The economic fallout from COVID-19 has created uncertainty for small businesses throughout our community. Many businesses are closed due to local “stay-at-home” orders. Even if your business hasn’t been required to close, your income is likely impacted. For many business owners, I know one of your primary concerns is for your employees and their families. Many of you are wondering how your business can afford to pay employees when there’s no money coming in.
You may have heard about a recently created federal program that covers your business operating costs if you keep paying your employees. The Small Business Paycheck Protection Loan Program (PPP), created as part of the Coronavirus Aid, Relief and Economic Security Act, offers employers a way to keep their employees on the payroll. The program is designed to quickly put cash in the hands of small businesses to help you cover up to eight weeks of payroll expenses. Loans are 100 percent forgivable if you keep employees on payroll. These new forgivable loans are available beginning TODAY!
If you are a business owner in Buchanan or Platte County, my office is ready to assist you in any way we can. Our office has compiled this guide to help small businesses affected by the economic realities of COVID-19 shutdowns. Read below for more information. If you have additional questions, please email tony.luetkemeyer@senate.mo.gov or call my office at (573) 751-2183.
HOW DOES IT WORK?
Businesses with fewer than 500 employees can apply for a PPP loan through a local lender approved by the Small Business Administration (SBA). Many of our local banks are already approved lenders. Employers may borrow up to 250 percent of their average monthly payroll expenses. The loans are backed by the SBA, and interest and payments are deferred at least six months. The borrowed money may be used to pay employees or cover other operating expenses, like utilities, rent or mortgage interest. If the business keeps its workers on the job through June 30, 2020, the debt is forgiven.
HOW MUCH CAN YOU BORROW?
A small business may borrow up to 250 percent of its average monthly payroll. Add up everything you pay your employees, including salaries, wages and commissions. You can also count the cost of benefits, such as vacation pay, sick leave and health insurance, as well as state and local taxes paid on employee compensation. Now, multiply that by 2.5. That’s what you can borrow. Sole proprietors, freelancers and independent contractors may count all compensation or net earnings from self-employment. Qualified compensation for individual employees cannot exceed $100,000. Loans are limited to $10 million per company.
DOES YOUR BUSINESS QUALIFY?
The program is available to most small businesses. If you employ fewer than 500 people, whether you are a for-profit business, veteran’s organization or a nonprofit, your business likely qualifies. Sole proprietors, independent contractors and other self-employed persons may also apply. Special rules for franchises and food service allow those businesses with more than 500 total employees to still participate if individual locations have fewer than 500 workers.
WHERE DO YOU APPLY?
Many local banks, credit unions and farm credit system institutions are already set up to handle SBA loans. Check with your local bank to see if it participates. There is no collateral or personal guarantee required to qualify. Small businesses and sole proprietors can apply beginning April 3. Independent contractors and self-employed individuals will need to wait until April 10. You can find a sample SBA application form HERE. Borrowers are required to supply lenders with payroll documentation.
WHAT CAN YOU USE THE MONEY FOR?
Certain limitations apply for the loan to be forgiven. The SBA will forgive the portion of the loan used to cover payroll costs including benefits, interest on mortgage obligations incurred prior to Feb. 15, 2020, and payments for leases and utility services that were in effect before Feb. 15. The money must be spent during an eight-week period beginning on the loan origination date.
WILL YOU HAVE TO PAY THE MONEY BACK?
If you keep your employees on the payroll, the SBA will forgive the portion of the loan that is used to cover salaries, wages, benefits, rent, mortgage interest or utilities. As long as you don’t let your employees go or cut their pay, you don’t have to pay the loan back. The loan will also be forgiven if you hire back workers you’ve already laid off due to the coronavirus shutdown. The percentage of the loan eligible for forgiveness will be reduced if you cut your workforce or decrease salaries and wages by more than 25 percent. Borrowers have until June 30 to restore their previous employment level and restore salary levels.
HOW DO YOU REQUEST LOAN FORGIVENESS?
You’ll apply for loan forgiveness with your lender. The lender will review your payroll and business expenses after June 30 to verify that you qualify for forgiveness. In the meantime, all scheduled loan payments and interest will be deferred at least six months.
WHAT IF YOU DON’T MAINTAIN YOUR WORKFORCE?
If you let employees go or cut their pay more than 25 percent, the loan remains a loan and will have to be repaid. PPP loans have a term of two years, and the interest rate is 1.0 percent. There is no penalty for early repayment. But, remember, you don’t have to pay the loan back if you keep your employees on payroll.
WHAT’S THE CATCH?
There really isn’t a catch. The SBA’s Paycheck Protection Program is designed to help keep employees on payroll during the coronavirus shutdown. You do need to certify in good faith that the money is necessary due to current conditions and that you will use it to retain workers or to make lease, mortgage or utility payments. Also, you can’t take out a PPP loan if you have already taken out an SBA Economic Injury loan (though you may be able to consolidate the two). You’ll also have to provide your lender with basic documentation of payroll and qualifying expenses.
WHERE CAN YOU GET MORE INFORMATION?
For more information, contact any SBA lender. Check with your current bank or credit union to see if they can help. You can also learn more at the SBA’s website HERE.
OUR OFFICE IS HERE TO HELP
I know these are tough economic times, but together, we will get through this. My office is ready to assist you in any way we can. If you have questions, please email me at tony.luetkemeyer@senate.mo.gov or call my office at (573) 751-2183.