04/06/2020
In these unprecedented and challenging times, I hope you and your family are healthy and safe. We are all in this together and our hearts go out to all those directly affected by the virus, as well as their families, friends and coworkers. During this time of uncertainty and rapid change, keeping informed is more important than ever and we’re here to help you navigate some available options.
As a small business owner, you may have concerns regarding what your options are to stay afloat in light of the COVID-19 pandemic. Not only must you protect yourself, your family and loved ones as well as your neighbors and society from the worldwide pandemic, you must also try keep yourself in business. As a small business owner that is no small task!
There are currently two programs designed to address the growing adverse economic impact to small businesses from COVID-19: There is the Emergency Injury Disaster Loan (EIDL) and the Paycheck Protection Program under the CARES ACT implemented to assist small businesses to keep their workforce employed during the Coronavirus crisis.
It has been recommended that you apply for both loans, even though, you ultimately will only be able to select one loan. If you qualify for the Paycheck Protection Program, then the EIDL loan will be rolled into it.
Apply directly with the Small Business Administration (SBA) for the EIDL loan. For more information: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance
To apply for the Paycheck Protection Program, as of this writing, you apply directly with an FDIC insured lender that is preferably SBA approved. There is a lot of demand and few institutions offering this loan service and so you may have a better chance by applying directly with your bank if there is an established business relationship.
It’s essential to apply as soon as you can because about $349 Billion has been set aside and the loan is only available until the funds have been exhausted. Each borrower can only receive one Paycheck Protection Loan. This means that you should speak with your advisor(s) regarding the loan amount.
Here are key takeaways for the Paycheck Protection Program Loan:
• It’s a 2-year loan with a 1% interest rate.
• The 1st payment is due 6 months after payment disbursement.
• If 100% of the loan proceeds are used for “forgivable purposes” and employee and compensation levels are maintained, the borrower will not need to repay the loan the portion of the loan that represents the first 8 week period. However, 75% of the loan forgiveness must be attributed to payroll.
• Small businesses and tax-exempt nonprofits with 500 or less employees are eligible if they were in operation on February 15, 2020 and paid employee salaries or payroll taxes. (Originally independent contractors were to have been included, but starting on April 10, 2020 independent contractors and self-employed individuals can apply on their own.) For small business owners who do not categorize themselves as “employees” they could base their employee amounts on the amount of their draw or the like. This would be something to speak to your accountant about.
• There is a $10,000,000 maximum loan amount.
• There is a payroll formula used to determine the loan amount and the payroll costs are capped at $100,000 on an annualized basis per employee:
1. Aggregate “payroll costs” for U.S. based employees from the past 12 months. “Payroll costs” is a defined term with a specific list of what is included.
2. Subtract any compensation paid in excess of $100,000
3. Divide the amount from #2 above by 12 to determine the average payroll costs.
4. Use the payroll cost from #3 above and multiply it by 2. payroll costs from #3 above and multiply it by 2.5
5. In determining the maximum amount of the Paycheck Protection Program Loan, if applicable, add the outstanding EIDL amount of the loan made between January 31, 2020 and April 3, 2020, minus any “advance” under EIDL COVID-19 loan.
Here is a good CNBC article with up-to-date information: https://www.cnbc.com/2020/04/09/federal-reserve-unveils-details-of-its-much-anticipated-main-street-lending-program.html
For more information on the Paycheck Protection Program, please visit: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp
At the Law Offices of Rosanna Chenette, P.C. our
mission is to create and administer personalized and effective estate plans that offer peace of mind for you and your loved ones. We strive to be your trusted resource throughout the life of your plan and to maintain a long-lasting relationship with you as we keep your wishes alive.
Disclaimer: This post is for educational purposes only and it does not create an attorney-client relationship.
