARES Act, sets aside $350 billion in federal grants for qualifying small businesses.
Small businesses struggling to stay afloat should consider the recently enacted federal economic stimulus program. It looks like a loan program but it’s actually a government cash grant designed to keep small business employees working until the economy bounces back.
If you need a way to pay your employees for a couple of months but don’t know where the money is coming from, this program offers assistance.
The “Paycheck Protection Program,” part of the recently enacted federal CARES Act, set aside $350 billion in federal grants for qualifying small businesses. Check out the program’s details at www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp.
The program, administered by the Small Business Administration (SBA), applies to businesses or non-profits that employ fewer than 500 employees. Applicants can borrow up to 2.5 times the company’s average monthly payroll for the past 12 months. (The total principal amount of the loan cannot exceed $10 million.)
As long as the borrower uses the loan proceeds for certain permissible purposes – wages, salaries, rent, mortgage payments and utility payments – the entire principal amount of the loan is forgiven.
To qualify for forgiveness, the loan proceeds can be used for one or more of the following uses:
- Wages, salaries and other payroll costs (excluding compensation to employees earning more than $100,000 a year)
- Costs of group healthcare benefits during periods of sick, medical or family leave or medical insurance premiums
- Mortgage interest payments (but not principal payments)
- Rent
- Utility costs
- Interest on debt obligations incurred prior to February 15, 2020
The borrower must use the loan proceeds for permissible purposes during the eight-week period following loan origination. The amount of the loan forgiveness is capped at the principal amount (interest payments are not forgiven). Unlike most loans, the loan forgiveness does not assign taxable income to the borrower.
The program also waives loan application fees, as well as the SBA’s usual lending requirements that the borrower must demonstrate it can’t borrow elsewhere and that the loan be personally guaranteed. Borrowers must certify that the loan is necessary to support the on-going operations of their small business given the uncertainty of the current economic conditions; that the proceeds will be used retain workers and maintain payroll or make mortgage, lease or utility payments; and the applicant is not receiving another loan under the program.
Unlike most loans, these loans are both unsecured (there is no collateral) and non-recourse to the borrower (meaning the borrower is not liable to repay the loan) unless the loan proceeds are not used for permissible purposes. The maximum interest for the loans is 4% and the loans can be prepaid without penalty.
The program also offers compensation to sole proprietors and independent contractors able to document their losses.
This looks like a great program for small businesses whose cash flow has been interrupted by the COVID-19 pandemic by helping pay your employees and keep staff in place.
