Application forms are available for small businesses loans under the Payroll Protection Program. Funds can be used to maintain payroll up to $10 million.
Here's what you need to know:
- The SBA provided applications for the $350 billion Payroll Protection Program
- Program is intended to for small businesses to maintain jobs and salaries
- Small businesses can borrow up to $10 million
- Loans can be forgiven if the business maintains salaries and jobs
- The program runs through June 30, 2020
- Banks can begin processing loans on April 3, 2020
- Small businesses need to apply through an approved lender or FDIC bank participating in the program
The Small Business Administration (SBA) made sample loan applications available on March 31, 2020. The program is intended to incentivize small businesses to keep workers on payroll through the coronavirus pandemic by offering low-interest loans, which can be forgiven if the borrower keeps workers employed.
The loan program was part of the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, which was signed into law by President Donald Trump on March 27, 2020.
Which businesses are eligible to apply for the Paycheck Protection Program?
The program is intended for businesses with fewer than 500 employees that have taken a hit to their business due to the impact of COVID-19. Also eligible to apply are sole proprietorships, independent contractors and self-employed persons, private non-profit organizations or 501(c)(19) veterans organizations.
There are exceptions for certain businesses with more than 500 employees. Those exceptions include:
- Businesses who match the SBA’s definition of “small business” for their industry (tool to determine size standard is available here)
- Businesses in the hospitality or food industry that have more than 500 employees if they have multiple locations but less than 500 in a specific location they’re applying for
How much can a business borrow?
Businesses can borrow up 2.5 times the average monthly payroll costs they incurred for the year prior to their loan origination date, up to a maximum total of $10 million.
However, the compensation is also capped for individual income for each covered employee at $100,000 a year. That is the same cap for self-employed borrowers. Payroll taxes and income taxes are also not included in the calculation. Employees not employed within the U.S. are also excluded.
The interest rates on the loan are capped at 4% with repayment terms of 10 years. The first payment is not due for 6 months.
How can small businesses apply?
Small businesses must apply for the paycheck protection program through an approved lender. These include:
- Any existing SBA 7(a) lender
- Any federally insured depository institution (FDIC) that is participating in the program
- Any federally insured credit union participating in the program
- Farm Credit System institution that is participating
How do small businesses qualify for forgiveness on these loans?
Technically, the paycheck protection loan can be fully forgiven if the businesses use the funds to cover payroll, pay mortgage interest or rent, or pay utilities. However, the Paycheck Protection Program stipulates that a minimum of 75% of the loan be used to cover payroll to qualify for forgiveness.
Forgiveness of the loans is also dependent on the employer maintaining or quickly rehiring workers and maintaining their salary levels. The amount of the loan eligible for forgiveness decreases based on any staff or salary reductions the employer makes while holding the loan.
What’s on the Paycheck Protection Program application?
The SBA has provided a downloadable sample application form here. Given the desired speed of the relief the government hopes to provide, the application is relatively short and straightforward. But there are a few things small businesses will want to prepare to ensure their application is processed quickly.
- Your business identification number (either an Employee Identification Number (EIN) or Social Security number)
- Contact information for the business (i.e. address, phone number, email address, etc.)
- Average monthly payroll calculation
- Number of jobs supported by the loan
- Purposes for the loan (payroll, mortgage interests, utilities, rent, etc.)
- Business owners and their percentage of ownership
- Any business owners who are barred from applying due to delinquency on a past SBA loan or bankruptcy
- Any other businesses that are owned or managed by the business applying for relief
- If the business received a coronavirus disaster relief loan between January 31, 2020 and April 3, 2020
- Any form of criminal charge or charge related to a crime against a minor currently being charged or convictions by the borrower
- Citizen or resident status of the borrower
When will the payroll protection loans be paid out?
The SBA advised that banks will be able to begin processing applications on Friday (April 3, 2020.) It did not advise on how quickly the loans would be approved or disbursed.
Is there a deadline for the paycheck protection program?
Yes. The program is set to end on June 30, 2020.
Editor’s Note: Neither Workest nor Zenefits is affiliated with the Small Business Administration (SBA) or a lending organization. This article is intended for informational purposes only.