Paycheck Protection Program: What You Need to Know

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Last week, President Donald Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which included Small Business Interruption Loans and a Paycheck Protection Program. Here’s what you need to know about getting a loan through the Paycheck Protection Program.

Who is eligible?

This program is for any small business with less than 500 employee, including sole proprietorships, independent contractors and self-employed persons (along with private non-profit organization or select veterans organizations) affected by coronavirus (COVID-19). A borrower must have been in operation on February 15, 2020. Borrowers will need to verify that it had employees for whom it paid salaries and payroll taxes, and it will need to verify the dollar amount of average monthly payroll costs.

Good to know: Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries. More specifically, small businesses in the hospitality (and food) industry with more than one location could also be eligible at the store and location level if it employs less than 500 workers, meaning each store location could be eligible.

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When can I apply?

Starting April 3, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. On April 10, independent contractors and self-employed individuals can apply.

Although the program is open until June 30, 2020, the SBA suggests you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.

Note: You may take out only one loan under this program. No collateral or personal guarantees are required and no fees will be charged to apply.

How large can a loan be?

Loans can be for up to two months of your average monthly payroll costs from 2019, plus an additional 25 percent 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.

What criteria must I meet for loan forgiveness?

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent and utilities over the eight-week period after the loan is made (note that at least 75 percent of the forgiven amount must have been used for payroll). Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.

You will owe money when your loan is due if you use the loan amount for anything other than specified costs. You will also owe money if you do not maintain your staff and payroll. There is a .5 percent fixed interest rate; all payments are deferred for six months (however, interest will continue to accrue over this period); and the loan is due in two years.

To request loan forgiveness, you can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease and utility obligations.

How can I apply?

You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.

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