The CARES Act: Paycheck Protection Program for Small Businesses
The Coronavirus assistance, relief and economic stimulus (CARES) Act was signed into law on Friday and provides some immediate relief to business owners. One of the cornerstones of the package is a Paycheck Protection Program (PPP) that provide access to capital for small business owners to cover payroll, rent/mortgage and utilities over an 8-week timeline. The US Senate Committee on Small Business and Entrepreneurship has compiled a listing of frequently asked questions that we are sharing to assist business owners with understanding this program.
Team NextGen is happy to assist you with compiling, reviewing and submitting your data to your bank to ensure you can gain access to capital through this program. Our commitment to building your empire has not waivered in the face of unprecedented adversity, and we are eager to help your business survive and thrive in light of the current challenges. Please review the information below and contact us with any further questions and to get started.
Paycheck Protection Program FAQs for Small Businesses
Where can I apply for the Paycheck Protection Program?
You can apply for the Paycheck Protection Program (PPP) at any lending institution that is approved to participate in the program through the existing U.S. Small Business Administration (SBA) 7(a) lending program and additional lenders approved by the Department of Treasury. This could be the bank you already use, or a nearby bank. There are thousands of banks that already participate in the SBA’s lending programs, including numerous community banks. You do not have to visit any government institution to apply for the program. You can call your bank or find SBA-approved lenders in your area through SBA’s online Lender Match tool. You can call your local Small Business Development Center or Women’s Business Center and they will provide free assistance and guide you to lenders.
Who is eligible for the loan?
You are eligible for a loan if you are a small business that employs 500 employees or fewer, or if your business is in an industry that has an employee-based size standard through SBA that is higher than 500 employees. In addition, if you are a restaurant, hotel, or a business that falls within the North American Industry Classification System (NAICS) code 72, “Accommodation and Food Services,” and each of your locations has 500 employees or fewer, you are eligible. Tribal businesses, 501(c)(19) veteran organizations, and 501(c)(3) nonprofits, including religious organizations, will be eligible for the program. Nonprofit organizations are subject to SBA’s affiliation standards. Independently owned franchises with under 500 employees, who are approved by SBA, are also eligible. Eligible franchises can be found through SBA’s Franchise Directory.
I am an independent contractor or gig economy worker, am I eligible?
Yes. Sole proprietors, independent contractors, gig economy workers, and self-employed individuals are all eligible for the Paycheck Protection Program.
What is the maximum amount I can borrow?
The amount any small business is eligible to borrow is 250 percent of their average monthly payroll expenses, up to a total of $10 million. This amount is intended to cover 8 weeks of payroll expenses and any additional amounts for making payments towards debt obligations. This 8 week period may be applied to any time frame between February 15, 2020 and June 30, 2020. Seasonal business expenses will be measured using a 12-week period beginning February 15, 2019, or March 1, 2019, whichever the seasonal employer chooses.
How can I use the money such that the loan will be forgiven?
The amount of principal that may be forgiven is equal to the sum of expenses for payroll, and existing interest payments on mortgages, rent payments, leases, and utility service agreements. Payroll costs include employee salaries (up to an annual rate of pay of $100,000), hourly wages and cash tips, paid sick or medical leave, and group health insurance premiums. If you would like
to use the Paycheck Protection Program for other business-related expenses, like inventory, you
can, but that portion of the loan will not be forgiven.
When is the loan forgiven?
The loan is forgiven at the end of the 8-week period after you take out the loan. Borrowers will
work with lenders to verify covered expenses and the proper amount of forgiveness.
What is the covered period of the loan?
The covered period during which expenses can be forgiven extends from February 15, 2020 to
June 30, 2020. Borrowers can choose which 8 weeks they want to count towards the covered
period, which can start as early as February 15, 2020.
How much of my loan will be forgiven?
The purpose of the Paycheck Protection Program is to help you retain your employees, at their
current base pay. If you keep all of your employees, the entirety of the loan will be forgiven. If you
still lay off employees, the forgiveness will be reduced by the percent decrease in the number of
employees. If your total payroll expenses on workers making less than $100,000 annually
decreases by more than 25 percent, loan forgiveness will be reduced by the same amount. If you
have already laid off some employees, you can still be forgiven for the full amount of your payroll
cost if you rehire your employees by June 30, 2020.
Am I responsible for interest on the forgiven loan amount?
No, if the full principal of the PPP loan is forgiven, the borrower is not responsible for the interest
accrued in the 8-week covered period. The remainder of the loan that is not forgiven will operate
according to the loan terms agreed upon by you and the lender.
What are the interest rate and terms for the loan amount that is not forgiven?
The terms of the loan not forgiven may differ on a case-by-case basis. However, the maximum
terms of the loan feature a 10-year term with interest capped at 4 percent and a 100 percent loan
guarantee by the SBA. You will not have to pay any fees on the loan, and collateral requirements
and personal guarantees are waived. Loan payments will be deferred for at least six months and
up to one year starting at the origination of the loan.
When is the application deadline for the Paycheck Protection Program?
Applicants are eligible to apply for the PPP loan until June 30th, 2020.
I took out a bridge loan through my state, am I eligible to apply for the Paycheck Protection
Program?
Yes, you can take out a state bridge loan and are still be eligible for the PPP loan.
If I have applied for, or received an Economic Injury Disaster Loan (EIDL) related to COVID-
19 before the Paycheck Protection Program became available, will I be able to refinance
into a PPP loan?
Yes. If you received an EIDL loan related to COVID-19 between January 31, 2020 and the date
at which the PPP becomes available, you would be able to refinance the EIDL into the PPP for
loan forgiveness purposes. However, you may not take out an EIDL and a PPP for the same
purposes. Remaining portions of the EIDL, for purposes other than those laid out in loan
forgiveness terms for a PPP loan, would remain a loan. If you took advantage of an emergency
EIDL grant award of up to $10,000, that amount would be subtracted from the amount forgiven
under PPP.