In an unprecedented move, the United States federal government signed the most expensive stimulus package in the nation’s history into law on March 27, 2020. Known as the CARES Act, it is designed to support small businesses who may otherwise struggle or fail due to the effects of the coronavirus pandemic. The Paycheck Protection Program is an integral part of the CARES Act, and it can benefit you in several important ways.
What is the Program?
The Paycheck Protection Program is essentially a loan program that stemmed from the CARES Act. It has allocated $350 billion to small businesses across the nation for the purpose of paying their employees for the next eight weeks. These loans are 100% federally guaranteed and backed by the Small Business Administration, or SBA, which means lenders assume virtually no risk in providing them.
The Basics
The Paycheck Protection Program can be broken down into a few basic points:
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Any and all small businesses (less than 500 employees) are eligible for a loan.
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The loan comes with a 1% interest rate and a two-year maturity.
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There are no additional fees associated with the loan – no closing costs, origination fees, processing fees, etc.
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Small business owners are not required to provide personal guarantees or collateral.
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You can use the loan to cover up to eight weeks’ worth of expenses as long as no more than 25% is used to cover non-payroll costs.
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It is possible to have the loan forgiven and converted into what essentially amounts to a non-taxable grant.
Who Qualifies?
Small businesses with fewer than 500 employees can qualify for the Payroll Protection Program, and that includes sole proprietorships, independent contractors, and self-employed individuals – including real estate investors who make investing their business, even if they don’t have any employees of their own.
How Can You Use the Funds?
The funds can b e utilized to support payroll and benefits costs associated with your business as well as mortgage interest payments, rent and lease payments, and utilities. 75% must be used for payroll; the remaining 25% can be utilized for the other purposes listed here. Those who stick to these guidelines can have their loans 100% forgiven, and it is recommended that individuals create secondary bank accounts to hold the funds and keep track of their expenses. This will be required when it comes time to apply for loan forgiveness. Most payroll costs are covered with the exception of those made to independent contractors or S- or C-corporation owners who are not technically on a payroll.
The Paycheck Protection Program was designed to keep your small business afloat during these uncertain economic times, and while it is technically a loan, when you use it as shown above, you can have it forgiven. Ultimately, it will behave much like a nontaxable grant designed to get you through the next eight weeks and keep your business alive, even if you are your only employee.
