My disdain for Congress and the ineptitude of our politicians always softens up when our nation gets rocked by a recession. They seem to care when the nation struggles as a whole, but not a moment before we all lose our jobs. With that being said, they passed the Coronavirus Stimulus Package on Wednesday night that will provide the economy with $2.2 Trillion. This blog will focus on the $357 Billion for Small Businesses and their employees.
Paycheck Protection Program (PPP)
In order to gain access to a portion of the $357 billion that Congress has set aside for small businesses, you must meet the requirements listed below. The whole point of the PPP is to give small businesses an incentive to keep their employees on the payroll. According to the Guardian, a total of 9.9 million Americans have lost their jobs in the past 2 weeks. As our national economy is brought to its knees from this pandemic, the PPP is a way to prevent the number from growing.
Why Should A Small Business Owner Keep His/Her Employees?
According to the Small Business Administration, all loans will be forgiven if the employer keeps ALL employees on the payroll for 8 weeks. As long as the loan is used for payroll, utilities, mortgage interests, and rent, the federal government will not force you to pay back the loan. Due to the incredibly high amount of applications, the SBA states that “75% of all loan funds must be used on the payroll”. This is to prevent small business owners fro taking advantage of the government by reducing pay to their employees.
Who Qualifies For A PPP Loan?
In short, any small business with less than 500 employees qualifies for a PPP loan. To give you the most accurate information, I researched the actual bill to include all the stipulations and eligibility requirements. Each requirement is listed below as stated in the CARES Act:
any business concern, nonprofit organization, veterans organization, or Tribal business concern described in section 31(b)(2)(C) shall be eligible to receive a covered loan if the business concern, nonprofit organization, veterans organization, or Tribal business concern employs not more than the greater of 500.
if applicable, the size standard in the number of employees established by the Administration for the industry in which the business concern, nonprofit organization, veterans organization, or Tribal business concern operates.
During the covered period, individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible to receive a covered loan.
What Documentation is Needed to Apply For a PPP Loan?
An eligible self-employed individual, independent contractor, or sole proprietorship seeking a covered loan shall submit such documentation as is necessary to establish such individual as eligible, including payroll tax filings reported to the Internal Revenue Service, Forms 1099–MISC, and income and expenses from the sole proprietorship, as determined by the Administrator and the Secretary.
These documents should be easily found in your record-keeping files for every business owner. If you’re a business owner and don’t have access to your payroll tax filing, 1099-Misc, or income expenses, you may want to speak with your accountant.
How Do I Apply For a CARES Act Small Business Loan?
Every small business owner must first determine if they’re company is edible for this loan. Once you determine your eligibility, you have to fill out the Paycheck Protection Program Borrower Application Form. Once the SBA receives your form, you’ll receive payments as early as possible to ensure as little interruption as possible.
What Are The Specifics With Loan Forgiveness?
As great of a question as this is to ask, I can only give you the basics because every loan will be different. Any loan that is approved by the SBA will have a deferred payment for 6 months. This is to give small businesses a chance to stay afloat while the world figures out a vaccine. No lender is allowed to take collateral or any personal monetary guarantee to ensure the loan process is smooth and easy. To make things better, lenders and the federal government are not allowed to charge any fees (processing, deposit, etc..).
What is Loan Forgiveness Based Upon?
According to the CARES Act, a small business doesn’t have to pay the loan back if the small business keeps all of its employees on the payroll. The other caveat to the bill states that, if you fire your employees and rehire them quickly (I assume 30 days), you can still receive loan forgiveness. However, for every full-time employee reduced to part-time and every part-time employee reduced in salary will result in a reduction of your loan forgiveness. For example, if you have to cut a few employees to cover costs, you’ll still get some forgiveness, but not the full amount agreed upon from the government.
- The only way to receive 100% loan forgiveness is to keep all of your employees at their original wages.
How Much Money Can I Get With The CARES Act Loan?
During the covered period, with respect to a covered loan, the maximum loan amount shall be the lesser of the sum of the product obtained by multiplying the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made.
In easier terms to understand, any eligible business should multiply their monthly bills by their monthly payroll for all employees. To keep this fair for all small business, no company will receive the same amount because no company is the same. If you have fewer employees and fewer expenses, you’ll receive less than companies with 400 employees and a bigger footprint.
Where Can Small Businesses Get a Loan?
We have a few recommendations for you, starting with Funding Circle and BluVine. With BlueVine, you can get a line of credit up to $250,000 and be approved within 5 minutes of submitting your application. Normally BluVine charges as low as 4.8% on loans, but the CARES Act requires all lenders to drop that interest rate to 1% for up to 2 years. OnDeck is another good choice to start from because they normally charge 13.9% interest on lines up to 100,000. Their customer service is better than most other companies and their interface is customer-friendly.
What Is The Economic Injury Disaster Advantage Loan?
The Economic Injury Disaster Advantage Loan (EIDAL) is designed to help the eligible small businesses (described above) that have already lost money. I’d imagine this is most small businesses, especially those in the food and beverage industries. The CARES Act provides up to $10,000 for any business that has lost significant income due to quarantine procedures. These funds will be available within 3 days of submitting your application to the SBA. Similar to the overall stimulus bill, this loan does NOT have to be repaid but is independent of your employee’s status.
What is an SBA Express Bridge Loan?
An Express Bridge Loan is for any small business that currently has a loan set up through the SBA that qualifies them for an express loan up to $25,000. This loan can be used in conjunction with an EIDAL to bridge the gap between payments. The Express bridge Loan is specifically designed to ensure that small businesses don’t have to wait for payments through the stimulus package. I encourage all small business owners who are in financial trouble right now to read the SBA Express Bridge Loan document to get the full info.
What is the SBA Debt Relief Policy For COVID-19?
Providing debt relief is another big component of the CARES Act to ensure small businesses don’t destroy their credit by failing to make debt payments. The SBA will pay the principal, interest, and fees of ALL current 7 (a), 504, and microloans for 6 months. The SBA will also pay for any new loans issued prior to Septemeber 27, 2020. This ensures that new businesses are protected from fees thy can’t afford to pay with an income every month.
Yes! According to the IRS, the date to file your taxes has been moved from April 15, 2020, to July 15, 2020, to give everyone more time to deal with this pandemic. However, if you’re expecting a tax return, the IRS still suggests that you submit your taxes asap. If you’re looking for more help on tax relief, look at our top-10 list for tax relief companies.
What Else Can Small Businesses Do To Help Themselves?
The Center For Disease Control (CDC) and the Occupational Safety and Health Act of 1970 (OSHA) have released guidelines on how to prepare your business. These guidelines are not required by law, but are highly encouraged to prevent the spread of COVID-19. I suggest downloading this PDF guide by the SBA to ensure you’re aware of the benefits and programs that can save your business.