Here is our recent blog post we published on NJMOM:
The coronavirus pandemic is affecting small businesses in so many ways: From stores closing to loss of business, remote work and laying off employees, things are changing fast and businesses have been left struggling to survive.
If you are a small business owner, relief is finally here— and it’s called the Paycheck Protection Program. On Friday, March 27, the government responded to the economic hit from the COVID-19 pandemic by signing a $2.2 trillion stimulus package—including the CARES Act which gives money directly to small business owners to help pay your expenses such as payroll, rent, mortgage payment and utilities for two and a half months. If you meet the criteria, the loan will be forgiven, and the best part—payouts are expected to start this week.
For an enormous and unprecedented program, it’s not that complicated. Here are the questions you might be asking and what you need to know. And one thing to keep in mind, the sooner you apply, the better— as there are limited funds.
Your small business must have fewer than 500 employees and be in operation before February 15, 2020. Also, you must have employees you pay salaries and payroll taxes for, or paid independent contractors. Sole proprietors, independent contractors, gig economy workers, and self-employed individuals are also eligible.
How Much Funding Are You Getting
The amount any small business is eligible to borrow is 250% of their average monthly payroll expenses—up to $10 million. The amount is intended to cover eight weeks of payroll expenses between February 15 and June 30, 2020— which includes salaries, group health insurance premiums, retirement benefits, state and local taxes and more.
The Fine Print
You can breathe a little easier knowing there are no closing costs or fees, no personal guarantee or collateral required—and the key item required will be a good faith certification stating that:
- The loan is necessary to support your ongoing operations
- The funds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments
- You do not have an application pending for a duplicate loan
- You haven’t received a duplicate loan from February 15 through the end of 2020
Will This ‘Loan’ Be Forgiven?
The government is essentially paying your company’s payroll and other key expenses for two and a half months with one condition— you pay your employees for the eight weeks following the receipt of the funds without a reduction in payroll or headcount by more than 25%. If you meet this criterion, the loan will be forgiven at the end of the eight weeks by your lender.
Any amount of the loan not forgiven will be financed over 10 years and capped at a 4% interest. There are no fees and no collateral or personal guarantee, and these loan payments will be deferred for at least six months and up to one year from the date they start.
Here’s A Simplified Example
Company A has an average of $10,000 per month in payroll for their two employees in the last 12 months.
They pay $1,000 per month in group health insurance.
[($10,000 + $1,000) X 2.5]
Company A is eligible to borrow $27,500.
Company A will not owe this money back if they spend it during the 8 weeks following funds received if between February 15 and June 30, 2020, on payroll, rent, utilities, interest on a mortgage incurred in the ordinary course of business and additional wages for tipped employees.
How And Where To Apply
You can apply at any lending institution that is approved to participate. You may be in luck and it might be the bank you already use ( 800+ approved banks are available to date). You can also call your local Small Business Development Center or Women’s Business Center, and they will provide free assistance and guide you to lenders.
Disclaimer: The information in this blog is intended to be used as a basic guide to understanding the Paycheck Protection Program. The author has provided his interpretation with a simplified explanation of the program. This information is accurate as of March 29, 2020. Please refer to the U.S. Chamber of Commerce and the U.S. Senate Committee on Small Business & Entrepreneurship for a full explanation with all the specifics.