Loss of Income, the Paycheck Protection Program, and the Stimulus Package: A Guide for Small Business Owners

“A small business is an amazing way to serve and leave an impact on the world you live in.” - Nicole Snow

Small businesses and self-employed individuals account for a significant portion of our country’s economy. They are the engine that drives the U.S. economy. During a global pandemic, like the one we’re experiencing now, small businesses suffer some of the hardest hits. On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, allocating funding to support the U.S. economy and workers through the coronavirus outbreak. 

The legislation includes a number of proposals aimed at supporting small businesses.¹ For those small businesses north of Boston, as well as ones around the country, that have been hit hard by the COVID-19 pandemic and the associated forced closures, this bill may provide some relief. 

In times like these, it is important to know your options; including what the recently passed stimulus package includes and how to protect your assets moving forward. 

What Does the Package Include?

American small businesses are supported by the recently passed CARES Act in the following ways: 

• A $350 billion forgivable loan program (The Paycheck Protection Program) designed to encourage small businesses from laying off employees.
• A delay in employer-side payroll taxes for Social Security until 2021 and 2022.
• 50 percent refundable payroll tax credit on worker wages to incentivize businesses, including those with fewer than 500 employees, to retain their current workforce.
• Sole proprietors and other self-employed workers may be eligible for the expanded unemployment insurance benefits the bill provides.
• A portion of the $425 billion in funds appropriated for the Federal Reserve’s credit facilities will target small businesses.²

How Does the $350 Billion Paycheck Protection Program Work?

Under the stimulus package, the Small Business Administration (SBA) will oversee the Paycheck Protection Program. This program will distribute $350 billion to small businesses that meet certain requirements, and the loans will be made available to companies with 500 or fewer employees.³ 

Businesses can receive loans up to $10 million, and these loans will be administered by banks and other lenders. Additionally, the Paycheck Protection loans will carry a maximum interest rate of up to just four percent.² 

Currently, the SBA guarantees small business loans that are distributed by a network of more than 800 lenders across the country. The program creates a form of emergency loan that has the potential to be forgiven when used to maintain payroll through June of 2020. In order for the above amounts to be forgiven, the business must maintain the same number of employees (equivalents) in the eight weeks following the date of origination of the loan as it did from either February 15, 2019 through June 30, 2019, or from January 1, 2020 through February 29, 2020.¹ The program also expands the network beyond the SBA so that more banks, credit unions and lenders can issue the appropriate loans. 

The loan amounts will be forgiven as long as:

• The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
• Employee and compensation levels are maintained. 

When the loan is forgiven you will only need to pay back the interest accrued.² The primary purpose of these loans is to incentivize small businesses to refrain from laying off workers and ultimately rehire laid-off employees that have already lost jobs due to COVID-19.

Since many businesses have already laid off workers as a response to this pandemic, the Paycheck Protection Program can be retroactive, with the covered loan period running from February 15 to June 30, 2020. This allows for previously laid off or furloughed employees to be returned to the payroll.

What Types of Businesses Are Eligible For The Paycheck Protection Program?

The Paycheck Protection Program offers loans for small businesses with fewer than 500 employees, 501(c)(3) nonprofits with fewer than 500 workers and some 501(c)(19) veteran organizations. Food service businesses are also eligible if they employ fewer than 500 people per physical location.¹ 

Self-employed individuals, sole proprietors and freelance or gig economy workers are also eligible to apply for financial assistance during this time. Even without a personal guarantee or collateral, businesses that are struggling can receive a loan as long as they were operational on February 15, 2020.² 

Eligible borrowers are required to make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.

How Do I Get a Payroll Protection Loan?

The loan program will provide loans through SBA-approved private lenders. As banks are currently working on implementing this program, it’s important to check with your local bank to see where they’re at in the process. Those that are already approved by the Small Business Association may be quicker to put the loan program into place. 

What Do I Need to Apply?

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for the application.

As a small business owner or self-employed individual, it’s always important to be aware of your options in prosperous times as well as during times of hardship. With some assistance and the promise of keeping your workers employed, your small business can continue to thrive.