posted by: Radnor Financial Advisors
This is the second part of a series by Radnor Financial Advisors regarding the various aspects of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act. This series will be published over the coming weeks and updates will be provided as the legislation is clarified and guidance is issued as to the mechanics of each provision.
Paycheck Protection Program Loan
One of the provisions of the CARES Act is regarding Paycheck Protection Program Loans (also known as PPP Loans). These loans are directed to help small businesses with fewer than 500 employees that have been in business on or before February 15th, 2020. Eligible businesses include S Corps, C Corps, LLCs, sole proprietorships and independent contractors. Applications for small businesses and sole proprietors begin on April 3rd, 2020. For independent contractors and self-employed individuals, the application period begins on April 10th, 2020. The program will remain open until June 30th, 2020.
The amount of loan a business may qualify is the lesser of $10 million dollars or 2.5 times the average monthly payroll costs. This average is calculated based on the prior year of payroll costs. The loans can be used to cover payroll costs, retirement plan contributions, group health insurance premiums, interest on mortgage payments, rent payments and utilities to maintain business functionality.
The loan does not require any underwriting or collateral. Additionally, you do not need to prove financial hardship to qualify. The loan amount will be forgiven as long as the loan proceeds are used for the above listed reasons in the 8 week period after the loan is made. Employee and compensation levels must also be maintained. If the above requirements are not met, loan payments will need to be made starting six months after the loan was taken out. All loan terms will be the same for a 2 year period with a 0.5% fixed interest rate. Applications can be made through any existing SBA lender or FDIC institution.
One additional provision is the SBA Economic Injury Disaster Loan that provides $10,000 of emergency grant money. This advance should be automatic and be paid out within 3 days of applying. It is not dependent on your full application or approval of a larger loan. These funds can also be used for payroll costs, production costs, and other business obligations such as rent and mortgage.
Author: Haley Becker, CFP®Important Disclosure Information