On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. CARES provides an additional $349 billion in funding for SBA grant and loan programs.
Many readers may already be familiar with the SBA’s 7(a) loan guaranty program. It provides federal government guarantees for small business loans originated by approved lenders. CARES expands the 7(a) program with the addition of the PPP. A PPP loan specifically addresses business disruption caused by COVID-19 by enabling any eligible businesses to retain their employees. Most small businesses in operation on February 15th, 2020 will be eligible and there are targeted changes to expand eligibility to the hard-hit restaurant and hospitality industry.
PPP loans differ from (and are much better than) traditional 7(a) loans in several important ways. First, and most significantly, there are no personal guarantee or collateral requirements. Second, applicants need not establish that they are unable to obtain credit via traditional lending channels (eliminating the so-called “credit elsewhere” rule). Indeed, PPP lenders will not even evaluate repayment ability. Because these loans are 100% federally guaranteed, lenders will only consider whether the business was operational on February 15, 2020, and had employees for whom it paid salaries and payroll taxes, or paid independent contractors.
Eligible recipients i.e., borrowers, include not just the traditional “small business concerns” but also any other business concern (including IRC 501(c)(3) nonprofits, 501(c)(19) veteran’s organizations, and Tribal concerns) provided they employ not more than the greater of:
(i) 500 employees, or
(ii) the applicable industry size standard.
Additionally, individuals who operate under a sole proprietorship or as an independent contractor, and certain self-employed individuals, are eligible.
Who to Contact to Get Your Loan
PPP loans will be offered through the same lenders approved to offer 7(a) loans. Contact your bank and speak to your lender about their ability to process the PPP / SBA Loan. We also encourage you to view the following websites:
Note, as of the time of this writing, the SBA did not have the PPP Program application live on its website. If you browse their site, you may see the SBA COVID-19 Economic Injury Disaster Loan Application. This is not the same as the PPP Program. Please consult your banker or accountant regarding the two programs and how you can use them.
What You Will Need
Applied Payroll Solutions will provide the historical payroll data you will need to apply for your loan. We will proactively send you a payroll report for the period April 1, 2019 through March 31, 2020. Look for this report in your email today.
If we can help you understand this program or answer any other questions, please do not hesitate to call us.
The Applied Payroll Family
Note: The information contained within is not tax or legal advice. These issues are complex, and applicability depends on individual circumstances. Businesses should consult tax or legal counsel before taking action on any of the items identified above.