Many of my small business clients have asked me about the stimulus package (CARES Act) and how it may help them weather the COVID-19 Crisis.  Many are concerned about how they are going to pay their employees, much less their other obligations. As part of the CARES Act, Congress is allocating approximately $350 billion to small businesses in the form of the Paycheck Protection Program (PPP), in an attempt to keep America’s small businesses up and running in the face of the COVID-19 pandemic. This is good news for small businesses, if they can just hang on until the terms and application details are fully in place.

The CARES Act, and specifically the Paycheck Protection Act, signed into law on March 27, seeks to can help your business stay afloat in these unsure times. While the complete details of the CARES Act are yet to be announced, including  guidance on when and how the loans will be made available, here’s what we know so far:

The Small Business Association (SBA) is being funded more than ever in order to approve finance more loans to small businesses. Loan amounts are going up to $10 million (from the previous $5 million cap); Interest rates are now capped at 4% (previous limit was 6%) and personal guarantees and annual fees are now waived. In addition 100% of loans are now guaranteed regardless of size, unlike previous SBA loan programs. The amount of loan companies may receive will be based on payroll and other operating expense figures from trailing time periods.

These loans may be forgivable if used accordingly. The idea of these SBA loans is to keep companies going until business is back to usual. In order to prevent layoffs and ensure companies are ready to get back as soon as is possible, the incentive is to keep employees working. Congress is attempting to do this by dangling the carrot of funding forgiveness as long as workers remain employed through the end of June, 2020. If employees that earn less than $100,000 are let go during the first eight weeks following the loan origination, then the forgiveness scale slides away from 100% forgiveness. The loan principal, when used for payroll, utilities, rent/mortgage and existing business debt for those eight weeks, will be totally forgiven. Previously the SBA 7(a) loans had to be repaid in full.

Even debt taken out pre-pandemic may be relieved.  While you could opt to use your new SBA loan to make payments on pre-existing debt, you don’t need to. Instead you can defer those existing payments for several months without penalty. This gives you the freedom to use the new loan primarily for keeping your workforce and your operations ready to commence usual operations when the time arrives. The goal is to keep small businesses poised and ready to act; a true ‘light at the end of the tunnel’ scenario. 

The timing of funding. We have heard that funds will be available on the same day your application is approved. It may take another one-to-two weeks, bringing us to the middle of April, to have the applications accepted, so companies should be patient and investigative in the meantime. There are other loans already available and from the original Corona Virus Stimulus package, but those are not as generous with terms, fees or forgiveness and you may not be able to get PPP loans if you have other loans in process. If you can, hold off until the PPP Loan Program is operational. 

Relaxed requirements include more U.S. workers in this classification able to get help. Even sole proprietors and gig workers are now eligible for PPP loans. And unlike before, the business does not need to prove lack of credit approval elsewhere.

What About the Fine Print?

Some details to be aware of when considering a PPP loan for your business:

• You must be able to show that the economic uncertainty of the COVID-19 outbreak is leading you to apply for the PPP loan;
• You must have been in business as of February 15, 2020 with fewer than 500 employees at a single location;
• You must be a small business, small agricultural or private non-profit;
• From the origination of the loan, you must not lay off any workers, or you will lose all or a portion of the forgiveness portion of the loan;
• Even if the loan is forgiven, you will still need to pay back the interest;
• Independent contractors and gig employees will still need to make quarterly tax payments; small business will be able to delay these payments; and
• Companies will have to show an analysis where the PPP loan proceeds were used. Consider setting up a separate bank account dedicated solely to allowable expenses.

Further information may be found at the Wage and Hours Division of the Department of Labor’s website.  Note that rules and guidelines are still being implemented.

          With all the uncertainty surrounding our health environment and therefore our economy, it’s still reassuring to see steps being taken to assist small businesses. While the amount of this stimulus package is estimated to be one-fourth of what may actually be needed by the time we are out into the light at the end of this tunnel, it is a start, and one that will hopefully help countless businesses endure a longer period of reduced productivity and operations than they would otherwise be able.

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