The COVID-19, Relief, and Economic Security Act (CARES) makes $350 billion in paycheck protection loans available to small businesses, with individual businesses eligible for up to $10 million in forgivable loans. The provision is referred to as the Payroll Protection Program (PPP). Small businesses, nonprofits, tribal business concerns that meet the SBA’s standard business size definition and veterans’ organizations organized under 501(c)(19) with fewer than 500 employees are eligible for loans under this program. Organizations with more than 500 employees may also be eligible to participate in the PPP but they are advised to discuss eligibility requirements with their accountant, business advisor, and/or lender before applying.
The PPP is designed to help struggling organizations impacted by the COVID-19 pandemic and allow them to keep and/or rehire their workers, as well as make rent, utility and debt payments. The PPP is administered by the SBA, and organizations must apply with a bank that participates in current SBA programs. The final amount an organization might receive under the PPP is based on its average monthly expenditures over the past twelve months then multiplied by 2.5. Therefore, if an organization’s average expense for qualifying items is $1M per month, the organization may be eligible for as much as $2.5M.
If managed properly by the organization, the PPP provides free money for organizations that qualify and will help maintain critical business operations during this critical health emergency. If an organization spends the money received under this program on qualifying expenditures within eight weeks of disbursement, the entire loan amount may be forgiven. Organizations that spend less than the loan amount may still receive partial forgiveness of the total loan amount.
While the federal government is expecting banks to fast-track approvals in as little as a day, banks will likely struggle keeping up with demand. Despite possible delays, the process to obtain approval is not nearly as vigorous as other, more traditional, business and SBA loans. The application is two pages and requires little documentation. Banks are expected to begin processes loans this Friday.
The Small Business Administration has a network of at least 1,800 approved lenders that process small business loans and intends to add more of them. If your bank is not an SBA-approved lender or you don’t have an existing banking relationship, you can contact the SBA or your E. Cohen advisor/preparer to find one.
The US Chamber of Commerce issued an excellent summary on the PPP. You can download/view by clicking here. Clients are strongly advised to contact their E. Cohen advisor/preparer to learn more about the Payroll Protection Programas well as the requirements for expedited loan approval.