The PPP is a provision of the stimulus bill called the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) passed by Congress to assist small businesses during the coronavirus pandemic. The PPP offers nearly $350 billion in potentially forgivable loans to small businesses to keep employees on their payroll. Two-thirds of U.S. small businesses plan to apply for a PPP Small Business Administration (SBA) loan under the CARES Act according to a survey by the National Federation of Independent Business. Here’s what you need to know to get the ball rolling.
Who is Eligible to Apply?
You must be an employer with 500 or fewer employees and can show that your business has been negatively impacted by the coronavirus. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries. All types of businesses, including nonprofits, veterans organizations, tribal business concerns, sole proprietorships, self-employed individuals and independent contractors can apply.
How do I Calculate the Number of Employees?
When determining if a business has fewer than 500 employees, the SBA considers the average number of employees for each pay period for the preceding 12 months. Part-time and temporary employees are counted the same as full-time employees. Volunteers (i.e. individuals who receive no compensation, including no in-kind compensation, for work performed) are not considered employees and neither are independent contractors working for you.
Are there any Exemptions to the 500 Employee Threshold?
Yes. Restaurants and hospitality businesses may qualify if they have 500 or fewer employees per location.
When Should I Apply?
As soon as you can as the funds are available on a first-come, first-served basis. Small businesses and sole proprietors could apply as of April 3, 2020. April 10, 2020, independent contractors and self-employed individuals could apply.
Where do I Apply?
PPP loans are being administered by approved SBA lenders and are actually a new form of the existing SBA 7(a) loan program. You can apply for your PPP loan through any of the 1,800 participating SBA approved 7(a) lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution.
Other lenders will be available to make PPP loans once they are approved and enrolled in the program. You can also find a lender using the SBA PPP lender search tool. You can submit an application until June 30, 2020. Start by downloading and filling out the application form on the SBA website.
How Can I Use the Funds?
You should use the proceeds from a PPP loan for any of the following:
- Payroll costs, including benefits
- Interest on mortgage obligations, incurred before February 15, 2020
- Rent, under lease agreements in force before February 15, 2020
- Utilities, for which service began before February 15, 2020
What is Included in Payroll Costs?
Payroll costs include the following:
- Salary, wages, commissions or tips (capped at $100,000 on an annualized basis for each employee)
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit
- State and local taxes assessed on compensation
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee
How Much Will I Receive?
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.
How Will the Loan be Forgiven?
Two important conditions must be met for the loan to be forgiven:
- Proceeds from the loan must be used to cover payroll costs, mortgage interest, rent, and utilities over the next 8 weeks after the loan funding has been received. No more than 25% of the loan forgiveness can be related to non-payroll costs
- Employee headcount and compensation levels must be maintained
If you fail to meet these conditions, expect the forgiven amount of the loan to decrease. For example, if you terminate or decrease the wages of any of your employees, you will be required to repay a portion of the loan.
What Else Should I Know Before Applying for a PPP SBA Loan?
Here are a few points to consider:
- If you receive a PPP loan, you are ineligible for the employee retention credit and deferral of payroll taxes provided under the CARES Act
- You cannot get more than one PPP loan and having multiple lenders submit a loan application to the SBA on your behalf may trigger a fraud alert. With so many small businesses applying for the PPP loan, you may need to reach out to several lenders. If you do, ask the lenders for a guarantee they will contact you before submitting your file. You can then withdraw your other applications and only have one processed
- You may benefit from an Economic Injury Disaster Loan (EIDL), also a part of the CARES Act. An EIDL offers up to $2 million for working capital needs such as fixed debt and payroll. The interest rate is 3.75% for businesses and 2.75% for nonprofits with a 30-year term possible. There is an automatic one-year deferment on repayment so the first payment is not due for a full year, although interest begins to accrue at time of disbursement. You can apply for both an EIDL and PPP loan but cannot use funds from each loan for the same expenses such as payroll, rent, insurance, etc. If you apply for an EIDL loan, you can request a $10,000 grant for working capital that does not need to be repaid
Reach out to Smart HR for Emergency Support
These are uncertain and scary times for many employers. There are government resources to which you may be entitled that could be the bridge that enables you to get to the other side of this pandemic while keeping your employees and meeting financial obligations. Smart HR can help you identify solutions and be a resource to you as you navigate through applying for an SBA loan or consider other alternatives. Smart HR is your trusted business partner no matter the situation. Call today.