Act now to obtain funding under the federal relief program.
As highlighted earlier this week, the Paycheck Protection Program (PPP) is a part of the CARES Act, the Federal relief and stimulus spending package that was signed into law as a response to the COVI-19 Epidemic. This Program has the potential for help businesses and protect jobs in our community.
Please understand the members of the Town Committee are not lawyers, tax advisors or SBA experts. Our data is based upon the text of the executed law and the content the information the SBA and Treasury has released. The objective is to raise awareness of this unique program and most importantly its short life span and the limited funding under the program.
What is the Paycheck Protection Program?
It is part of the stimulus program designed to keep our economy strong while the COVID-19 issue remains. The Program is funded at $349 Billion through the end of 2020. The program is intended to provide working capital to businesses, non-profits [501 (c) (3)], as well as sole proprietorships, independent contractors, and self-employed people.
Who Is Eligible?
Businesses and 501 (c) (3) non-profits with fewer than 500 employees are eligible. For businesses in accommodation and food service sectors, the 500-employee rule applies per physical location. For franchises, the SBA affiliation rule does not apply.
Eligible business types include corporations, partnerships, sole proprietors, independent contractors and the self-employed who have a regular trade or business.
How Much Can I Borrow?
Loans can be up to 2.5 times the borrower’s average monthly payroll costs, not to exceed $10 million.
Average monthly payroll costs are based on: “Included Payroll Costs” less “Excluded Payroll Costs.” Included payroll costs include:
- Salaries, wages, commissions, and tips
- Group health care benefits and insurance premiums
- Payments for vacation and other leaves, such as parental, medical, and sick leaves
- Retirement benefits and allowances for dismissal or separation
- State and local taxes on employee compensation
- Excluded Payroll Costs include:
- Compensation for an individual employee in excess of an annual salary above $100,000.
- Payroll taxes, railroad retirement taxes, and income taxes
- Compensation for employees residing outside the United States
- For non-seasonal employers, the average is calculated using the 12 months prior to the loan date. For seasonal employers, the average is the 12-week period ending June 30, 2019. Businesses not operational in 2019 use the average payroll costs for January & February 2020.
How Can the Loan Proceeds Be Used?
The borrowers will use the loan proceeds for Qualified Expenses that are to retain workers, maintain payroll, and for mortgage, lease, and utility payments.
What Are The Loan Conditions?
Good faith certification that the loan is necessary to support ongoing operations due to the uncertainty of the current economic conditions
The borrower does not have an application pending for a similar loan purpose.
Maximum Loan: 2.5 times the borrower’s average monthly payroll costs, not to exceed $10 million
Loan Rate: 4%
Loan Fees: No borrower program participation fees or prepayment fees
Loan Term: Up to 10 years
Payments: Loan payment deferral for 6 months up to one year
Personal Guarantee: None
Will The Loan Be Forgiven?
The loan will be forgiven for total Qualified Expenses during the 8-week period after the loan is made, up to the principal borrowed.
The amount forgiven can be reduced if there is a reduction in the number of employees or wages are cut by more than 25%. However, if the employees or wages are restored by June 30, 2020, then the reduction will be eliminated.
Every applicant business will need to complete the SBA application. The Treasury has announced that lending under this program will begin on April 3. Remember, funding under this program is limited: it goes until all the money has been used. Many small businesses will be seeking these potentially forgivable loans across the country. First come, first served.
How to best prepare to request a Paycheck Protection Loan
Businesses will not be asked to prove they can repay the loan. These loans are being made to re-start the economy and aid small businesses to do so. Business owners will be asked to certify in “good faith” that this loan is needed as a result of the COVID-19 crisis (note the application). Funds are to be used to pay employees, insurance costs, utility payments, lease payments and/or mortgages. No other uses of funds are acceptable if you are going to seek forgiveness of the debt.
Be very aware that any lender will be requiring proof of the costs incurred during the prescribed period for which you seek a loan under this program and the SBA will require this certification.
Again, the township committee is not Loan agents or Advisors. This information has been solicited from members of finance industry. Different banks may have different information requirements. Here are some of the information that may be requested by banks and the SBA.
- How long have you been in business?
- What type of business do you have?
- Prior year(s) revenues and financial statement
- (while there is no “credit test” for these loans, banks may ask)
- Provide independent proof of payrolls for at least 12 months before Feb. 15, 2020. This data will determine the amount of the loan.
- Cost of employee healthcare and other insurance as this amount may be included in the loan calculation
- Company must be in good standing. Certificates, Licenses, Formational and Organizational Documentation may be requested
- Debt Schedule for the business.
- (while payments for this loan can be deferred for at least 6 months and then the loan potentially forgiven, banks may ask)
Businesses interested in obtaining a PPP loan should contact banks and lender directly.