You can still pay your employees, and yourself throughout the COVID-19 crisis. The Paycheck Protection Program (PPP), is a vital facet of the $2 Trillion dollar stimulus package that recently passed. This program provides $349 Billion in small business loans to be administered by the Small Business Association (SBA).
Generally speaking, SBA loans are for business owners that have trouble or cannot find credit through other lenders. Thankfully, the CARE act waves that requirement. While SBA loans normally require the borrower to post collateral and provide a signed guarantee of repayment, Paycheck Protection Program (PPP) loans require neither.
Rather, the Government is guaranteeing loans for these lenders.
This applies to all businesses, including non-profits, sole proprietors and self-employed individuals, and independent contractors. However, you must have 500 or fewer employees to qualify. In certain cases, businesses with more than 500 employees that meet specific SBA standards may apply.
When & Where can I apply?
Small businesses and Sole proprietorship: April 3rd
Independent contractors and Self Employed individuals: April 10th
You can apply through existing SBA lender or through a federally insured depository institution, federally insured
Who can apply?
All businesses – including nonprofits, veterans organizations, sole proprietorships, self-employed individuals, and independent contractors with less than 500 employees.
What do I need to apply?
- Articles of an embodiment for each borrowing entity
- The operating agreement for each borrowing entity
- Copies of each owner’s drivers’ license
- Payroll expense verification
- Certification that employees live in the US
- List of those who don’t with their salary outlined
- 12-month profit and loss statement
- Proof of expenses like rent and mortgage payments, interest payments on debts, and utility payments
- Must provide payroll details during the 8 weeks after the loan is finalized: Gross pay, Tax withholdings, 2019 FUTA taxes, 1099’s, Health insurance premiums, and Retirement plan funding.
What can I use the money for?
- Vacation/Sick/Medical/Parental pay
- Retirement Contributions
- Group health coverage premiums
- State and Local taxes
Federal taxes and payroll for employees making over 100k are NOT included.
Taxes and Loan terms?
- Interest rates of 1%
- Maturity of two years
- First payment deferred for six months after approval
- There are no borrower or lending fees payable to the SBA (100% guarantee by the SBA)
How large can the loan be?
Loans up to two months of average monthly payroll costs from the previous year plus a bonus of 25% of that amount.
How long will this program last?
The program is open until June 30, 2020. However, there is a funding cap and it takes time for lenders to process your loan.
NO collateral or personal guarantee is required for loans
Will my loan be forgiven?
Loans can qualify for forgiveness under some circumstances:
- You only use the loan to cover qualified expenses
- You pay 100% of payroll dollars to employees during the eight weeks after the loan is approved.
The amount of the loan eligible for forgiveness will be reduced if you:
- reduce the number of full-time workers you employ over eight weeks.
- reduce payroll costs by 25% or more.
Forgiveness is ultimately determined and grants by the banks that dispursed the loans. Banks will have 60 days to approve/deny a loan forgiveness request.
Usually, when a bank approves loan forgiveness, the borrower is taxed on the dollar amount of the loan, as if the loan was business income.
The CARES Act does not tax the borrower when the loan is forgiven.