Small Business Owners Should Take Advantage of Paycheck Protection Program

On March 27, the federal government passed the Coronavirus Aid, Relief, and Economic Security "CARES" Act which is meant to, among many other things, support small businesses financially through this difficult time.

Small business owners should take advantage of the Paycheck Protection Program in particular. This program was granted by the federal government to encourage small businesses to retain employees and to assist with certain operational costs to keep the businesses viable during this tough economic crisis. Below are some questions and answers to help you determine if the Paycheck Protection Program is right for your small business.

What exactly is the Paycheck Protection Program?

Out of the over $2 trillion dollars provided for in the CARES Act, the Paycheck Protection Program involves nearly $350 billion in guaranteed loans to small businesses, a portion of which may be forgiven if used for certain business expenses.

Why is this program good for small businesses?

The Paycheck Protection Program is beneficial to small businesses because the funding is meant to help each business retain workers, maintain payroll, and cover rent/mortgage and utility expenses. The loan covers expenses dating from Feb. 15, 2020 - June 30 2020, and can be forgiven and essentially turned into a non-taxable grant if certain conditions are met. Even better, there is no cost to apply.

Does my small business qualify for the program?

The answer to this is most likely yes. Small businesses (including nonprofits, veteran’s organizations and Tribal businesses) with no more than 500 employees, as well as sole proprietorships, independent contractors, and self-employed individuals can all qualify.

What are the benefits of the Paycheck Protection Program?

In short, some of the benefits a small business will receive through the Paycheck Protection Program are as follows:

  • No personal or business collateral or guarantee is required. Thus, a small business can obtain this loan without having to worry about an owner or other person or business being personally/financially liable or losing personal assets.
  • The small business can have access to credit elsewhere. Unlike the SBA (Small Business Association) disaster loan, which requires that a small business generally can have no other source of credit, a small business can have credit elsewhere and still benefit from this program.
  • The loan can be forgiven if the small business follows the terms. If the small business follows the terms of the Paycheck Protection Program, much, if not all, of the loan can be forgiven.

Can my small business apply for paycheck protection and an SBA disaster loan?

Yes. However, a small business cannot apply for an SBA disaster loan for the same purpose as the Paycheck Protection Program.

What are some of the things my small business can use the funds for?

When applying for the loan, a small business must acknowledge that the funds received will be used for certain business-related expenses, including, but not limited to:

  • retention of workers and to maintain payroll
  • to make mortgage or lease payments
  • to pay for group health care benefits/insurance premiums, and utility payments.

Any of the funds a small business utilizes for purposes not specifically permitted by the Paycheck Protection Program for forgiveness will not be forgiven.

How much funding can my small business receive?

The maximum amount a small business can receive from an SBA-approved lender is its monthly payroll cost times 2.5, but no more than $10 million. For a seasonal employer, it can receive the monthly average using a 12-week period beginning either February 15, 2019 or March 1, 2019, and ending June 30, 2019. If a small business did not exist before June 30, 2019, but would like to receive the benefit of the Paycheck Protection Program, the SBA will look at its costs in January and February 2020.

How does my small business apply?

A small business can apply for the Paycheck Protection Program through any SBA-approved lender until June 30, 2020. As part of its application, it will be asked to verify the following:

  • That the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.
  • That funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.
  • That the business does not have a SBA loan pending for the same purpose and duplicative of amounts applied for or received under a covered loan.
  • During the period beginning on February 15, 2020 and ending on December 31, 2020, the business has not received amounts under the Paycheck Protection Program for the same purpose or duplicative amounts applied for or received under a covered loan.

How is the loan forgiven?

In the 8 weeks following the loan signing date, all expenses related to the following can be forgiven:

  • Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits
  • Mortgage interest—as long as the mortgage was signed before February 15, 2020
  • Rent—as long as the lease agreement was in effect before February 15, 2020
  • Utilities—as long as service began before February 15, 2020

The amount that can be forgiven will be reduced:

  • In proportion to any reduction in the number of employees retained.
  • If any wages were reduced by more than 25%.

If you rehire employees that were previously laid off at the beginning of the period, or restore any decreases in wage or salary that were made at the beginning of the period, you will not be penalized for having a reduction in employees or wages, as long as you do this by June 30, 2020.

The attorneys at O'Reilly Rancilio are ready to answer your questions regarding the CARES Act and the Paycheck Protection Program. For further information, visit our website or call 586-726-1000.