Small businesses are facing unprecedented challenges due to the COVID-19 pandemic. Fortunately, the U.S. government is providing help in the form of the Paycheck Protection Program (or PPP). Here are 5 things you need to know about the program to get the help your business needs during this difficult time.
1.Get to know the PPP
The PPP makes up a $350 billion portion of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The goal of the program is to help small businesses keep workers employed during the crisis and the subsequent economic decline by providing 100% federally guaranteed loans.
Small businesses can begin applying on April 3 while independent contractors and self-employed people must wait until April 10. And, although the program is open until June 30, 2020, the administration is urging people to apply ASAP since there is a loan cap on the program.
2. Find out if you’re eligible.
All businesses with 500 or fewer employees fit the bill. This includes nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors.
Businesses in certain industries can have more than 500 employees if they meet the Small Business Administration’s official size standards.
3. Learn what lenders will need from you.
- First, you need to fill out the Paycheck Protection Loan Application.
- Next, they’ll need a good faith certification stating that:
- The current economic conditions make your loan request vital
- Your loan is to retain workers and maintain payroll as well as make mortgage, lease, and utility payments.
- You don’t already have another duplicate loan application pending.
If you are an independent contractor, sole proprietor, or self-employed individual, lenders may also want to see payroll tax filings, Forms 1099-MISC as well as income and expenses.
4. Calculate your payroll costs to learn how much you can borrow.
The PPP states that you can borrow up to 2.5 x your monthly average payroll costs (not to exceed $10 million.)
In order to find your monthly payroll cost, you'll take the sum of your "Included" Payroll costs and subtract the sum of your "Excluded" Payroll costs.
So, what is considered an Included Payroll cost? It varies.
If you’re an employer, the compensation of any employee payment that is a:
- salary, wage, commission, or comparable payment.
- payment of cash tip or equivalent.
- payment for vacation, parental, family, medical, or sick leave.
- allowance for dismissal or separation.
- payment required for the provisions of group health care benefits.
- payment of retirement benefits.
- payment of state or local tax assessed on the compensation of your employee.
If you are a sole proprietor, independent contractor, or self-employed person, your “Included” Payroll costs would consist of wages, commission, income, net earnings from self-employment, or similar compensation not to exceed $100,000 in one year.
And “Excluded” Payroll costs? A few things.
- Compensation of an individual employee's salary that's over $100k (prorated for the period of 2/15 to 6/30 2020.)
- Payroll taxes, railroad retirement taxes, and income taxes.
- Any compensation of an employee who lives outside America.
5. Learn the terms of loan forgiveness.
Borrowers are eligible for loan forgiveness equal to the amount spent during the first 8-weeks of the loan on the following items:
- Payroll costs
- Interest on the mortgage
- Payments on utilities
- Rent on a leasing agreement
- Additional wages paid to tipped employees
It should be noted that the loan forgiveness cannot exceed the principal.
We’re all in this together.
Small businesses are the backbone of America––and these measures have been put in place to keep that backbone strong and healthy during the COVID-19 crisis. Hopefully, these tips will make the process a little easier, so you can focus less on red tape and more on managing your business.