Congress has passed the stimulus bill, setting aside $349 billion to help small businesses. The Paycheck Protection Program (PPP) will provide funding so that small businesses can receive forgivable loans in order to help with payroll and other essential costs.
If you're a small business owner trying to navigate through the pandemic, this money will be a significant help. I know there are many questions surrounding this bill, so I've put together the answers you're looking for, based on what I know so far.
Who qualifies?
Any for or non-profit businesses with fewer than 500 employees that were in operation before February 15, 2020. Also, those who operate a sole proprietorship or independent contractor and eligible self-employed individuals.
The stimulus bill that recently passed expanded unemployment and now covers independent contractors and freelancers. If you’re an independent contractor, you may be eligible and should consider applying in your state. Just be aware that you need to be officially furloughed or laid off by your company to be eligible, or provide proof that your business has been disabled by the pandemic. Be patient because most states haven't caught up with the new rules.
Are these loans?
Yes, but with some forgiveness. These loans are being made through the Small Business Administration’s (SBA) existing Section 7(a) program. The loan amounts can be used for all your operating expenses, including compensation (salary, wage, commission or similar compensation, payment of cash tip or equivalent), costs related to the continuation of group health insurance, payment for parental, family, medical or sick leave, mortgage and other interest, rent, utilities and other expenses.
What is being forgiven?
The key part of this program is determining what is eligible for forgiveness. The portion you use to cover your payroll costs (which includes time off), as well as rent payments, mortgage obligations and utilities incurred for an eight-week period (between February 15 and June 30) will eligible for forgiveness.
What is the process for getting forgiveness?
That is still unclear, but documentation (payroll register, invoices, receipts, etc.) will be needed after June 30 to verify the actual expenses you paid. See more about this at the end of this article.
Where do I get this money?
Unlike the Economic Injury Disaster Loans, which were made available a few weeks ago and offer low interest loans to small businesses directly from the SBA, you can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union and Farm Credit System institution that is participating. Be sure to ask the lender if they are participating. Access approved SBA lenders in the area.
How much can I borrow?
You can borrow up to 2.5 times the amount of your monthly compensation costs up to a newly established maximum of $10 million. Your costs may include salary, wage, commissions, tips, vacation, parental, family, medical, sick leave, group health, retirement and state and local taxes related to payroll.
What are the terms?
They may vary, but interest rates are capped at 4 percent. Borrowers can defer payments from six months to a year, and the maximum term of the loan is 10 years.
What records do I need?
You will need to provide documentation supporting your payroll costs during this period. That would include the quarterly payroll tax returns you file with both the federal and state governments and your underlying payroll registers and accounting records. If you're looking to get forgiveness for mortgage, rent and utility payments, then your invoices, proof of payment, statements and receipts will be needed, so make sure you're keeping good records.
What if I don’t have a great credit history?
Banks will be making the ultimate lending decisions, but I’m told that the SBA is asking them to relax their requirements in order to make these loans available to as many as possible.
What if I lay people off?
The loan is targeted towards businesses that keep their people employed rather than having them collect unemployment during this time. The amount of the loan eligible for forgiveness will be reduced proportionally by the number of employees laid off during this period relative to the borrower's prior employment levels.
Is there a limit?
Yes, employee compensation above $100,000 annualized will not be forgiven under this legislation. It is still unclear if that means the entire salary, or just that portion above $100,000. That is a question you will need to confirm with your lender.
As a business owner, will my compensation be forgiven too?
Yes, assuming you’re on the payroll and receiving a W-2 from the business, but it would be subject to the limitations above.
What if there are still amounts of the loan leftover after forgiveness?
If that’s the case, then you’ll be paying down those remaining amounts over the term of the loan.
Can I get more than one PPP loan?
No, an entity is limited to one PPP loan. To prevent multiple loans given to the same entity, each loan will be registered under the Taxpayer Identification Number. You can use the PPP loan with other SBA loans, but you can’t double dip.
I run a non-profit. Am I still eligible for this program?
Yes.
Are there any additional fees?
No, the program waives fees for both borrowers and lenders.
Will my business be taxed on the amounts forgiven?
No. Forgiveness amounts will not be included in your company's taxable income.
What should I be doing right now?
You should be reaching out to your lender and getting things rolling. I believe it will take weeks for both the SBA and their member banks to get fully up to speed with the program. Also, social distancing means many key people in the process could be working from home and that could further delay the process. The sooner you get things started, the better. Access an application.
Should I have any concerns?
I recommend to always be cautious, that's why I strongly suggest that before committing to the Section 7(a), make sure the new loan forgiveness provisions included in the stimulus are fully stipulated in the loan documents. The process for getting forgiveness is still unclear and you want to be absolutely sure you will not be on the hook for these funds after June 30.
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