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A Comprehensive Guide to the Small Business Paycheck Protection Program

In the aftermath of the economic shutdown due to the COVID-19 pandemic, the Federal government passed the coronavirus relief bill intended to support small businesses and self-employed individuals during this difficult time.

Coronavirus Aid, Relief, and Economic Security Act — CARES act — provides immediate funding to small businesses in the form of a $350 billion forgivable loan and is intended to save millions of jobs.

The forgivable loan program is called the Paycheck Protection Program.

What is the Paycheck Protection Program?

The Paycheck Protection Program will provide loans up to $10 million with a maximum of 4% interest rate to eligible small businesses and self-employed individuals currently facing economic hardship due to the coronavirus pandemic.

Loans provided under this program are forgivable, non-recourse, and require no collateral.

In a nutshell, the Paycheck Protection Program provides small businesses with money to cover eight weeks of payroll costs, including benefits. The money can also be used to pay interest on mortgages, rent, and utilities.

FAQ — Once the loan is forgiven, is it taxable?
No. Loan forgiveness under this program is non-taxable.

Who is eligible?

  • A small business with less than 500 employees.
  • A 501(c)(3) with less than 500 employees.
  • An individual sole proprietor, independent contractor, or self-employed.

FAQ — Are Uber drivers and other gig economy workers eligible?
Yes. Uber drivers and gig economy workers are eligible for the Paycheck Protection Program. They fall under the category of sole proprietor, independent contractor, or self-employed.

FAQ — I have other loans or a credit line with a bank, am I eligible?
Yes. You can have other loans or credit lines with a bank and still be eligible for the paycheck protection program loan.

When can I apply?

Small businesses and sole proprietorships can apply starting April 3, 2020, and independent contractors and self-employed individuals can apply starting April 10, 2020.

Consider applying as quickly as possible because it is ‘first come, first served’ and there is a funding cap of $350 billion.

FAQ — Is there a deadline to apply?
Yes. Applications will be accepted until June 30, 2020.

Where can I apply?

Almost all the big banks will let you apply for the Paycheck Protection Program loan. Call them to determine if they participate if you bank with a regional bank.

Similar to banks, there are many lending institutions that already participate in the existing U.S. Small Business Administration lending program. They will also allow you to apply for the Paycheck Protection Program.

Please note that the Paycheck Protection Program is a Federal loan, but the intermediary is the bank. The bank will underwrite the loan, but the Federal government will guarantee it.

Please don’t fall for scams asking you to apply directly for a loan with the Federal government. No such service exists.

Complete the Paycheck Protection Program loan application and apply it through an approved lender or bank.

What are the requirements?

You must prove that you were engaged in business before February 15, 2020, and paid salaries and payroll taxes.

You have to certify the following when you submit the Paycheck Protection Program loan application:

  • Current economic uncertainty makes the loan necessary to support your ongoing operations.
  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
  • You have not and will not receive another loan under this program.
  • You will provide the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to the likely high subscriptions, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
  • All the information you provided in your application, supporting documents, and forms is true and accurate.
  • You acknowledge that the lender will calculate the eligible loan amount using the submitted tax documents. You affirm that the tax documents are identical to those you submitted to the IRS.

FAQ — Is personal or business collateral required for the Paycheck Protection Program?
No. There’s no requirement for personal or business collateral.

How much can I borrow?

Take your average monthly payroll cost in 2019 and multiply that by 2.5. That’s the maximum amount you will be able to receive as a loan from your bank or $10 million, whichever is less.

How much of my loan will be forgiven?

All of it if you use the loan funding for the following:

  • Payroll — salary, wage, vacation, parental, family, medical, sick leave, and health benefits.
  • Mortgage interest — as long as the mortgage was signed before February 15, 2020.
  • Rent — as long as the lease agreement was in effect before February 15, 2020.
  • Utilities — as long as service began before February 15, 2020.

You will need to keep accurate records because, after 8-weeks, the bank will ask for the following documentation:

  • Verification of FTEs and pay rates
  • Payroll tax filings
  • State income, payroll, and unemployment insurance filings
  • Documentation that covered mortgage, rent, and utility obligations was made
  • A certified statement that the amount of forgiveness was required to retain employees or meet the covered requirements.

FAQ — What happens if a portion of the loan isn’t forgiven?
Any balance remaining after the loan forgiveness would have a maximum maturity of 10 years.

FAQ — How long will it take for the bank to forgive the loan?
Up to 60 days to make the determination.

Check out the PPA page on the SBA website for more information and to see if you qualify for other disaster relief programs.

Photo by Andrew Seaman on Unsplash