Running a business is a demanding task, but the status quo almost doubles up the challenge for a small business owner.
You have to make critical decisions that will influence your today and tomorrow, and almost all of them revolve around funding.
Since the Federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act and news of “a $350 billion small business relief fund” went viral, almost all microbusinesses want a slice of the cake. But do we understand what they are?
The CARES Act provides funding through the Paycheck Protection program. And PPP loans offer funding up to $10 million with possible loan leniency.
But that’s just a drop in the bucket. Here are five key things you should know about PPP coronavirus loans.
- What are PPP loans?
The Paycheck Protection Program mainly offers incentives for firms to keep their staff on payroll amid COVID-19.
Loan clemency is possible if a borrower uses the funding to cover only eligible costs, mainly payroll, utilities, rent and mortgage, among others.
PPP loans allow a business to borrow up to 2.5 times its per-month payroll expenses, without exceeding the $10 million cap.
The loans are available through all US Small Business Association certified banks and credit unions.
You can also source your PPP cares act loan from the Small Business Administration.
- What are the Requirements?
PPP loans are collateral-free and they do not require a personal guarantee. However, a borrowing company must confirm that:
- The funding will be used (a) to endure the present economic status and (b) to keep the business operational.
- The lump sum is meant to help it maintain its employees and clear payroll, or sort out utility bills, and payments like mortgage or rent.
- It hasn’t received and isn’t seeking out similar loans for similar uses and amounts.
The borrowing company must also confirm that it will try “to the extent possible” to stick to US products and equipment.
- Who Qualifies?
According to the CARES Act, any micro-business that employs US citizens and need to maintain payroll can seek out the Paycheck Protection Program loans.
- All businesses with 500 or fewer staff or workers. These include;
- Sole Proprietorships,
- Nonprofit firms,
- Veterans Organizations,
- Tribal business concerns,
- Self-employed persons,
- Independent Contractors.
- Companies with over 500 workers from certain sectors can also seek out PPP loans if they meet federal size standards, as highlighted in this page.
- Accommodations & Food Services (with NAICS Codes preceded with 72) and run more than one location, but have less than 500 workers per store.
Finally, lenders will check whether the borrowing firm was actively operational before Feb. 15, 2020, and whether it had cleared payroll.
- Which Payroll Expenses are Catered for by PPP?
Employers can add payroll expenses like wage, commission, salary, money tips, and so on depending on their business. Applicants must NOT include 1099 payments when seeking out PPP loans.
Sole proprietorships, Independent Contractors, and the self-employed can also add the total payments for any payment, income, wage, commission, or net paychecks not more than $100,000/year.
- Who Gets Loan Forgiveness?
For any loan, the borrowing company qualifies for forgiveness on the lump sum spent on eligible expenses over the 8-week span, from the disbursement of the loan.
Eligible expenses include; US employee Payroll, rent, utility bills, mortgage, among other related expenses.
Also, to enjoy leniency, the borrowing firm must keep all records of the claimed expenses.
Note: The amount eligible for leniency goes down if the employers cut salaries by over 25 percent or choose to lay off some workers.
There’s much more to learn about PPP loans. Be sure to dig into the details with your finance provider before you take out the relief funding.