The Coronavirus COVID-19 has spurred the US Government to act with unprecedented speed with the signing of the CARES Act and a $2 trillion stimulus package to provide relief for the disastrous economic fallout of the Coronavirus disease.
The CARES Act allocated $350 billion towards the Paycheck Protection Program (PPP) and President Trump announced Tuesday that the government would approve an additional $250 billion funding given the broader needs discovered. This program is designed to support small businesses in their efforts to retain employees on their payroll. Below are some of the highlights of the program:
What Businesses Qualify for the Small Business Administration’s Paycheck Protection Program?
Small businesses with fewer than 500 employees, including sole proprietors and independent contractors, can apply for the loan.
How Much Money Can I Borrow?
The PPP provides loans up to $10 million based on the level of the small business’s “payroll costs” which include compensation, benefits, and state and local taxes. The loan amount is calculated as 2.5 times the average monthly payroll costs for the previous calendar year or the previous 12 months. Seasonal-based businesses can use a more tailored base period.
Is the PPP a Forgivable Loan?
The loans are designed to be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. Should the loan qualify for 100% forgiveness, they are essentially grants from the government.
At least 75% of the forgiven amount must be used for payroll costs.
Forgiveness of the loan is based on an employer maintaining or restoring employee headcount and maintaining salary levels by June 20, 2020. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decline.
Small businesses will be required to submit a request for forgiveness with documentation support for how the funds were used including payroll and non-payroll reports and evidence of payment along with support showing that the small business has retained or restored its headcount.
“CFOs2GO CAN HELP YOU SECURE THE COVID-19 DISASTER LOANS QUICKLY AND WE KNOW HOW TO NAVIGATE THE PROCESS AND PROVIDE BANKS WHAT THEY NEED TO SUPPORT THE LOAN DOCUMENTATION.”
What are the Loan Terms?
The loans have a 2-year term and carry an interest rate of 1%, but the interest cost will be minimal if the small business has the loan forgiven as it has been designed. These loans:
- do not require a guarantor
- do not require collateral
- do not carry any prepayment penalties or fees
- do not require typical underwriting requirements or covenants other than retaining or restoring your headcount to be forgiven
- do not have any tax burden – the loan forgiveness is not taxable
Where Does my Business Apply?
The Small Business Administration has enlisted SBA approved banks to be the lenders.
Given that almost all industries and businesses have been severely impacted by the stay-at-home orders in most states, the interest for and need of small businesses to take advantage of this PPP program has been even faster than the SBA-approved lending banks’ ability to set up scalable systems to process the hundreds of thousands of loan applications.
Banks were to start processing applications on April 3, but only a few banks were ready when the floodgates opened. Each SBA-approved lender received an allocation of the $350 billion funding and some banks have had to scale back the offerings to their small business clients to avoid oversubscription. Wells Fargo announced late Sunday evening that they would limit applications to their non-profit and small business clients with fewer than 50 employees.
Are There Other SBA Coronavirus Disaster Loans Available?
The CARES Act also expanded the Economic Injury Disaster Loan (EIDL) SBA program to include economic impacts from the Coronavirus disease and that program includes an advance of up to $10,000. The advance does not have to be repaid even if the EIDL loan is not approved.
The loan application process for the EIDL loans is very fast and small businesses apply directly with the SBA.
What Guidance is Publicly Available for the Paycheck Protection Program From the US Treasury Department and the SBA?
The guidance for these programs has been evolving quickly over the last week. The latest guidance can be found at these links:
How we Help
CFOs2GO recognized the need for our clients and prospects to jump on these opportunities. We formed a task force the day after the programs were announced. Our group has been working non-stop to support clients in their efforts to secure these loans. We’ve developed significant subject matter expertise at an exponential pace and have already completed loan application support for more than 20 clients.
We know small businesses have their plates full in addressing the many challenges in managing their business through the Coronavirus COVID-19 crisis. We know the application process for financial relief can be cumbersome and distracting to the high priority operational responses required.
We are the experts that can help you get the financial relief available quickly and can work with your bank to support you.
Please contact us should you require support for your small business in this effort.