The PPP: The Paycheck Protection Program
If you watch television, listen to the radio, or surfed social media, you’ve probably heard the commercials on how to support local businesses who are struggling to stay afloat during the pandemic. While social distancing has helped to slow the spread of COVID-19, the other side of the coin is that it’s also slowed or, in some cases, caused some small businesses to come to a complete halt.
That means that their employees are finding themselves furloughed or unemployed. To help combat this, the government passed the CARES Act with loans designed to help these small businesses stay financially open and also to continue to pay their employees during the stay-at-home orders. One of these loans is called The Paycheck Protection Program or as it’s commonly referred to, The PPP.
What is the PPP?
The Paycheck Protection Program is a loan offered through the Small Business Administration designed to assist employers in keeping their employees on their payroll and helping with other business-related expenses. The program was set up in early April 2020, and there was $349 billion allocated to be lent out.
What’s Happened So Far?
Applications were submitted through the SBA’s website. All businesses with fewer than 500 employees could apply. In less than two weeks, the funds from the initial $349 billion allocations ran out. Many business owners reported trouble getting applications processed, while other businesses came under fire for what many considered to be actions abusing the system. For example, Shake Shack, a fast-food chain restaurant with a market cap of more than $2 billion, was approved for $10 million in loans under the PPP. After securing other funding, Shake Shack has pledged to return the loan.
Additional PPP Funding
After the funds ran out much sooner than originally anticipated, it became evident that there were still many small businesses in need of liquidity. On April 23, the Senate passed an additional $310 billion for the PPP.
What You Need to Know to Get a PPP Loan
If you are a small business owner interested in the PPP, here’s what you need to know:
- It isn’t just small businesses that can apply for the loans. Independent contractors, sole proprietorships, and self-employed individuals are potentially eligible for the PPP loans.
- You can apply for up to 2 months of your last year’s average monthly payroll cost, plus 25% of that number, up to $10 million. Payroll amounts are capped at $100,000 per employee.
- The loans are potentially forgivable, as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the eight weeks after the loan is made; and
- Employee and compensation levels are maintained.
- If you are given more money than used on your payroll expenses, the amount not forgiven must be paid back at a very low-interest rate of 1%.
- You can apply for the PPP loan through your bank or credit union, and some online lenders are making these loans as well.
- Collateral is typically required for SBA loans over $25,000, however that requirement is not required for the PPP.
- The loans will be due within two years, and payments can be deferred for up to 6 months.
- A personal or business credit check is not required.
- For more information, click here.
What if I’ve already made job cuts?
What if you are the owner of a small business and have already reduced your employees’ salaries or laid off your workforce? Per the CARES Act, you can restore your employees to their full-time status and also readjust salaries until June 30, 2020, if you made those decisions between February 15 – April 26, 2020. If this is your situation, please note that we are advising those business owners to seek out professional advice as this section of the law is very complex, especially if you are planning to achieve forgiveness on the loan.
Does that mean that every business is eligible for the PPP? No, some situations will disqualify you for the PPP loan including:
- You are involved in illegal activity under local, state, or federal law
- You are categorized as a household employer such as housekeepers or nannies, for example
- One of the owners (who owns at least 20% equity) is imprisoned, on probation or parole, or is currently subject to criminal information, arraignment, or charges, or has been found guilty of a felony in the last five years
- You (or any owners) have defaulted on a direct or guaranteed loan from the SBA over the previous seven years or are currently delinquent.
If you aren’t eligible for the PPP or apply too late and the program is unavailable to you, there may be other places to turn to for financial assistance. For example, the Economic Injury Disaster Loan (EIDL) can “provide up to $10,000 of economic relief to businesses that are currently experiencing temporary difficulties.” One of the key differences between the PPP and EIDL programs is that while the PPP loan is designed to assist with payroll costs primarily, the EIDL proceeds can be used for a more broad range of business expenses. Another key difference is how applications are handled.
How to Apply
You will need to apply for a PPP loan through a bank or credit union, while applications for EIDL are processed directly through the SBA. Currently, the SBA is not accepting applications for the EIDL because the funds have not been appropriated. For more information on the EIDL, visit this page on the SBA website.
Alternatives to the PPP
Another alternative to the PPP is the SBA Express Bridge Loans. If you already have a connection with the SBA Express lender, you may be able to get a loan of up to $25,000. This loan can be used while applying for another loan or be a term loan to help your business deal with revenue loss due to the pandemic.
Need assistance but don’t want to apply for a loan? The CARES Act does provide other programs such as:
- Pandemic Emergency Unemployment Assistance which provides unemployment benefits for those who are typically not eligible for unemployment benefits (self-employed, independent contractors, sole proprietors, etc.) the ability to receive such benefits for a maximum of 39 weeks.
- Employee Retention Tax Credit permits business owners (including sole proprietors) to possibly get a refundable payroll tax credit for up to 50% of the salary paid to their employees through December 31, 2020.
State Relief Programs
Not to be outdone, several states have also provided their own relief programs. If you live in the state of Kansas and own a business in the hospitality industry, they allocated $5 million for the Hospitality Industry Relief Emergency (HIRE) fund. These loans will be given up to $20,000 at a 0% rate over three years. While the funds have currently been spoken for, the state of Kansas is still requesting businesses to apply to collect data on the businesses in that industry that still require assistance.
Unless you are in the business of making masks or hand sanitizer, being a small business owner during 2020 has most likely been a financially stressful time. Please do not hesitate to get help from a professional. Modern Wealth Management is here, and even if you just need to be pointed in the right direction, give us a call at 913-393-1000 or schedule a complimentary consultation below.
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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.