By: Brent Johnson, Co-Founder & CEO
SBA Announces Paycheck Protection Program in Response to COVID-19
Application forms are now available for small business loans under the Paycheck Protection Program. Lenders may begin processing loan applications as soon as April 3, 2020.
The CARES Act establishes a $350 billion Paycheck Protection Program. The Program will provide much needed relief to millions of small companies so that they can sustain their business and keep their workers employed. SBA will forgive the low interest loans if the business uses the funds to cover payroll, pay mortgage interest or rent, or pay utilities. However, the Payroll Protection Program stipulates that a minimum of 75% of the loan be used to cover payroll to qualify for forgiveness.
Who is eligible?
The Paycheck Protection Program is for businesses with fewer than 500 employees that have been impacted by 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.
Starting April 3, small businesses may apply for the payroll protection program through an approved lender.
How much can I borrow?
Businesses can borrow up 2.5 times the average monthly payroll costs that they incurred for the year prior to their loan origination date, up to a maximum total of $10 million. Compensation is capped for individual income for each covered employee at $100,000 per year. That is the same cap for self-employed borrowers. Payroll taxes and income taxes are not included in the calculation. Employees not employed in the U.S. are also excluded. Interest rates on the loan are capped at 4% with repayment terms of 10 years. The first payment is not due for six months. The program is set to end on June 30, 2020.
How can I apply?
Small businesses must apply for the Payroll Protection Program through an approved lender starting Friday, April 3, 2020. SBA did not advise when the loans would be approved or disbursed. Approved lenders 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
The application is relatively short and straightforward. However, 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
More about the loan
All loans under this program will follow these guidelines:
- First payment deferred for six months
- 100% guarantee by SBA
- No collateral
- No personal guarantees
- No borrower or lender fees payable to SBA
What other assistance is available?
In response to the COVID-19 pandemic, small business owners in the United States are currently eligible to apply for disaster assistance. Enhanced Debt Relief is also available in SBA’s other business loan programs to help small businesses overcome the challenges created by this health crisis. For information on additional financial assistance through SBA, please click here.
Also, I hosted a webinar on April 6 about understanding the impact of the CARES Act on your payroll. Take a look:
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