Small Business Loans: The Payroll Protection Program Loan
The CARES Act (Coronavirus Aid, Relief and Economic Security) was signed last week for the federal small business loan program called the Paycheck Protection Program. The Paycheck Protection Program is run by the Small Business Administration working through banks. This loan is here to help Small Business Owners get the cash that they need with fewer obstacles than the SBA’s existing loan programs by partnering up with other Banks where you can benefit from easier qualifications and quicker processing time-frames. The loans under SBA are splitting the risk between your bank and the SBA (which guarantees a portion of those loans).
Please read below for information regarding this program.
How do I apply?
First see the actual sample application so that you know what you will need to apply:
Then contact your bank to see if they are one of the participants in the Paycheck Protection Program loan. Banks have been given power to give loans under this act. If your bank if not a participant, here is the link to the SBA list of lenders: SBA Lenders
Lenders may begin processing loan applications as soon as April 3, 2020.
What will I need to apply?
You will need to complete the Payroll Protection Program Application along with the required documentation to an approved lender by June 30, 2020. Be prepared to provide your lender with payroll documentation.
How much money can you receive?
The Paycheck Protection Program provides small business loans of up to $10 million dollars or 2.5 times their payroll over a period of several months. The loan must be intended to retain workers, maintain payroll or make mortgage/lease or utility payments. You also have to certify that “uncertainty of current economic conditions make necessary the loan request” to support your ongoing operations.
Who qualifies for this loan?
Small Businesses (less than 500 employees)
Self Employed Individuals, including Sole Proprietors and Independent Contractors.
Non Profit 501 (c)(3) Organizations
To receive a loan, your company must have been in Business as of February 15, 2020.
Loans through the program can cover payroll (including sick and medical leave), health benefits, mortgage/rent payments and insurance premiums. Payroll costs includes salaries, commissions, tips and leave.
Can the loan be forgiven?
Yes. Loan forgiveness is available.
If you borrow money under the Paycheck Protection Program, you may be eligible for loan forgiveness in the amount equal to the amount spent during the 8 or 24 week period following your loan origination date on:
-Payroll Costs (at least 60% of the forgiven amount must have been used for payroll).
-Interest Payments on any Mortgage incurred
-Operating Expenses (Software, Subscriptions, etc)
Lenders will decide whether to accept the borrower’s application for loan forgiveness. Please keep a detailed accounting record of your transactions. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.
How can I request a loan forgiveness?
You will submit the request through the lender that serviced your loan. You will include your documents/proof of what you spent the funds on including payroll costs and mortgage/lease/utility payments. You must certify that the documents are true and that you used those funds to make these eligible costs. The lender will make a decision on the forgiveness within 60 days.
What is the interest rate if it is not forgiven?
The loan has a maturity of 2-5 years and an interest rate of 1%
Loan payments will be deferred for at least 6 months.
Is there any collateral for these loans?
No collateral is required.
Additional Information regarding Sole Proprietors, S Corporations, Partnerships, Independent Contractors
The law does in fact provide for these Business Owners and the SBA is working on more detailed rules and regulations regarding this including the hot question regarding how they should be treated (Employee vs Non-Employee) for purposes of this loan. This regulation (when made available) will address the status of 1099 Employees, Freelancers, Independent Contractors as well as Sole Proprietors.
I will update this blog once more information is given!
Contacting the SBA
To get in touch with the SBA’s disaster loan customer service center, email firstname.lastname@example.org, or phone (716) 843-4100
Here is a fact sheet from the Treasury Department for more information: Fact Sheet
Paycheck Protection Program- SBA