The coronavirus pandemic has wrought tough economic conditions on small businesses throughout the country and our state forcing many to close, reduce wages, or fire employees to manage declining revenues. In response, the Federal Government through the Small Business Administration’s (“SBA”) new Paycheck Protection Program (“PPP”) may benefit your business in weathering this storm.
The PPP offers loans to provide an incentive for small businesses to keep their workers on the payroll, and is administered through SBA-approved lenders. Before filing a PPP application, you may want to consider the pros and cons of the loan, and whether you qualify for it.
SBA-approved lenders include any existing SBA 7(a) lender and any federally insured depository institution, federally insured credit union, or Farm Credit System institution participating in the PPP. Small businesses, nonprofit organizations and tribal business concerns can qualify for PPP loans if they are organized under 501(c)19 and employ fewer than 500 people.
Self-employed individuals, independent contractors and sole proprietors also are eligible. Loans under the program cover up to 2.5 times your total payroll expenses, and mortgage and rent obligations for the loan period. The terms of the PPP loans have a maturity period of two years and an interest rate of 1%.
In addition, the program will cover the first eight weeks of costs and be forgiven, provided the borrower meets certain conditions as outlined by the SBA. At least 75% of the costs must be used for payroll expenses, which include healthcare and retirement benefits, and state and local taxes.
Full forgiveness requires maintaining employee headcount and salary levels. Forgiveness will be reduced to any employer who reduces full-time headcount, or decreases salaries and wages. However, a small business owner may possibly recuperate losses by quickly rehiring employees. Finally, the amount of loan forgiveness for wages or salaries caps at $100,000. So, for instance, if an employee earns over $100,000 a year, only the first $100,000 will be factored into the total sum of loan forgiveness.
The fine print of the PPP can be difficult to decipher and it is not suited for every small business. If you want more information on participating lenders in your area, whether you qualify, or want to discuss the possible legal consequences of the PPP loan, contact us at 908-424-1011, bmiranda@bmirandalaw.com or message us on our Facebook or Instagram.