Covid-19 is a menace to human health, social interaction, the economy and particularly small businesses across this country. The current approach for returning to some semblance of normalcy in our personal lives and business concerns, is to curtail the spread of the virus through social distancing while science searches for the cure. Our strict compliance with the stay-at-home orders which have become so prevalent nationwide, however, is a potential death-knell for many small businesses. How does a small business survive in such an environment where the lifeblood of a business – cash flow – has been diminished to a level which threatens sustainability?
The federal government has recently stepped forward with an economic antibody designed to limit the economic damage to small businesses from COVID-19, and facilitate sustainability. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as it relates to small businesses, makes available an economic stimulus through a revenue replacement program designed to facilitate the retention of employees and the payment of ongoing business expenses.
The program known as the Paycheck Protection Program (“PPP”) can provide cash-flow assistance through federally guaranteed loans to employers who maintain their payrolls during the COVID-19 crisis. The loan can ultimately be forgiven, essentially converting it to a grant, provided the employer retains its employees and maintains its payroll at a specified level
Some of the more frequently asked questions about the PPP include:
What types of businesses and entities are eligible for a PPP loan?
Answer: small businesses with fewer than 500 employees (including non- profit organizations, veterans organizations and tribal business concerns), sole proprietorships, independent contractors and eligible self-employed individuals who have been in operation since February 15, 2020.
How is the PPP loan size determined?
Answer: depending on whether your business was operating between February 15, 2019 and June 30, 2019, the loan will be calculated in two different ways:
- if you have been in business between the above dates: your max loan is equal to 250% of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date.
- if you have not been in business between the above dates: your max loan is equal to 250% of your average monthly payroll costs between January 1, 2020 and February 29. 2020.
What costs are eligible in a PPP loan?
Answer: salary, wage, commission, payment of cash tip or equivalent; payment for vacation, parental, family, medical or sick leave, group health care benefits including insurance premiums, retirement benefits, state or local tax assessments on employee compensation; allowance for dismissal or separation.
What costs are not eligible in a PPP loan?
Answer: employee/owner compensation in excess of $100,000; compensation of employees whose principal place of residence is outside the U.S.
What are allowable uses of PPP loan proceeds?
Answer: payroll costs, costs related to continuation of group health care benefits, insurance premiums, mortgage interest payments, rent, utilities and interest on debt incurred before the covered period.
What are the PPP loan term, interest rate and fees?
Answer: for any amounts not forgiven, the maximum term is 2 years, the maximum interest rate is 1% with zero loan fees and zero prepayment fee.
How is the PPP loan forgiveness amount calculated?
Answer: forgiveness, for up to 8 weeks of payroll, is equal to the sum of payroll costs (excluding compensation over $100,000) + interest on any covered mortgage obligation (excluding prepayment of principal) + rent + utilities during the covered 8 week period compared to the previous year or time period, provided you do not lay-off employees and reduce the compensation of those employees earning less than 100,000 annualized by more than 25%.
How do I get forgiveness on my PPP loan?
Answer: by applying through your lender and supplying all of the documentation required by the lender.
If the PPP loan is not forgiven, when do I have to start paying the loan back?
Answer: Principal and interest payments will be deferred for 6 to 12 months.
Can I get more than one PPP loan?
Where should I go to get a PPP loan?
Answer: all current SBA lenders are eligible lenders for PPP loans. New bank lenders will also be authorized by the Department of Treasury to help meet the needs of small business owners.
When can I apply?
Answer: any time between April 3, 2020 and June 30, 2020. Loans are available through June 30, 2020, first-come, first-served, until the loan pool runs out.
The answers to the preceding questions are intended as general guidelines for your small business. They are not necessarily exhaustive of all of the details contained in the Paycheck Protection Program of the CARES Act. Consult with your attorneys at Friedman Schuman and your accountant for additional guidance, and may your business survive and thrive again.