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How Businesses Can Take Advantage Of The Paycheck Protection Program During COVID19

Revenue & Finances

Mason Carter wrote this article

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It goes without saying these times during COVID-19 have been rough for businesses. But thankfully, there is government relief.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocates $350 billion to help small businesses keep workers employed during this economic downturn. Known as the ‘Paycheck Protection Program‘, this program provides 100% federally guaranteed loans.

 

The program will offer loans of up to $10 million at 1% interest to companies and nonprofits with fewer than 500 workers so they can cover two months of payroll and overhead expenses. If businesses retain workers and don’t cut their wages, the government will forgive most or all of the loan and repay bank lenders.

Sounds like a sigh of relief, right? Well, I know it can be difficult to know exactly how to take advantage of these relief programs. So here is a guide for you so your business can be prepared.

At Chop Dawg, we’ve been following this stimulus plan very closely to ensure you can take advantage

There will be many businesses in line, and you want to be first among them.

As of posting this article on April 1, 2020, you can still be ahead of the pack of businesses that are lining up.

Something to really consider is the relief, in the form of these loans, will allow the borrower to have them entirely forgiven during the 8-week period beginning on the date of the origination of the loan.

Therefore, this is one of the most risk-free loans that you can get!

But a critical piece to being eligible for the Payment Protection Plan is that you must be an SBA-eligible borrower.

Who Qualifies as an SBA-Eligible Borrower?

SBA Size Standard are companies with less than fifteen million in tangible net worth AND average net profit after taxes and loss carry forward no greater than five million over the last two years.

The CARES Act has expanded the eligibility criteria for borrowers to qualify for a Paycheck Protection Program loan. Any qualified business is eligible to review a loan if the business employs 500 or fewer people. All borrowers under “SBA size standards” (with notable exceptions i.e. 501 C 3) are eligible provided they are NOT eligible for Medicaid reimbursements; including SBIC funded companies.

Any franchises must be on the SBA directory and companies with NAICS codes beginning with seventy-two may exceed size standards and still remain eligible for this relief.

You are limited in what you can use Paycheck Protection Program Loan for

There are a lot of urgent orders of business that you can take care of using this loan, but there are limitations. So make sure that you are only using the loan towards paying off what is allowed.

The Paycheck Protection Program loan may be used for:

 

– Payroll costs and employee commissions or similar compensations

– Insurance premiums and group healthcare benefits during paid sick, family, or medical leave

– Mortgage interest payments (but not prepayment or payment of mortgage principal)

– Commercial space rent and utilities

– Interest on any other debt obligations incurred before the covered period

When you do apply you will need to know your total loan amount, plus your payroll cost defined.

There are a lot of ways that the SBA defines your total payroll costs, so here is a list of everything that is defined:

– Your payroll cost can include salary, wage, commission, or similar compensation; payment of cash tip or equivalent.

 

– Your payroll cost can also include payment for vacation, parental, family, medical, or sick leave; allowance for dismissal or separation.

 

– It can also include payment required for the provisions of group health care benefits, including insurance premiums; payment of any retirement benefit; or payment of State or local tax assessed on the compensation of employees.

 

– Total payroll cost also includes sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000* in 1 year, as prorated for the covered period; *questionable if salaries in excess of 100,000 annually can be included in the calculation.

The average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made.

The exception is that, in the case of an applicant that is seasonal employer, as determined by the Administrator, the average total monthly payments for payroll shall be for the 12-week period beginning February 15, 2019, or at the election of the eligible recipient, March 1, 2019, and ending June 30, 2019 multiplied by 2.5 plus and EIDL loan that was disbursed during the covered period between February 15, 2020 and June 30, 2020. OR $10,000,000.00, whichever is less.

Remember, these loans will only be forgiven if they’re in compliance

These loans are unsecured, and must be certified as to certain requirements in order to be forgiven.

Loans will have a minimum of six but no longer than twelve months of payment relief.

If the proceeds from your loan are not forgiven, the remaining balance then converts to a 100% SBA guaranteed, ten-year term (from date of disbursement) at a 4% fixed interest rate.

In order to be forgiven, borrowers will have to provide supporting documentation verifying the exact number of employees and their exact salaries paid after loan disbursement, as well as other documentation to be determined.

What You’ll Need to Apply:

They are looking to see the last 12 months of your payroll reports.

 

– 2019 IRS Quarterly 940, 941 or 944 payroll tax reports.

 

– Gross wages for each employee, including the officer(s) if paid W-2 wages and contributions to 401K plans, Simple IRA, SEP IRAs.

 

– Paid time off

 

– Vacation pay

 

– Family medical leave

 

– State and Local taxes assessed on employee compensation.

 

– 1099s for 2019 for independent contractors that would otherwise be an employee of your business. Do NOT include 1099s for services.

 

– Documentation showing total of all health insurance premiums paid by the Company Owner under a group health plan.

 

– Documentation of the sum of all retirement plan funding that was paid by the Company Owner.

 

This goes for all employees, including company owners.

An important thing to note is the Paycheck Protection Program legislation was just recently approved, and many of the details related to application requirements are not yet available.

In that context, the list above is subject to change. Be sure to keep your eye on the official SBA website for any updates.

For forgiveness, there is possibility of having all or a portion the loan principal forgiven if you use the funds for certain qualifying costs incurred and payments made for payroll, mortgage interest, rent and utilities during the first eight weeks following the date the loan is made. But don’t forget… you will have to provide documentation.

Some businesses have been having issues with their banks in trying to take advantage of the Paycheck Protection Program…

Banks have been having issues navigating this program as applications have already been flooding in. Some banks haven’t been accepting applications yet even though they were supposed to.But they should be “going live soon”, according to Treasury Secretary Steven Mnuchin.

And other banks have been finding ways to trim the number of applicants eligible.

For example, Bank of America has received 10,000 applications for loans within the first hour of the program starting. The bank has been restricting applications to customers who already borrow from the bank, which excludes those customers who have checking accounts but not loans.

This has sparked a firestorm of criticism. After all, if you’ve trusted your bank as a business for a long time only to be denied the chance to apply, that’s going to hurt a lot. So politicians have been jumping in to criticize Bank of America, as well.

Honestly, I think we all knew that there was going to be a painful launch for the Paycheck Protection Program. There is a flood of businesses in need and there are going to be a lot of kinks to iron out. So this process will not be instantaneous, and I predict it’ll take a least a few weeks to start sorting things out. I hope for the sake of small businesses around the country that they can wait that long….

So, What Should You Do Next?

Talk to your bank, and have the information referenced in this post on hand and ready to go.

Everyone at Chop Dawg is rooting for you out there as we all navigate the COVID-19 crisis. We firmly believe there are so many tremendous opportunities ahead for all of us if we can take action now.

Be sure you take advantage of any assistance that is available to you, so you can continue to be an asset for your customers and for your future users. These dark times will pass, and we will all come out stronger, I know it!

Please let us know if you have any questions about any of this! Just shoot me an email at mason@chopdawg.com.

Updated as of: 5/4/20

Regulators have made it easier for small businesses to sell stakes in their companies and get the money they raise that way faster during the economic crisis caused by the coronavirus pandemic. Find out how the SEC is loosening equity crowdfunding rules to help small businesses raise funds.

Watch Reset Summit FREE Recorded Digital Summit for Businesses & Entrepreneurs

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