With the mandatory closures of businesses have severe consequences for many small businesses around the country, federal and state government bodies have been racing to provide much needed support during the COVID-19 pandemic. The biggest effort so far has been the Coronavirus Aid, Relief, and Economic Stimulus Act, or the CARES Act, that passed on March 27, 2020. Here is what you need to know based on information available on April 2, 2020. Updates will be sent to PIA members when available.
How do I apply for a federal stimulus loan for small businesses?
Small businesses and sole proprietorships can apply for Small Business Administration loans under the Paycheck Protection Program beginning Friday, April 3, 2020, through existing SBA lenders. Independent contractors and self-employed individuals will be able to apply for loans beginning Friday, April 10, 2020.
Can I have the application ready?
Yes – the U.S. Treasury released the loan application so borrowers can prepare their application and supporting documentation.
Are there current SBA program accepting applications?
Yes, see the SBA COVID-19 Small Business Guidance and Loan Resources for additional programs, including emergency loan programs and emergency bridge loans. While there are limitations to prevent a business from maximizing every loan program, eligible businesses will be able to consolidate the loans. This recognizes that a business may require one loan before another program becomes available. States may also have their own assistance programs.
Who will distribute funds for the Paycheck Protection Program?
The SBA has a network of 1,800 approved lenders, which includes many banks and credit unions. Contact your bank to learn if they can make SBA loans. If they cannot make SBA loans, then you can find a lender by contacting the SBA.
How much funding will my business be eligible to receive from the Paycheck Protection Program loan?
The CARES Act allows businesses to apply for loans of 2.5 months of payroll up to $10 million. The calculation method for payroll costs caps each employee’s earnings at $100,000 annual wage.
What is included as a payroll cost for employers?
- Salary, wage, commission, or similar compensation;
- Payment of cash tip or equivalent;
- Payment of vacation, parental, family, medical, or sick leave except paid leave under the Families First Coronavirus Response Act;
- Allowance for dismissal or separation;
- Payment required for the provisions of group health care benefits (including insurance premiums);
- Payment of any retirement benefits;
- Payment of state or local taxes assessed on the compensation of the employees
What is excluded from payroll costs?
- Compensation of an individual employee in excess of an annual salary of $100,000 (pro-rated for the period of February 15, through June 30, 2020);
- Payroll taxes, railroad retirement taxes, and income taxes;
- Any compensation of an employee whose principal place of residence is outside of the United States;
- Qualified sick leave wages for which a credit is allowed under the Families First Coronavirus Response Act
Do I include health insurance premiums and retirement contributions as payroll costs?
Yes, these payments should be included as payroll costs?
Does the portion of health insurance benefits paid by the employer count toward the $100,000 annualized limit per employee?
No, the exclusion is for salary above $100,000. The CARES Act does not require amounts spent on non-salary benefits to be included as salary. In the list of payroll costs, salary is a separate section from benefits.
Can sole proprietors, independent contractors, and self-employed individuals apply for a Paycheck Protection Loan?
Yes, you can. Payroll costs should be calculated on the wage, commission, income, net earnings, or similar compensation for a 2.5 month period not to exceed $100,000 a year (pro-rated for the covered period).
Are there any certifications required?
Lenders are required to obtain good faith certification that:
- Current economic uncertainty makes the loan necessary to support the Applicant’s ongoing operations;
- The funds will be used to retain workers and payroll expenses; make mortgage, lease, and utility payments;
- The borrower does not have a pending Paycheck Protection Program application with another institution;
- The borrower has not received a loan for the same purpose and amounts between Feb. 15, 2020, through Dec. 31, 2020. SBA emergency loans made between Jan. 31, 2020, and April 3, 2020, may be consolidated into the Paycheck Protection program loan.
I had an employee leave in December 2019. Will that count against me for forgiveness purposes?
No. While the average payroll in 2019 is being used to calculate the loan amount, it is the number of employees the borrower employed on February 15, 2020, that will most likely count toward the employment numbers for forgiveness purposes.
I have an employee taking paid medical and family leave under the Families First Coronavirus Response Act. Do those expenses qualify as a payroll expense?
No, payroll costs for an employee taking paid leave under the Families First Coronavirus Response Act are excluded. Eligible employers will qualify for a dollar-for-dollar reimbursement for these payroll costs via a payroll tax credit.
I’ve heard this loan will be forgiven by the federal government. Is that true?
Yes. The CARES Act makes the loan eligible for forgiveness equal to the amount the borrower spent on the following expenses during the eight weeks following the origination of the loan:
- Payroll costs;
- Interest on mortgage obligation incurred in ordinary course of business;
- Rent on an existing lease agreement;
- Payments on utilities (covering electricity, gas, water, transportation, telephone, and internet services);
- Additional wages paid to normally tipped employees.
What information are lenders required to verify?
The U.S. Treasury Department is requiring lenders verify:
- The borrower was in operation on February 15, 2020;
- The borrower had employees for whom the borrower paid salaries and payroll taxes;
- The dollar amount of average payroll costs.
Contact your local SBA lender for more specific information about how they plan to verify this information.
Do I need to first exhaust other funding or credit options?:
No, borrowers do not need demonstrate that they first looked for other loan funds. The Credit Elsewhere requirement typically required to obtain SBA loans has been waived.
How long do I have to apply?
The program will accept applications until funds are exhausted or June 30, 2020.
How does a business qualify for loan forgiveness?
To qualify for loan forgiveness, the employer must retain all employees and may not reduce wages greater than 25% by June 30, 2020. Employment numbers are based on the employer’s number of employees on February 15, 2020. The amount of loan forgiveness will not be reduced if the employer rehires employees by June 30, 2020, and/or eliminates any reduction in wages.
Is there room for any differences in the loan terms?
No, the loan terms will be the same for all borrowers.
There is a lot of interest in this program. Will it become oversubscribed?
The Paycheck Protection Program has been allocated $350 billion, which is more than the GDP of Arizona. The U.S. Treasury intends for it to be sufficient but has indicated they will take further steps if necessary to support U.S. small businesses.
What happens if a business terminates some employees or reduces wages?
The amount of the loan forgiven would be reduced. Part of the loan would still be forgiven but the employer would still need to repay part of the balance. The amount forgiven would be calculated based on the number of employees and payroll costs. Repayments may be deferred for six months.
If I have already received an SBA disaster assistance loan, can I still apply for a Paycheck Protection Program loan?
Yes but you will need to consult your lender about consolidating the loans.
What is the interest rate on the loan?
The SBA announced the interest rate would be 0.5%. Crucially, the interest will not be forgiven even if the entire loan is forgiven. Payments on interest may be deferred for six months.
Is there an application fee?
No borrower will be asked to pay an application fee.
Is the federal government offering any other support for businesses facing financial hardship?
The Treasury and Internal Revenue Service announced an Employee Retention Credit on March 31, 2020, that will provide a tax credit for 50% of up to $10,000 in wages paid by an eligible employer. Any business that takes a small business loan is not eligible for this tax credit. For more information, see the IRS announcement of the tax credit.
Will this be the only aid coming to businesses?
That is unclear but it is very unlikely. PIA will continue to follow and distribute information on additional programs, including those regarding any business interruption coverage, as they become known. 4/20