Paycheck Protection Program 2020

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COVID-19 traveled around the world quickly and unexpectedly. At the moment, there is probably no person in the US that was not in some way affected by this pandemic. Since the last pandemic this big happened around 100 years ago, no one was properly prepared for it. Everyone is confused, including the government.

Small businesses took a big hit from this crisis. Many shops and other outlets were forced to close, and events had to be canceled on short notice.

This means less or no sales at all. Small companies are finding it challenging to retain all of their employees on the payroll and keep up with other expenses. While it would be impossible to make this time easy for everyone, the government is giving a helping hand by creating different programs to keep the economy alive.

Paycheck Protection Program is one of the many ways the government is trying to help businesses. It might not bring back all the sales and cash flow you had before, but at least it will help you to take care of the core of your business – people.

What is The Paycheck Protection Program

PPP or Paycheck Protection Program is a program helping small businesses and self-employed individuals to stay afloat through the COVID-19 crisis, mainly by retaining their employees and keeping them on the payroll. The government is ready to go through $350 billion to make sure small businesses don’t let go of their employees during this difficult time.

Eligible entities can apply for PPP through most banks and get up to $10 million or $100,000 per employee for the period between February 15, 2020, and June 30, 2020.

While it is a loan, it has up to 100% forgiveness. In this article, we will look deeper into this program, eligibility, application, forgiveness, and other important details.

This program was created to retain employees in small businesses. If your business was not affected by COVID-19, you can still apply for it.

While it might not seem ethical, no one knows how things will turn out in the weeks and months to come. It would be more unethical to let go of your employees if things get worse. Retaining your employees can help them and their families survive this crisis.

Here are the main points of Paycheck Protection Program:

  • You can apply if you are self-employed or have a small company with less than 500 employees
  • You have to experience negative effects on your business caused by COVID-19
  • The maximum amount you can get is equal to 2.5 times your average monthly payroll
  • It has loan forgiveness for eligible expenses
  • The rest of the loan has to be repaid in 2 years, with 6 months deferred
  • The fixed interest rate is 0.5%

Who is eligible?

PPP is directed towards small businesses and self-employed people. Let’s have a look at the full list of eligible borrowers :

  • Small business with less than 500 employees
  • Nonprofit organizations with less than 500 employees
  • Veterans’ organizations with less than 500 employees
  • Tribal businesses with less than 500 employees

It is important that you or your company started operating before February 15, 2020. Another important factor here is that you need to show a negative impact from COVID-19. This can be such things as a loss of sales or other negative effects.

Other important details you should know:

  • All employees count, both full-time and part-time
  • If you work alone and pay yourself a salary, you can apply as a small business
  • If you don’t pay yourself a salary, apply as self-employed
  • If you have more than one small business, you can apply for each of them separately

Another great news about the PPP is that you don’t need to provide any guarantees, neither personal nor collateral, and there is no need to prove that you’re unable to get a loan elsewhere.

How much can you borrow?

You can get 2.5 times the average monthly payroll. This is calculated over the period of the last 12 months unless your business is seasonal. In this case, you can use the amount you paid out in the same period in 2019.

The payroll includes salaries and all benefits without tax. The amount cannot be larger than $10 million for an entity or $100,000 per employee. To calculate the amount you can borrow follow these steps:

  1. Get the payroll amount for the last 12 month, including salaries and benefits
  2. Deduct the payroll taxes
  3. Divide the number by 12
  4. Multiply the number by 2.5
  5. This is the amount you can borrow through the PPP

You can also find a PPP calculator online on many websites if you find it a bit confusing.

Loan Forgiveness

The loan is up to 100% forgivable for qualifying expenses. The expenses have to be incurred during the period between the date you got the loan and June 30, 2020.

The rest of the amount you received will have to be paid back within two years at a fixed interest rate of 0.5%. You can also delay the payments for the first 6 months. The qualifying expenses for forgiveness include:

  • Salaries
  • Group health insurance payments
  • Sick or family leave payments
  • Mortgage interest payments
  • Rent
  • Utilities
  • Interest on debts
  • Other minor expenses

While the list includes other expenses then payroll (salaries), those can only add up to not more than 25% of the forgiven amount. It might be a good idea to open a separate account only for PPP funds to keep the audit simple and clear.

There are still some uncertainties about the rules of forgiveness, and things might still change. Despite this, the program is still a very good deal for your business, even if you will have to repay some of it in the future.

Where to apply

The PPP is handled by SBA, and you have to apply through one of the banks on their list. The first thing you should try is to contact your current bank to see whether you can apply there. There are some banks that already decided to work with their existing customers only.

While the SBA website might have some technical issues at the moment due to high traffic, if you manage to load it, you should find a full list of approved banks.

Many banks already started to collect contact details of those who are interested in PPP, so don’t wait to apply. There will be a limited amount of funds distributed and not everyone will get a loan.

There is no finalized application form yet but it’s good to keep in touch with your bank. If they are not SBA approved, find a bank that is. Here are some banks that are taking part in the PPP:

  • US Bank
  • Chase Bank
  • Sunrise Banks
  • Key Bank
  • Live Oak Bank

What documents do you need to apply

Once you find a bank that you can apply through, it’s time to gather the required documents. If you have an accountant, that should be an easy task. If you don’t have one, you should be able to get these documents from your payroll or bookkeeping records. The list of documents are:

  • The evidence of your business starting date (since only businesses that were in operation before February 15, 2020, are eligible)
  • Payroll records for the last 12 months to calculate the amount you can get
  • Annual profit/loss statement

This list might not be complete since there is still some uncertainty, but it’s a good start. The faster you can fill in the application, the sooner you can expect to receive the funds. This makes it important to be prepared as much as you can.

When are the applications open

The banks were supposed to start accepting application process by Friday, April 3 for small businesses and April 10 for self-employed individuals, but many banks are currently experiencing delays with their applications due to changing guidelines by the SBA.

However, this means that if you have employees, you can already start the application process if it’s available at your bank, but if you are working on your own, you will have to wait another week.

Most banks should have the application forms online either when you read this or very soon, so you don’t have to risk your safety by going to your branch. Since the situation we find ourselves in is unusual and no one was prepared for it, you might expect some delays and technical issues. Be patient, and don’t worry.

Applications are open till the end of June.

What other loans can you get for your small business

If you have a small business, you can also consider applying for EIDL – the Small Business Administration’s Economic Injury Disaster Loan. It is a different program that is administered by SBA. Unlike the PPP, it is administered by SBA directly and not through a bank.

Another difference is that it doesn’t have loan forgiveness. It also has a grand component in it of $10,000. You can also benefit from both programs, but the funds need to cover different expenses.

Another option is to take out a personal loan. While this might not seem like the most ideal option, taking out a loan can be cheaper than maxing out your credit cards.

So if you are short of cash to keep your business afloat, it’s worth thinking about taking out a small loan, which you can repay over a chosen period of time. Just be aware that there are a lot of fast loan providers offering quick loans with extremely high interest. Do your homework and compare many offerings to find the best one for you.

The PPP can help you bounce back on the other side of the coronavirus crisis

The changes that the coronavirus pandemic has brought with it are certainly more than anyone could have reasonably anticipated. But our focus right now should be on looking forward and doing our best to get out of this with the least damage possible.

This is why the PPP program is so important. Now more than ever is the time to take care of each other, and by having the facility to retain your staff, you can get to work on pivoting your business or if this is not possible preparing for a post-coronavirus market.

If there is one thing that is going to get us through, this is a sense of community and teamwork, and this is what the PPP is ultimately all about.

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