Answering Your Small Business Loan Questions
Small businesses and their employees are the lifeblood of the American economy. Through no fault of their own, many have been forced to shut their doors and lay off employees due to the coronavirus. That is why it was essential for the federal government to provide emergency relief to help small businesses survive these challenging times. The CARES Act creates federally-guaranteed, forgiveable loans for 8 weeks of assistance to small businesses and 501 (c) (3) nonprofits. Sole-proprietors, independent contractors, and other self-employed individuals are also eligible.
What is the Paycheck Protection Program (PPP) and who is eligible?
- The PPP provides small businesses with forgivable loans to keep their employees on payroll and pay for everyday expenses like rent and utilities. No more than 25% of the loan can go toward non-payroll expenses.
- You are eligible for a loan if you are a small business that employs 500 employees or fewer, or if your business is 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. Independently owned franchises with under 500 employees, who are approved by SBA, are also eligible.
Are independent contractors or gig economy workers eligible?
- Yes. Sole proprietors, independent contractors, gig economy workers, and self-employed individuals are all eligible for the PPP.
What is the application deadline?
- You are eligible to apply for the PPP loan until June 30, 2020.
Where can I apply?
- You can apply for the PPP at any lending institution that is approved to participate in the program through the existing US Small Business Administration lending program and additional lenders approved by the Department of Treasury.
- This could be the bank you already use, or a bank or credit union near you. You do not have to visit any government institution to apply for the program. Just call your bank or find SBA-approved lenders at SBA.gov.
What is the maximum amount I can borrow?
- The amount any small business is eligible to borrow is 250% 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 to ensure the loan will be forgiven?
- The amount that may be forgiven is equal to the total 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.
When is the loan forgiven?
- The loan is forgiven at the end of the 8 weeks. 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 extends from February 15, 2020 to June 30, 2020. Borrowers can choose which 8 weeks they want to count towards the covered period, which they 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 your employees, the portion of the loan used for payroll and other coverage expenses 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%, 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.
For more information from the U.S. Treasury Department on new loans available, click HERE.