There are two main SBA loans currently available for small businesses and the self-employed. See forthcoming posts for different programs. My information is to be considered a cliff-notes version to help you crack the code so please please please read the fine print before you sign anything. There is some fine print linked on the bottom of the page.
The Paycheck Protection Program (PPP)
Who is it for? This loan is for businesses or sole proprietors who have employees (or themselves) on payroll, and expect to main payroll in the next couple months. Like actual payroll, the kind that taxes get taken out, where you file payroll tax returns and get a W-2 at the end of the year. You can also have paid independent contractors via 1099-MISC. For self-employed individuals they will use net earnings.
What are the terms? The terms are 0.5% interest and due in 2 years. Loan payments will be deferred for six months. No collateral or personal guarantee required. No fees. A portion may be forgiven, more below.
When do I apply? The loan for small business will be available to apply for between April 3, 2020 (that’s tomorrow for those of you who haven’t worn pants in a few weeks and have lost track of time) through June 30, 2020. The application for independent contractors and self-employed will be released a week later on April 10, 2020. There is cap on available funds to the country so it’s recommended to act fast. No pressure geeze.
Where do I apply? You have to apply through an existing SBA lender, federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. So first call your bank and see if they are participating or if they can recommend another institution.
How much can your borrow? Loans can be up to 2.5 x the borrower’s average monthly payroll costs. How to calculate your payroll costs are in the guide below. There are also caps and exclusions on the guide.
How much will be forgiven? The loan will be forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities during the 8-week period beginning on the date of the origination of the loan. At least 75% of the forgiven amount must have been used for payroll. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
You may ask well how the f*ck can I use it for payroll when my “non-essential” business is not even allowed to be open? Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act (I think that means April 26), shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages. HOWEVER, the amount forgiven will still have to be 75% payroll. They’ve also changed things already a million times already so we’ll have to keep updated on how they’ll treat the forgiveness.
There is no guidance yet on how the application will work next week for independent contractor or self-employed folks, so stay tuned!