On my March 31st podcast, I gave a brief overview of various elements from the Corona Virus Aid, Relief and Economic Security Act, also known as the CARES Act. In the legislation two new programs were created targeted at small business, sole proprietors, self-employed and Independent contractors. This article will describe one of those programs.
As of April 3rd, the portion of the law known as the Paycheck Protection Program, or PPP, went in to affect with the Small Business Administration (SBA) issuing guidance to lenders late April 2nd. The PPP is based on payroll expenses and is designed to cover payroll expenses during the 8 weeks of February 15 – June 30, 2020.
The expenses allowed by the program are payroll costs including benefits and sick leave, rents, mortgage interest and utilities. Not more than 25% of the loan may be used to pay non payroll expenses (mortgage interest, rent, utilities). The key is the employer must maintain payroll expenses and employees (or rehire) during the 8-week period in order to have the loan forgiven. If all or a portion of the loan is determined to not be forgivable, the interest rate will be 1%, payable over 2 years. The Act does allow the SBA to pay lender fees up to specific amounts. There is no collateral or personal guarantee for the PPP loan.
April 3rd was the first day small businesses and sole proprietors were able to apply for the program. April 10th is the date Independent Contractors (ICs) and the self-employed can apply. These loans are also referred to as SBA 7(a) loans.
Loans will be made by federally insured depository institutions, federally insured credit unions, and Farm Credit systems institutions. Other lenders will be approved and listed on the SBA website. You can access the SBA Lender Portal to see a list of lenders.
The U.S. Chamber of Commerce released a very helpful document that walks you through the decisions to be made. NAR released a synopsis of the program aimed at REALTORS®. The SBA released the application on April 3rd. I suggest you use the application as a guide toward documentation you will need to present to the lender. Just in case you need something a bit simpler, PNC released their checklist for borrowers.
If you are an employer who hires Independent Contractors, it is important you not claim the IC income if the IC will be filing their own SBA PPP application. The SBA has a site set up specific to the Paycheck Protection Program and that is your best source of information or ask your lender.
The ability for small business, sole proprietors, self employed and ICs to qualify for this type of SBA loan is new, and unique to the CARES act. Because of this there have been, and most likely will continue to be, hiccups and problems. The Interim Final SBA guidance came out late April 2nd for an April 3rd program date. That left little time for banks to get information, platforms and systems up and running. Bank of America was able to start accepting applications Friday morning, Chase later in the day, while other lenders will be working over the weekend to get their systems up and working. The SBA website has a PPP Lender search page. I suggest you submit your application as quickly as possible since funds are on a first come first served basis.
You should check lenders frequently as the lender list will change. as will the ability of approved lenders to accept and process applications. One note: If you applied for the PPP loan prior to April 3rd, you will want to reapply as the SBA changed the application questions, information and rules. Additionally, if you applied for the PPP loan early in the day Friday and were denied, you may wish to reapply since some of the rule changes impact the ability for more people to qualify.
Be aware, some banks are accepting applications from existing customers only. Check with your bank or credit union to see if they are a lender for this program.
Another general concern: Bank of America submitted over 60,000 applications within the first few hours amounting to $6 Billion. There are now concerns the initial $349 Billion will not be sufficient to address the needs of all small business, sole proprietors, self employed and ICs. Both Secretary Mnuchin and Speaker Pelosi have said they would consider providing additional funds if necessary, so watch the phase 4 legislation for more PPP fund allocations.