Business owners can basically think of this new Federal aid as ‘an emergency loan that turns into a grant’. The Small Business Association (SBA) has developed and will administer, with approved lending organization partners (banks), the process by which owners of small businesses can obtain an emergency loan under the PPP. The existing Economic Injury Disaster Loan (EIDL) program is still available and is similar, but not the same. The EIDL does not have the same loan forgiveness features that the PPP loan does, though it offers a 100% forgiven $10,000 advance /grant.  Both can be very helpful and can be used in succession, but not at the same time for the same types of expenses. If you applied for an EIDL before the CARES act went into effect on Monday 3/30/2020, to take advantage of the advance /grant: you should apply again. If you have applied for an EIDL already, you can also refinance it into a PPP.

Under the PPP, financial qualification criteria to obtain an SBA loan are relaxed and simplified:

• The main criteria for a business owner’s eligibility is proving that the business was operational on February 15, 2020, with employees on payroll and payroll taxes being paid.
• The eligible business owner must make a ‘good faith’ certification that the need for the loan is related to consequences of the COVID-19 pandemic.
• Collateral and personal guarantee requirements are waived, as is the ‘credit elsewhere’ test.
• After 6-12 months from the loan issuance date, it will be determined what (if any) portion of the loan will be repayable. Any non-forgiven /repayable portion of the PPP will be carried forward for an installment period of up to 2 years.

How much can you receive under the PPP?

• The maximum loan amount is determined by multiplying your average monthly payroll cost over the past one-year period (or as long as you’ve been in business if shorter) by 2.5.
• Your maximum loan amount is 10 million dollars or the above, whichever is smaller.
• The intent is to cover payroll & overhead costs of staying in business, for 2 months.

If you receive a loan, here’s how it works:

• Over an 8-week period after the origination date of the loan, loan money that is used for payroll support, paid leave, insurance premiums, business mortgage interest, rent and utility payments will be forgiven up to 100% of the loan amount.
• Employers will provide periodic reports to their lender, to verify payments made in ‘covered’ areas (Payroll costs, mortgage interest, rent, utilities).

Keep in mind:

• Payment of individuals’ salaries annualizing over $100,000 are not forgiven beyond that amount.
• Pay reductions to individuals making under $100,000 and exceeding 25%, compared to prior-year compensation, will reduce the forgiven amount.
• For any tipped workers, paying additional wages will be forgiven.

What if you already furloughed or laid-off employees?

To encourage the re-hiring of employees furloughed due to the COVID-19 pandemic: any reductions that have occurred between February 15, 2020 and April 26, 2020 will be ‘forgiven’ (won’t negatively impact the forgiveness amount) as long as they are rehired by June 30^th.

Where should you start?

Visit the SBA website to orient yourself, and XcelHR will be here to help you obtain the Payroll reports you’ll need for your application process.

You can visit the SBA website to see a sample application form with some guidance, here.

Soon if you haven’t already, reach out to your existing financial institution to indicate your interest in loan. If they are or will become an approved SBA lender and already have a banking relationship with you, that will make the whole process even quicker and smoother. If not, then choose one you are most comfortable in working with.