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Coronavirus Small Business Loans: What You Need to Know

Managing a small business in the midst of an economy reeling from coronavirus is stressful. The Federal Government has recently passed several measures to make more loans available to small businesses. Navigating all of the legalese and provisions of these recent acts, however, can be highly daunting. We’re here to help you sort through the confusion and figure out exactly how these coronavirus small business loans work and how to help you obtain one.

What Are Coronavirus Small Business Loans?

In the wake of coronavirus, there are several different types of new or altered small business loans. The small business loan that most companies are applying for is the Paycheck Protection Program (PPP). This is sometimes also referred to as a Small Business Administration loan, or an SBA 7(a) loan. 

The PPP has temporarily changed the requirements of SBA loans to allow for businesses who normally wouldn’t qualify to receive financial help during this global pandemic. Created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the PPP has set aside approximately $350 billion specifically in the form of loans for struggling small businesses. 

If a business receives an SBA 7(a) loan under the revised coronavirus conditions, that company will be eligible for a loan equal to 250% of their monthly payroll costs, with a loan cap of $10 million. This loan can be used to cover payroll expenses, building mortgage or rent, and other costs deemed essential by the SBA.

Small businesses will be able to have these loans forgiven if business owners are able to retain and continue paying their employees. Alternatively, the loans will be forgiven if, by June 30, business owners are able to restore employee numbers and wages to their previous amount. 

Employees sit at a computer to apply for coronavirus small business loans

Am I Eligible for Coronavirus Small Business Loans? 

A crucial component of the CARES Act was temporarily expanding the SBA’s usual definition of a small business. This provision helps ensure that all types of employers affected by the coronavirus and not protected by large corporations receive the financial assistance they need. Your organization is eligible for the Payment Protection Program if you are a small business with less than 500 total employees or if you meet the SBA’s other sizing requirements.

The PPP also covers 501(c)(3) nonprofits with under 500 staff members, independent contractors, sole proprietors, self-employed individuals who regularly practice a particular trade or business, and tribal businesses or veterans organizations that meet the SBA’s sizing standards.

If you are a business owner associated with a larger company in the food or hospitality industry, and you employ under 500 people, you too are eligible for the PPP. Franchises listed on the SBA’s Franchise Directory, as well as businesses who already receive financial help through Small Business Investment Company, also may apply.

Business owners applying for PPP must be prepared to certify that their need for this small business loan was caused by the economic effects of the coronavirus. This will involve demonstrating that your business was in operation prior to February 15th of this year, and that you were regularly paying employees or contractors up until this time.

How Much Money Will I Actually Receive and Have Forgiven?

The PPP provides eligible small businesses with loans that cover 250% of their monthly payroll costs, with a cap of $10 million. But how much money will these loans actually give you? And will you actually be able to have the full amount forgiven?

Monthly payroll might sound simple, but it’s not as straightforward as it might first seem. Some payroll costs are not eligible for reimbursement under the PPP. 

Payroll costs factored into the SBA’s calculation of your loan amount include employee salaries, wages, and commissions. Other payroll costs that determine the size of your coronavirus small business loan include family and sick leave, the cost of group health benefits, and an allowance for employee dismissal. 

Certain payroll costs will not be counted as part of the PPP. These include payroll and income taxes, compensation for employees who primarily reside outside of the U.S., and qualified sick or family leaves already covered by the Families First Coronavirus Response Act (FFCRA). 

When determining the size of your coronavirus small business loan, you’ll need to subtract your excluded payroll costs from your included payroll costs. The sum you receive is then multiplied by 2.5 to determine your loan amount.

To ensure that the full amount of your PPP loan is forgiven, you need to retain the same number of employees that you had prior to February 15, 2020. You also need to ensure that the wages of these employees are not reduced by more than 25%. However, if you successfully bring back employees or restore wages by June 30, 2020, your loan will still be eligible to be forgiven in full.

If a PPP loan is not forgiven, whether in part or full, the amount that was not forgiven will become a continuing loan within six to twelve months. This loan will have a maximum term of ten years and a maximum interest rate of 4%.

Is the PPP Out of Money?

While at this time the relief program has run out of funds, the United States Congress is hard at work on new legislation to increase the amount of money for this vital program. We’re working closely with our clients to make sure they stay up to date with any new developments or opportunities for small businesses during this time.

Let Canal HR Help You

Applying for the PPP currently involves long wait times and a good deal of frustration. Although this federal relief is available for your business, it can be hard to file the application process while so many are trying to do the same. 

Even once you get the PPP approved, managing your business while making sure that you adhere to all of the PPP’s guidelines in order to later receive loan forgiveness is a headache. Handling a small business is hard enough during a crisis, and it’s made even worse by the stress of adhering to unfamiliar federal guidelines.

Our team is fully prepared to handle the PPP application process for all current clients, as well as continuing to handle all other payroll concerns during these trying times. 
We’ll make sure that your payroll follows the new regulations laid out by the CARES Act so that your loan will meet the forgiveness terms. This allows you to spend time on what only you can do: manage your small business. Contact us today.