By now, you’re probably hearing buzz about the SBA stimulus loans designed to help small businesses struggling because of COVID-19. You may have considered applying for one of the loans for your own business, but maybe you’re not sure where to start.
In this article, I’d like to discuss the Paycheck Protection Program loan (PPP) so that you understand what it involves.
It’s important to understand the guidelines on this program have been changing rapidly and may continue to change. Make sure you talk with your lender for the latest information. If you have questions about how this program applies to your business, consult your attorney, financial advisor, or accountant. Do not rely on this information to make decisions about whether to hire, retain or rehire employees.
What the Paycheck Protection Program Is
Under the CARES Act, the Paycheck Protection Program provides a loan to qualified businesses—generally those with fewer than 500 employees—of up to 2.5 times their average monthly payroll for the last 12 months, up to $10 million. Sole proprietors and independent contractors may also be eligible.
Seasonal businesses are eligible to borrow 2.5 times payroll expenses from the 12-week period beginning February 15, 2019 (or you can choose March 1, 2019 as the starting date) and ending June 30, 2019. For newer businesses who weren’t in business between February 15, 2019 and June 30, 2019, they can use average total monthly payroll costs incurred from January 1, 2020 to February 29, 2020 and multiply that by 2.5.
One thing to note: you can’t include salaries for amounts above $100,000 or qualified sick leave pay under the Families First Coronavirus Response Act.
What You Can Use Expenses For
The loan program stipulates that you must use the funds for specific expenses, including:
- Payroll costs
- Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
- Rent
- Utilities
- Interest on any other debt obligations that were incurred before the covered period
You can request forgiveness of the principal amount of the loan for the eight-week period after you receive if you use it for payroll or to pay rent, interest on mortgage, rent, and utilities, however non-payroll expenses can’t be more than 25% of the amount you borrowed to get the full loan forgiven.
Find out how much you might qualify to borrow here.
Qualifying for PPP
The good news is that, where some SBA loans require collateral or a personal guarantee, this SBA loan does not.
Right now, banks are scrambling to process the PPP loan applications pouring in. Some aren’t yet accepting or processing applications, though may start in the coming days.
To prepare to apply, start gathering payroll information. If you’re the only employee at your company, you’ll need to gather documentation showing what you pay yourself.
Make sure your finances are up to date. If you haven’t categorized or recorded expenses in a while, now is the time to make sure your records are accurate and organized. You’ll need to make sure you use the proceeds of the loan for covered purposes if you plan to apply for forgiveness. And keep those accounts updated if you want to take advantage of the loan forgiveness option!
A Few Final Notes
I’ve been asked by many business owners whether they can apply for the PPP loan as well as the Economic Injury Disaster Loan (EIDL). You can apply for both…but you can’t use funds from both loan programs for the same purpose. You can’t use both for payroll, for example, but you may be able to use the PPP funds for payroll and EIDL funds to pay other covered expenses.
If you’ve already laid off employees, you may still qualify for the loan forgiveness program with the PPP if you bring staff back on and up to your previous payroll numbers.
To connect with other business owners working through the PPP loan process, join the CARES Act SBA Loan Insight Hub.
The PPP is designed to keep small businesses like yours running until the world rights itself. Take advantage of the opportunity to ensure your business not only survives, but also thrives.
