What is the Paycheck Protection Program and who can apply?

The CARES Act contains programs to help small businesses survive this crisis and keep their workers employed.

The Paycheck Protection Program provides up to $349 Billion from the US Treasury for loans to small businesses facilitated through the Small Business Administration (SBA) and approved banks. The purpose of these loans is to provide liquidity to small businesses so they can pay their workers while businesses are shut down. This will enable workers to pay their bills until they go back to work. It will also make for a smoother transition when businesses can reopen.

Who is eligible: Small businesses with 500 or fewer employees including self-employed, sole proprietors, independent contractors, churches and other non-profits.

How to apply: There is a four page application which can be found HERE.

Submit the application and required documentation to a participating SBA lender. The fastest route is to approach your own local bank if it is participating. All loans will have the same terms no matter where you obtain the loan. There is a list of participating lenders and full terms of the loan at www.sba.gov. Currently the deadline to apply is June 30, 2020.

How much can be borrowed: The formula to determine how much you can borrow is 2 months of average monthly payroll costs (not to exceed $100,000 annualized per employee) based on last year’s payroll, plus an additional 25% of that number. There is a $10 million cap per loan.

What can the loan be used for? First, for payroll costs and benefits over an 8 week period after the loan is made, and then interest on a mortgage, rent, and utilities based on agreements in effect prior to February 15, 2020.

What are the terms of the loan? This is a 2 year loan with no prepayment penalty. No personal guarantee is required. No collateral is required. The interest rate is 1% fixed rate with all payments deferred for six months. Interest does accrue during the deferral period.

The most attractive feature of the Paycheck Protection Program:

Loan Forgiveness: To obtain loan forgiveness you need to verify that you used the money to retain your employees and make rent, utility and mortgage interest payments per the agreement.

Your loan forgiveness amount will be reduced if you fail to maintain your fulltime employee head count. You cannot reduce wages more than 25% for any employee making less than $100,000 annualized in 2019. If you furloughed employees between February 15, 2020 and April 26, 2020, you have until June 30 to restore your workers to full employment.

The Paycheck Protection Program opened to applicants on April 3rd and banks have been swamped with applications in the first week. Contact your own banker first. Be patient but persistent. Bankers are overwhelmed with requests. Millions of dollars have already been released and bankers are processing loans as fast as they can.

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