Small Business Owners –
You are the lifeblood of the American Economy. The following information is regarding the Paycheck Protection Program(PPP), a program to help you recover from the economic effects of the COVID-19 shutdowns. The PPP is a loan that can help you keep your employees and 1099 contractors paid.
The loan can be fully forgiven if the funds are used for payroll costs. Other allowed use is interest on mortgages, rent, and utilities (due to a likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required and neither the government nor lenders will charge small businesses any fees. The forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. However forgiveness will be reduced if your full-time headcount declines, or if salaries and wages decrease. This loan has a maturity of 2 years and an interest rate of 1%.
See links at the end of the article for more detailed information.
Calculating the maximum amount to borrow
The following methodology(one of the methodologies contained in the Act) will be useful for many applicants.
- Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
- Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
- Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12)
- Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
- Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).
What qualifies as “payroll costs?”
Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
Details from the US Treasury
Final rule of the program
Link to the application – contact a local bank that does SBA loans to apply.