The CARES Act came into law in the United States on March 27, 2020. The CARES (Coronavirus Aid, Relief, and Economic Security) Act, the greatest relief bill in American history, set in motion a historic attempt to offer additional aid to millions of Americans who have been affected financially by the coronavirus pandemic. In particular, the 3.3 million Americans who have filed for unemployment since March 14, and the small corporations that employ so many of them.
Despite the fact that the CARES Act includes many provisions for small businesses (that includes government funding for emergency and current loan payment coverage), the $200 billion Paycheck Protection Program (PPP) may be the most encouraging. The Paycheck Protection Program, with its low tax rate and forgiveness ability, seeks to hold people in their employment. Moreover, it stops the tide of unemployment around the country by sustaining small companies through the pandemic without inconveniencing them with significant debt to repay after the crisis has passed.
The program’s implementation encountered a number of snags, and the initial funding allotment quickly ran out. Late on Thursday, April 24, Congress passed another $310 billion round of financing. When the Small Business Association will revive applications is unknown.
About Paycheck Protection Program
The Paycheck Protection Program is a Small Business Association (SBA) loan program intended to assist small companies in continuing to pay their employees at their regular pay rate while also covering crucial expenditures that keep the lights on (think rent and utilities). Any loan money used for these specific purposes within the loan’s eight-week duration will be excused. In other words, if a small company uses the loan for its specific uses, it will certainly not have to pay anything back.
The Paycheck Protection Program explicitly tackles what 70% of small businesses list as their main business task: cash flow management, by pushing cash into threatened small businesses and virtual bookkeeping services. Around half of the small businesses don’t have sufficient cash on hand to last more than 26 days without sales, and about a quarter of them can only last 13 days or less (JP Morgan). Small companies will be able to extend their current cash savings even more with a PPP loan to cover around two months’ worth of most expensive expenses (payroll and rent). Hopefully long enough for the crisis to be over and companies to resume operations.
What are the Benefits of the Paycheck Protection Program for your small business?
Let’s take a deeper look at the specifics now that we’ve covered the program’s goals and possible effects. This post addresses popular questions small businesses have about the PPP, such as how to figure out whether you’re registered, how to comply, and how the PPP corresponds to the SBA’s EIDL loans, among other things.
How To Know If You Are Eligible?
If you meet the following criteria, you should be qualified to apply:
- You’re a small corporation in the United States, a 501(c)(3) nonprofit, or a 501(c)(19) Veterans Organization.
- You employ less than 500 people.
- Also, You are the provider of online bookkeeping services.
- Or, You’re a sole proprietor or self-employed.
- COVID-19 has had a negative effect on your market, and It’s difficult to work when there’s a lot of doubt presently.
- You need to get this loan in order to keep your company afloat.
- On February 15, 2020, the company was fully functioning, with workers on the payroll.
What is the Maximum Amount I can Borrow by PPP?
If you run a small company, you should: A loan of up to 2.5x your monthly average payroll costs for the previous 12 months (up to $10 million total) is available. Note: Contract workers are entitled to apply for their own loan (SBA) as of recent updates, so a small business cannot demand their regular salary in their “payroll costs.”
If you’re a joint owner or self-employed (for example, if you own a one-person marketing agency), you should:
Despite the fact that you don’t have payroll expenses, the loan sum you’re eligible for is always determined by the payroll costs over the previous 12 months; the total loan amount could be up to $100,000 (the maximum sum that a small business can demand payroll expenses per employee). We suggest consulting with an attorney or bookkeeping services provider if you have any concerns. Note: As of 4/1/20, this information is right. As more information for sole traders and self-employed people becomes available, we will modify this section.
What is the duration of the loan?
From the date of beginning, the loan is valid for eight weeks (the date when the borrower officially takes the loan). The borrowing period has been extended for up to twenty-four weeks, as of 6/10 for accounting and bookkeeping services. Payments of interest will be postponed for six months. The loan is due in two years, and there are no penalties for paying early (US Treasury).
What can I do with the money from the loan?
The loan is intended to keep companies open and people working. If you want to apply for loan repayment, you should expect to use at least 75 percent of the loan funds to pay your employees’ wages over the eight-week loan period, according to the SBA’s latest guidance. If you’ve had to lay off employees, their pay will not be factored into the loan amount. However, if you rehire them after presenting your application, we assume you can pay them with your loan funds. If you lay off more workers after applying for a loan, or if your employees’ salary is reduced, the amount you are entitled to have forgiven will be reduced.
The remaining portion of the loan (up to 25%) will be used for:
- Obtaining a Lease
- They are paying interest on their principal loan.
- Fees for utilities
You should be eligible to get 100% of their loan forgiven if you adhere to the above expenditures (no more than 25% for rent, mortgage payments, or utilities).
What is the Procedure for Applying?
You’ll need to collect the necessary paperwork, complete your PPP loan application, and submit it via an SBA-approved institution, preferably your company’s current bank. More information is available from the US Treasury and the Small Business Administration (updated 4/3).
When do I have the Opportunity to Apply for a Paycheck Protection Plan deposit?
Updated 4/24: After the new round of funding is signed into law, we don’t know when requests will reopen, but we do know that the money will be spent quickly. If they haven’t already, prospective candidates can contact their bank right away to start the process.
Is this the same as the Small Business Administration’s Economic Disaster Injury Loan (EIDL)?
The PPP builds on the current structure of the SBA’s 7(a) small business loan program. The Paycheck Protection Program loans can exist side by side with the SBA’s Economic Disaster Injury Loans, so you’ll want to compare the two to see which choice, if any, is best for your business.
