Small Business Relief

The CARES act passed on March 30th also included $350 billion to help support small businesses. The bill allows banks to lend directly to businesses, and those loans are backed by the Small Business Administration. The loan is an eight-week loan to provide funds for businesses to pay payroll and benefits costs.

The $350 billion quickly ran out given the large volume of businesses that applied. However, President Trump on April 24th signed a roughly $480 billion relief package that includes approximately $310 billion for new funding for small businesses hurt by the pandemic. We recommend you apply ASAP given the speed at which the funding ran out in the CARES act.

Who is eligible to apply for a loan?

Small businesses and nonprofits with 500 employees or less. This also includes: sole proprietorships, independent contractors, self-employed individuals, and gig economy workers who take on-call jobs provided by companies like Uber, Lyft, TaskRabbit, and Instacart!

• Sole proprietorships will need to submit a Schedule C from their tax return filed (or to be filed) showing the net profit from the sole proprietorship.

• Independent contractors need to submit Form 1099-MISC in addition to their Schedule C. You will have a Schedule C even if you pick up odd jobs or do freelance work.

• Self-employed individuals need to submit payroll tax filings reported to the IRS.

The only requirement is that your business was operational as of February 15, 2020. If you started your business after that date, you are unfortunately not eligible for this program.

For more details about self-employment and the PPP see here.

How much money can my business get?

The maximum amount will be equal to 2.5 times the average monthly payroll cost for the previous calendar year, up to $10 million.

Payroll costs only apply to annual salaries up to $100,000. So, while calculating your monthly payroll costs, you’ll have to subtract any excess salary amount over that cap.

Where do I apply?

• • At any lending institution that is approved to participate in the program through the existing U.S. Small Business Administration (SBA) 7(a) lending program and additional lenders approved by the Department of Treasury.

  • This could be the bank you already use, or a nearby bank.

  • You can call your bank or find approved ones in your area through SBA’s Lender Match Tool. A full list is available on the SBA website here.

  • You can also call your local Small Business Development Center

Is there a deadline to apply?

Yes, you must apply by June 30, 2020. While that is far away, we recommend you apply ASAP because funding ran out quickly for the first chunk of funding and while a second amount was approved (see the top of this page), it is likely to be consumed at a similar pace.

Do the loans have to be paid back (will they be forgiven?)

What is forgiven:

Note: This is if a small business uses the Paycheck Protection Program loan for the below expenses over an eight-week period

• Salary, wages, commissions and tips capped at $100,000 per year for each employee

• Cost of benefits including paid leave

• Allowances for separation or dismissal of employees

• Payments for health care or retirement benefits

• State and local taxes on compensation

• Mortgage interest, rent and utility payments (up to 25% of the loan can be spent on these costs in order for it to be forgiven)

What is not forgiven:

• If staff counts are reduced, or salaries for employees who earn less than $100,000 annually are reduced by more than 25%, then the business must repay the loan.

  • Businesses have until June 30, 2020 to restore full-time employment and salary levels that were changed between February 15 and April 26.

• Any amount spent on employee salary in excess of $100,000 (as prorated for the covered period of 8 weeks) is not forgiven

• The compensation of an employee whose place of residence is outside of the US

What is the covered period of the loan?

The covered period during which expenses can be forgiven extends from February 15, 2020 to June 30, 2020. Each borrower can choose which 8 weeks they would like to be counted towards the covered period as long as it is between Feb. 15 and Jun 30, 2020.

Do the loans create taxable income?

Forgiveness of a PPP loan is completely tax free. Any amount that is not forgiven (eg not spent on employee salary, mortgage, rent, or utilities) must be repaid over two years – after a six-month deferral period – at an interest rate of 1%.