In the wake of the COVID-19 pandemic, many small businesses are struggling or being forced to shut down. The $2 trillion stimulus package recently passed by the federal government includes funding for two types of loans to help small businesses stay afloat and keep employees on the payroll.
Leadingham Rodgers, L.L.C. has been working tirelessly to help our clients navigate these loans and what is needed to attain this much-needed aid from approved lenders. In this post, we’ll answer some frequently asked questions so that you may better understand what these loans are, who they are for, and how they can help your small business survive these trying times.
What is the Paycheck Protection Program?
The Paycheck Protection Program (PPP) is a loan program meant to incentivize small businesses to keep their employees on payroll during the COVID-19 crisis. This loan covers payroll expenses for small businesses and has a maturity of 2 years and an interest rate of 1%. The Small Business Administration (SBA) will completely forgive these loans if all employees are kept on the payroll for eight weeks, and the money lent is used for payroll, rent, mortgage interest, or utilities. Not more than 25% of the forgivable amount can be used for non-payroll costs.
How to apply for a PPP loan
You can apply for the PPP loan through existing SBA 7(a) lenders, certain regulated and approved lenders, and any federally insured depository institution. You should consult with your banking institution or lender to see if they are participating in the program.
The Paycheck Protection Program will be available through June 30, 2020. You can download a copy of the PPP borrower application form to see what information will be requested from you when you apply.
How is the PPP loan amount calculated, and what expenses are included?
Many of our clients come to us unsure of what expenses they can include when determining the amount of their PPP loan or how that amount is calculated by lenders.
We help by pulling payroll, health insurance, and retirement plan expenses from tax returns or bookkeeping to come up with an amount. We use that to calculate how much the loan amount will be for that small business. By determining the average monthly payroll and other expenses included, we are able to provide an understanding of how banks are going to calculate their loans.
Lenders use cumulative payroll costs from data either from the last 12 months or from the 2019 calendar year. If you have a seasonal business, they use the average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. If you weren’t in business during that time, lenders may use the average monthly payroll costs for the period January 1, 2020, through February 29, 2020, to calculate your loan amount.
The average employment over the same periods can be used to determine the number of employees for a business if applying an employee-based size standard. Alternatively, borrowers may elect to use SBA’s usual calculation, which takes the average number of employees per pay period during the 12 calendar months before the date of the loan application. If the business hasn’t been operational for 12 months, the calculation will take into account the average number of employees for each of the pay periods the business has been operational.
What is the SBA economic disaster loan advance?
There’s another loan available for those that need assistance but don’t have payroll. Small businesses affected by the COVID-19 pandemic can apply for an Economic Injury Disaster loan advance of up to $10,000. This loan program provides businesses with working capital loans of up to $2 million for vital economic support during a time of temporary loss of revenue due to the financial disaster caused by COVID-19. Borrowers do not have to repay the loan advance.
To apply for a COVID-19 Economic Injury Disaster Loan, click here.
Leadingham Rodgers, L.L.C. Still here. Still helping.
Our Certified Public Accountants are here to help you navigate and understand the loans available to you during the economic disaster caused by the COVID-19 crisis. At Leadingham Rodgers, L.L.C., we believe in the value of relationships. We are committed to providing close, individualized attention to our clients. If you would like to find out more about how our accounting experts can help your small business, call (334) 319-9753 today.