By Sarah Everhart
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Due to the COVID-19 pandemic, many business owners are concerned about not being able to continue to pay their employees. The recently passed Coronavirus Aid, Relief, and Economic Security Act (CARES) contains a forgivable loan program meant to provide employers the financial assistance they need to retain their workforce entitled the Paycheck Protection Program (the Program). Starting tomorrow, April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Independent contractors and self-employed individuals can apply starting on April 10, 2020.
The Program authorizes up to $349 billion in forgivable loans to small businesses. Any business with fewer than 500 employees, including 501 (c3) nonprofit organizations, are eligible for a loan equal to two-and-a-half times their average monthly payroll costs measured over the 12 months preceding the loan origination date. No collateral or personal guarantees are required. Neither the government nor lenders will charge the applicant any fees.
The Small Business Administration (SBA) will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. If the employer is unable to keep all of the employees on the payroll, the amount of loan that will be forgiven will be reduced proportionally by the reduction in the number of employees. There is a provision, however, that allows employers to avoid this reduction if they rehire the same number of full-time employees by June 30, 2020. The amount forgiven may also be impacted by a significant reduction in the amount of compensation provided to an employee from February 15, 2020 to June 30, 2020. This reduction may also be avoided by curing the reduction in salary by June 30, 2020.
Businesses can apply through any existing SBA lender or through any federally-insured depository institution, federally-insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Consult with your local lender as to whether it is participating or visit the SBA website for a list of SBA lenders. To apply, applicants will need to complete the Program loan application and provide payroll documentation.
Interested applicants are encouraged to apply as soon as possible. For more information about the Program, check out this fact sheet.