Message to Small Business Owners and Non-Profit Executive Directors –
I wanted to tell you about a program related to the Act Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. This act provided an estimated $2 trillion package to assist individuals and businesses with the economic impact of the Coronavirus impact.
There are two primary parts of this act related to small business…
• $10 Billion for EIDLs and
• $350 Billion for Paycheck Protection Program
Economic Injury Disaster Loans – $10 Billion:
I will provide more information in a future email on EIDLs, but the primary focus of this email is the Paycheck Protection Program.
For now, here is a quick summary of the $10 Billion EIDLs:
• EIDL stands for Economic Injury Disaster Loans
• You apply for this loan directly with the SBA (not through your local bank)
• The approval is based solely on an applicant’s credit score
• Approval is not based on your repayment ability or past bankruptcy
• No tax returns is required
Note that this money is very much a loan and doesn’t have the “free” money components of the Paycheck Protection Program which is discussed next. Application for this loan may reduce the amount that you can obtain from the Paycheck Protection Program
Paycheck Protection Program Loan Guarantee – $350 Billion:
$350 billion was allocated in the CARES Act to a Paycheck Protection Program (“PPP”) Loan Guarantee.
Is this “Free Money”? Yes for some of the funding and potentially all of it. I will address this part of the program further below. This program is administered through local banks and the SBA guarantees it.
Who qualifies to obtain a PPP loan?
- This program is offered generally to small businesses with fewer than 500 employees (there are some select types of business with more than 500, but fewer than 1,500 employees).
- Also 501(c)(3) non-profits with fewer than 500 workers and 501(C)(19) veteran organization are covered.
- The business or organization needs to have been in business before February 15, 2020
What amount can you qualify for?
- The amount that a business or organization qualifies for is equal to the lesser of $10 million, or 2.5 times the average monthly payroll costs.
- Payroll costs include gross wages for employees making under $100,000, as well as employer portion of the expenses for paid sick leave, healthcare and other benefits (eg- retirement). It does not include payroll taxes.
- The average is based upon a 1-year period before the date on which the loan was made.
What part of the loan would be considered “Free”? Part of this loan may be forgiven and not counted as income to you if it’s spent during the first eight weeks on qualified operating expenses
Qualified operating expenses include:
- Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000
- Rent pursuant to a lease in force before February 15, 2020
- Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020
- Group health insurance premiums and other healthcare costs.
The remaining funds are a loan to be paid at very advantageous terms…
- The loan term length is up to 10 years
- The maximum interest rate is 4%
- No personal guarantee or collateral is to be required
- Payments are deferred up to six to 12 months
Your action is required! Contact your banker and start the application process. Banks are developing their applications and processes (this is a new program for them as well). Find out what documents they are going to need so that you are prepared.
From the bank’s perspective, this is guaranteed no-risk money, and they should be able to expedite the process. They will need to learn how to navigate this and determine what level of credit analysis, documentation and due diligence is required for this program. Keep positive and work to build the relationship.
Rick Howard, CPA
…passionate supporter of businesses and their courageous entrepreneurs!