In response to the Coronavirus outbreak that has impacted lives in unimaginable ways, the Small Business Administration (SBA) issued its interim final rule regarding the Coronavirus Aid, Relief, and Economic Security (the CARES Act). This is a piece of federal legislation that provides approximately $2 trillion in emergency measures to help the economic crisis that is impacting individuals, families, and businesses throughout the country. Part of the CARES Act relief package includes the Paycheck Protection Program (PPP), under which $349 billion will be guaranteed in small business loans.
What is PPP?
Beginning on April 3, 2020, small businesses and sole proprietorships can apply for and receive PPP loans through existing SBA lenders. This exists to cover their payroll and certain other expenses. Independent contractors and self-employed individuals are also eligible for PPP loans to cover their payroll and other expenses as well. Their applications begin on April 10, 2020.
What is the Maximum Amount I Can Borrow?
The amount that any small business is eligible to borrow is 250 percent of their average monthly payroll expenses, up to a total of $10 million. This designated amount is intended to cover eight weeks of payroll expenses and any other amounts for making payments towards debt obligations. It may be applied to any time between February 15, 2020 and June 30, 2020.
How Can I Use the Money So That the Loan Will be Forgiven?
The amount of principal that can be forgiven is equal to the sum of expenses for the following:
- Payroll. This includes employee’s salaries up to an annual rate of pay of $100,000, hourly wages and cash tips, paid sick or medical leave, and group health insurance premiums.
- Existing interest payments on mortgages
- Rent payments
- Leases
- Utility service agreements
Businesses that want to use PPP loans for other business-related expenses, such as inventory, are free to do so. However, it is important to know that the loan will not be forgiven. Loans will be forgiven for businesses at the end of the eight week period after they take out the loan. If the full principal of the loan is forgiven, the borrower is not responsible for the interest accrued in the covered period. The remainder of a loan that is not forgiven will operate according to terms agreed upon by the business and the lender.
When is the Deadline to Apply?
The deadline to apply for the PPP loan is June 30, 2020. While this is true, the PPP Guidance encourages businesses to apply as soon as possible. This is due to concerns that high demand will cause the PPP to reach its funding capacity before reaching this designated date.
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