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Tuesday, June 23, 2020
ALERT from the Small Business Administration re: Paycheck Protection Program
If your business or nonprofit has been hit hard by the COVID disruption and really needs some financing to remain viable in the face of economic uncertainty, SBA’s Paycheck Protection Program (PPP) is designed to be a lifeline to get you through the pandemic.
If you haven’t yet applied, please note the PPP loan shuts down after next Tuesday – June 30.
Since the program requires applying to a bank or other lending institution (which must then process and approve the loan), realistically, if you need it, you should apply now, and certainly this week.
There is still more than $100 billion of PPP loan funds remaining – plenty to help your business or nonprofit if you need it.
Thanks to changes in the PPP program implemented at the beginning of June, a PPP loan is more adaptable to your needs than in the past. The following is a recap of the PPP loan program.
PPP is a 1%-interest, forgivable loan from your business’s banking institution or other commercial lender for an amount equal to your business’s typical 2-1/2 months’ “payroll”. (This calculation for determining loan size is here: https://www.sba.gov/document/support--how-calculate-ppp-loan-amounts.)
Eligible borrowers include:
- small businesses, including:
- agricultural operations
- sole proprietors
- independent contractors
- gig workers
- self-employed Schedule C filers
- nonprofits, including faith-based organizations
The loan may only to be used to pay for the following (and nothing else):
- Payroll* – at least 60% of the loan should be used for this to receive loan forgiveness
- Rent for the business,
- Interest on the business’s real estate and equipment mortgages, or
- Utilities for the business (electricity, gas, water, transportation, telephone, internet).
* If you are self-employed, “payroll” means owner compensation – i.e., paying yourself based on the actual monthly net profit you earned from your business based on your 2019 tax returns.
Under the revised PPP rules, you have 24 weeks (your “covered period”) to use the loan funds. That’s nearly to the end of 2020 – plenty of time to be strategic about how to use the proceeds.
After the 24 weeks (or earlier if you’ve used your loan funds before then), you apply to your lender for loan forgiveness.
If you can show that at least 60% of the loan was indeed used for payroll and not more than 40% was used for the other authorized purposes, the loan is forgiven by the lender.
To get loan forgiveness, there are the main rules you need to follow:
- You must use at least 60% of the loan for payroll in order to get full loan forgiveness. If you use less, you will have to pay back that portion of your loan.
- Loan forgiveness is proportionally reduced if you don’t hire back up to the level of full-time employees you had before the COVID disruption by the time you apply for loan forgiveness or December 31. However, if you can show you made a good faith effort to staff back up but couldn’t find workers willing to work, OR if you can show your business is not able to return to its previous level of business activity due to COVID health and safety restrictions, you will be exempted from this proportional reduction in loan forgiveness.
- Loan forgiveness is also reduced if you cut the wages of any workers to less than 75% of their wage level before the COVID disruption and you haven’t restored each of their wages up to at least the 75% level by December 31.
- Loan forgiveness is also reduced by the amount of any SBA Economic Injury Disaster Loan (EIDL) “Advance” payment (which is a grant) your business received as COVID relief. Only the EIDL Advance counts against PPP loan forgiveness, not the EIDL Loan.
If any of your loan is not forgiven, the unforgiven balance must be repaid at 1% interest over a 5-year term, with the first payment not due until after the end of the 24-week covered period plus the time it takes for the lender to be refunded by SBA for the loan forgiveness amount (i.e., about 6-10 months). If you decide not to seek loan forgiveness, payments start 10 months after the end of your covered period.
Neither collateral nor personal guaranties are required, and there is no “means test” to qualify.
All the rules governing PPP are published here: https://home.treasury.gov/policy-issues/cares
If you already have a PPP loan, you cannot apply for a second PPP loan.
SO, IF YOU HAVEN’T RECEIVED A PPP LOAN YET: If your business needs a loan to keep its operations afloat in the face of the COVID disruption, now is the time to get a PPP loan.
To get a PPP loan, you need to find a commercial lender making PPP loans. The best place to start looking for a PPP loan is still your existing business banking institution. If your main business bank isn’t offering PPP loans, do you have any other business banking relationships? That might be the good alternative. Otherwise, here is a link to lenders eligible to offer PPP – https://www.sba.gov/paycheckprotection/find. SBA posted a list of the lenders who made PPP loans with the last round of funds in each state here: https://www.sba.gov/document/support--paycheck-protection-program-participating-lenders (but be aware that this isn’t a list of all eligible PPP lenders). You might want to focus on small local banks, credit unions, and CFDI’s. Here’s one link I found ranking banks by asset size: https://www.usbanklocations.com/bank-rank/total-assets.html. Finally, you also may want to try some of the fintech lenders that were approved to offer PPP loans: PayPal, Intuit/Quickbooks, Square, OnDeck, Funding Circle, Kabbage, and Bluevine. Nearly all lenders typically accept applications online. In addition to the easy 2-page PPP application – https://www.sba.gov/document/sba-form-2484-lender-application-form-paycheck-protection-program-loan-guaranty – the only other information needed to apply is documentation showing your typical monthly payroll cost. The “How to Calculate Maximum Loan Amounts by Business Type” information sheet – https://www.sba.gov/sites/default/files/2020-06/How-to-Calculate-Loan-Amounts-508_0.pdf – explains what documents are needed for this.