Paycheck Protection Program (PPP): What Is It and How to Apply?
paycheck protection program
The private sector is doing all it can, and the government is making efforts to help as well. One of the most significant efforts is the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This act includes multiple layers of benefits and stimulus packages to keep American citizens and businesses going.
The “Keeping American Workers Paid and Employed Act” is in Title One of the CARES Act. Within this section lies the Paycheck Protection Program. This program is providing the Small Business Administration (SBA)
a lending capability of $349 billion for emergency financing of small businesses.
While you should talk to an advisor or lender before making any permanent decisions, this article can help you consider your options!
How it works
The funding comes in the form of federally guaranteed loans for small businesses, veterans, non-profit organizations, and tribal organizations. It will also help retroactively bringing employees who are laid off due back on to their company’s payroll.
Using the Paycheck Protection Program
The first step is contacting your mortgage broker. The loan applications started processing on April 3rd
for small businesses and April 10th
for contractors, freelancers, and other individuals. June 30th
is the cutoff, but submitting sooner is better!
For businesses, you should apply through an SBA 7(a) lender or another participating company. They are adding lenders to the program as it progresses to help meet demand.
Who is eligible for the Paycheck Protection Program?
To be eligible, your business must have under 500 employees. Larger companies do have help available, but this program is explicitly aimed at smaller firms. Restaurants, caterers, and the like, who may have more than 500 people on the payroll but less than 500 per location, could be an exception depending on classification. Some franchises will also be eligible but check first with the SBA.
The “Credit Elsewhere Test” is no longer an obstacle. Usually, the SBA
will check if a business can borrow from any other source, and if so, they are exempt from SBA loans. However, during the crisis, this is not the case.
Collateral or personal guarantee is not a must for this program.
How to use the loan money
Purpose of use is a requirement of eligibility; you must guarantee you are using the funds as explained. Salary, wages, and tip-equivalents for waiters and the like are the priority of the funding. After that comes sick leave, vacation time, and other paid leave.
Retirement benefits, healthcare benefits, state taxes, and local taxes are legitimate uses of the money too. It can also contribute to financial necessities, such as mortgage payments and debt interest.
Paying it back
Yes, they are loans – but for many small businesses, the feds may be waiving portions of the payback fees. They are not guaranteeing loan forgiveness. However, guidelines are available for waiving fees.
Those who take the loan could be forgiven up to the total amount for expenses over the eight weeks. Other costs they are forgiving include payroll, mortgage interest, rent, services, and utilities. If your mortgage interest payments are $700, then you might be forgiven $700 in loan debt.
There are safeguards for employees in place, too. They are reducing the amount forgivable if employee numbers or employee pay is cut or significantly smaller to the same time in 2019. After all, the whole point of the loan is to protect payment!
Basically, the money is there to ensure businesses can pay their employees.
How much can be loaned through the Paycheck Protection Program?
You should continue business as if your debts are not forgivable. Playing games with finance is never fun, so only take what you need to get you through the disaster!
The most you can currently borrow is either two and a half months of payroll OR ten million dollars, whichever is less. If your 2.5 months of salary comes to $950 million, then you can borrow $950 million. If it totals $11 million, you can still only borrow $10 million.
The maximum, however, appears to be the lesser of two numbers: either 2.5 months worth of eligible payroll or $10 million. So if 2.5 months of payment equals $800,000, you can borrow up to $800,000. But if 2.5 months of pay equals $12 million, you can only borrow $10 million.
Check the facts!
Don’t just go ahead blindly – triple check your facts before borrowing. However, rest assured that there are options for your small business, even in this worrying time!