Although you have certainly heard of the Payroll Protection Plan (PPP) from the government, you may not have applied yet. If your business has had to close and your employees are now out of work, they would appreciate financial help to get them through this period. Getting the loan will require that you live in an area that has been impacted by the coronavirus (now pretty much all states, though…).
Because so many businesses have been affected by the coronavirus, you need to be aware that there are limited funds. The government has designated $349 billion to be used for the PPP. This means that not everyone will get money. If you have not applied yet for a loan, now is certainly the time. Waiting too long will likely find you without a loan and probably without employees.
They are attempting to add another $250 Billion, but this has become a political football, so it may be a while before it happens. Better to move as quickly as possible.
How the Money Must Be Used
The loan that you apply for must be used in a certain way – if you want to be considered for loan forgiveness later. It is an SBA loan and it comes with some stipulations. Most of the loan amount (75%) must be used for salaries to keep your employees on the payroll. The money will enable you to hire them back and keep them financially secure while most of the nation remains in a stay-at-home condition.
The remaining 25% of the loan is to be used for your regular business expenses. It includes mortgage or rent, utilities, supply costs that you would normally have, and more. It is not to be used for non-regular expenses if you want it to be included in the part of the loan that is forgivable.
Apply Through Your Bank
Although money has been given to the larger banks, most of them require that you go to your own bank. Some of the big banks are saying (look on their website) that they have enough to handle without taking on new loan applications. They also say that if your own bank already knows you that you are likely to get it faster.
Applying for the loan involves a simplified process. It requires low-documentation and rapid processing – but this may depend on how many applications are submitted to your bank. No collateral or personal guarantees are necessary and the first payment does not need to be made for six months. It has 1% interest on the loan and a maturity of 2 years – if used for non-approved expenditures.
Unfortunately, the larger banks have not been well organized, and in fact Wells Fargo has stopped completely after accepting loan applications for only 48 hours. It won’t hurt to do a parallel application from someplace like lendio.com. It’s tough to say how much this will help.
Terms of the Loan
In order to be eligible, your business needs to have 500 employees or less. You can have any kind of small business structure, including sole proprietors, independent contractors, self-employed, and private non-profit groups. Businesses that started after February 15, 2020, are not eligible.
You can qualify for 2.5 times the amount of your monthly salary costs. Businesses that apply must know their total annual salaries and wages, which will be divided by 12 and then multiplied by 2.5. The loans top out at $10 million. You can also include some benefits in the total, including payments for group health coverage, medical and sick leave, parental or family leave, vacations, retirement benefit costs, and taxes. There is a limit on salary costs for employees that earn $100,000 or more.
Clarifying the issue, the SBA has announced that faith-based organizations are also eligible to apply. They may qualify for the PPP and the Economic Injury Disaster Loan (EIDL) program without restrictions, as long as they meet other qualifications of the CARES Act.
A Forgivable Loan
The whole amount of the loan is forgivable, but the employee headcount must remain the same until June 30. Another condition is that salaries and hourly wages cannot be reduced. It appears that a business may deduct a total of two months of allowable expenses. This may change as conditions do.
Many people are having some difficulties obtaining their loans because some banks are refusing to deal with it. You need to start finding a lender as soon as possible to ensure you get the funds you need.