Late last week the President signed into law the CARES Act – a $2 trillion relief package to help companies harmed by the Coronavirus outbreak. A very important part of this Act is the “Paycheck Protection Program” — which provides for nearly $350 billion for small business loans.
This program was set up through the US Small Business Administration (“SBA”) to assist small businesses that are struggling during this unprecedented time. This program is designed to have little red tape and provides for an expeditious approval process. The goal of this program is to put cash in the hands of small businesses so they can keep employees on payroll while covering other necessary expenses.
Most importantly, if a small business meets certain criteria, this loan may be subject to forgiveness. For borrowers, the loan forgiveness will equal the amount spent by the borrower in the eight-week period after the loan origination date on the following items (which cannot exceed the original principal amount of the loan):
- Payroll costs (not to exceed $100,000 of annualized compensation per employee);
- Payments of interest on any mortgage loan incurred prior to February 15, 2020; and
- Payment of rent on any lease in force prior to February 15, 2020; and
- Payment on any utility for which service began before February 15, 2020.
Any amount that remains outstanding after considering the amount forgiven will be repayable over a term not to exceed 10 years. The amount forgiven is not considered to be taxable income to the borrower.
Unlike other SBA programs, these loans are open to all-types of small businesses, such as:
- Veterans’ organizations
- Tribal concerns
- Sole proprietorships and Self-employed individuals, and
- All business with 500 or fewer employees.
The Department of Treasury provided guidance that small businesses and sole proprietorships can begin applying for loans on April 3rd. Independent contractors and other self-employed individuals can apply on April 10th. You can apply through any SBA lender or any bank or credit union that is participating in this program.
Here is link to PPP SBA Sample Application Form: https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form
Here is link to PPP Information Sheet for Borrowers: https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf
In certain industries, businesses with more than 500 employees may still be eligible for these loans. For example, hotel and restaurant companies will count their employees per location. Those that have 10 locations, each with 100 employees, will still qualify.
The Program allows for businesses to take out a loan equal to 2.5 times their average monthly payroll from 2019 (this includes salary and wages as well as the cost of health care and other benefits). However, there are restrictions on including salaries for those making more than $100,000.00.
We have no idea how long the quarantines and shut-downs are going to last. The Governor of Virginia just extended the shutdowns until June 10th. So even those businesses that have survived and still have a reserve, it is imperative that they plan for the possibility of the reserve running dry. All, it is imperative that small businesses are urged to investigate and consider some of the options that the government has offered to assist.
In addition to the Paycheck Protection Program, the SBA also has Economic Injury Disaster Loans (“EIDL”). This distinction is important since these two programs are incredibly different from one another. While the EIDL loans are not new, it is important that businesses are reminded that they exist. Among these options include the “Economic Injury Disaster Advance Loan” which is available to small business owners in the U.S. and allows them to request an advance of up to $10,000.00. The purpose of this advance is to provide relief to businesses that are experiencing a temporary loss of revenue.
As a business owner, it may be difficult to determine whether or not you may be eligible, and what options are available to you. At General Counsel, P.C., we are happy to talk through these options with you and assist in the application process. We can be reached at firstname.lastname@example.org or 703-556-0411.