As businesses deal with the economic fallout of the COVID-19 pandemic, the federal government is working overtime to inject cash into businesses in a variety of ways. One is through Economic Injury Disaster Loans, another is through the Paycheck Protection Program (PPP). PPP provides 100% federally guaranteed loans to small businesses. These loans may be forgiven if borrowers maintain their payrolls during the crises or restore their payrolls afterward.
Who is eligible:
- A small business with less than 500 employees
- A small business that otherwise meets the SBA’s size standard
- A 501(c)(3) with less than 500 employees
- An individual who operates as a sole proprietor
- An individual who operates as an independent contractor
- An individual who is self-employed who regularly carries on any trade or business
- A tribal business concern that meets the SBA size standard
- A 501(c)(19) veterans organization that meets the SBA size standard
What will lenders be looking for:
- The uncertainty of the current economic conditions makes the loan request necessary to support ongoing operations
- The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
- The borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
- From February 15, 2020, to December 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here
How much can I borrow:
- Loans can be up to 2.5 times the borrower’s average monthly payroll costs (including benefits), not to exceed $10 million.
Eligible payroll costs:
- Salary, wages, commissions, or tips (cash compensation capped at $100,000 on an annualized basis for each employee)
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; an allowance for separation or dismissal; payments required for provisions of health care benefits including insurance premiums and payment of any retirement benefit
- Federal, state and local taxes assessed on compensation
- *For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 cash compensation on an annualized basis for each employee.
Ineligible payroll costs:
- Compensation of any employee whose primary residence is outside the United States
- The portion of any cash compensation that is greater than an annual salary of $100,000 for any individual employee
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
As mentioned above, borrows are eligible to have their loans forgiven.
- A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the original loan.
How could forgiveness be reduced:
- The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees
What if employees are brought back or wages restored:
- Reductions in employment or wages that occur during the period beginning February 15, 2020 and ending 30 days after enactment of the CARES Act shall not reduce the amount of loan forgiveness if by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.
For more information and help applying click here