At a time like this, being a small business owner is challenging. There is a lot to navigate and many difficult decisions to make. To ease this burden, the US government has passed the CARES Act. This bill sets aside $350 billion to help small businesses through a loan package called the Paycheck Protection Program (PPP).
1. How does the stimulus bill help businesses?
The new Coronavirus Aid, Relief, and Economic Security (CARES) Act allocates over three hundred billion dollars to help small businesses through the Paycheck Protection Program (PPP).
These funds will provide federally guaranteed loans to small businesses. In addition, the government will forgive these small business loans if borrowers meet certain requirements.
Existing US Small Business Association approved lenders will approve and make the loans. The SBA will also publish a list of approved lenders. The list of approved lenders is not yet available.
In short, these relief loans are a tax-free grant from the government given via the US Small Business Association.
2. Who is eligible for the Paycheck Protection Program (PPP)?
Any small business owner that has US employees on payroll (including the owner) may apply for the Paycheck Protection Program (PPP) under the CARES Act. A variety of types of businesses can qualify for these loans, including:
- Small business with fewer than 500 employees (including full-time, part-time, or any other status)
- Sole proprietor
- Independent contractor
- An individual who is self-employed and regularly conducts any trade or business
- A 501(c)(3) with fewer than 500 employees (including full-time, part-time, or any other status)
- Small business that otherwise meet the United States SBA’s size standard
- And more.
Lenders will also consider whether the borrower was in operation before February 15, 2020, and if they had paid employees or contractors.
3. Do independent contractors or self-employed individuals qualify for the Paycheck Protection Program?
Yes. Independent contractors and self-employed individuals with clients in the US may also apply for the Paycheck Protection Program. However, their application date will be later than the companies with employees on payroll.
4. What are the requirements for the Paycheck Protection Program?
Borrowers need to certify that:
- The loan is needed a) due to the current economic conditions and b) to continue operations
- The loan is for retaining workers and maintaining payroll or making mortgage, lease, and utility payments
- They have not received and are not applying for duplicate loans for the same purpose and amounts
Borrowers must also confirm that “to the extent possible” they will buy only American-made equipment and products.
There is no need for collateral or a personal guarantee.
5. Are expats eligible for Paycheck Protection loans?
US expats can use the Paycheck Protection Program if they have a US trade or business with US based employees on payroll and meet the above requirements (questions 2-4).
6. When can I apply for the PPP loan?
Applications for small businesses and sole proprietors open April 3. Independent contractors and self-employed individuals can apply starting on April 10.
7. How much are the relief loans for?
The PPP relief loan amounts are up to 2.5 times the borrower’s average monthly payroll costs. However, the loan amount cannot exceed $10 million.
8. Which payroll costs can I include?
The payroll costs that borrowers can include depends on the type of business. Employers can include payroll costs such as salary, wage, commission, cash tips, group health care benefits, and more. Business owners should not include 1099 payments in their calculations.
Sole proprietors, independent contractors, and self-employed individuals can include the sum of payments for any compensation, income, wage commission, or net earnings that is an amount of not more than $100,000 in one year.
Borrowers should exclude certain payroll costs, including:
- Compensation for an employee whose principal place of residence is outside of the United States
- Compensation for individual employees with an annual salary over $100,000, as prorated for the period February 15 to June 30, 2020.
- Payroll taxes, railroad retirement taxes, and income taxes
- Sick leave wages that are covered under certain parts of the Families First Coronavirus Response Act
9. How does loan forgiveness work under the stimulus bill?
A borrower is eligible for forgiveness on the amount spent on eligible costs during the 8-week period after the origination of the loan. The forgivable part of the loan must be used to pay US payroll for US-based employees, rent, utilities, mortgage interest, and other qualifying expenses. Borrowers must document these expenses for the loan to be forgiven.
Other eligible expenses include:
- Payroll costs
- Extra wages paid to tipped employees
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent or leasing agreement
- Payment for utilities (electricity, gas, water, transportation, telephone, or internet)
10. Can I still get the loan when I cut my workforce?
If you meet the above requirements you can get the loan. However, the amount eligible for forgiveness is reduced if a borrower cuts employee wages by more than 25% or if they reduce the number of employees. Even if you already laid off the workforce, if you rehire them then it would be eligible for the payroll loan forgiveness.
The CARES Act implementation still in development
The government will probably release more information about the CARES Act and the Paycheck Protection Program soon. Our team is here to support business owners as they manage this difficult situation. Please reach out to our team if you have any questions.