This article was last updated on January 11
[December 2020 update in new COVID Relief Bill] With passage of the latest stimulus bill, the Paycheck Protection Program (PPP) has been extended until mid-2021 and provides $284 billion in new funding to this program that is supposed to help small business’ adversely impacted by COVID and allow them to keep their existing staff and services. The program details are in the earlier updates below and small business can apply for these federally backed loan via their financial institution (or see the SBA site for providers in your area).
The new funding allows the SBA to continue alleviating adverse economic effects of COVID-19 for small businesses with SBA loans. Since April last year, the SBA has made over $7.1 billion in payments across 1,819,130 loans on behalf of these borrowers. It’s important to note that these firms were also initially able to access capital because of the SBA federal guarantee. Small business is big business in America, and this Administration will continue to extend a lifeline to small business owners during this critical time. Congress charged the SBA with making debt relief payments (principal, interest and fee payments) under Section 1112 of the CARES Act to help borrowers in SBA’s 7(a), 504 and Microloan programs; and now SBA is working expeditiously to implement the newly enacted assistance.SBA Update on funding extensions
Under the 2021 extensions to the PPP loan program, borrowers can set their loan coverage period to be any length between 8 and 24 weeks to best meet their business needs. This was enabled in July 2020 and was supposed to end in December 2020, however has been extended to mid-2021 now. PPP loans can now also cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures. The PPP loan program now also allows greater flexibility for seasonal employees.
I will continue to provide further details as the SBA updates regulations and rules around Debt Relief guidance for financial institutions that administer these loans. Stay connected via the options below.
[April 2020 – Disastrous Program rollout and additional funding] In response to the disastrous roll out of the expanded small business 7(a) loan program under the paycheck protection program (PPP), Lawmakers have finally realized that small business owners need even more help to survive the ongoing COVID-19 financial crisis and are poised to add another $250 billion to the program. Banks are slowly rolling out the new loans for eligible small business but are far behind where they should be which is causing significant financial hardship for small businesses. For information on the program and how to apply you can check out the small business administration website which has a lot more details and relevant application forms. See below for details.
[Loan processing updates] The SBA has now issued guidelines for loans under the PPP that lenders can use to approve small business loans. However as early April, among major banks only Bank of America said it can now accept online applications for the government’s $350 billion small business relief program. None of the other big U.S. banks — JPMorgan Chase, Bank of America, Wells Fargo or Citigroup — was accepting applications for the program.
When do I have until to apply for a PPP Coronavirus (COVID-19) loan?
- April 3 for Corp (1120 & 1120S) and Partnership (1065) Filers
- April 10 for Independent Contractors (Sch C of 1040) Filers
- You Must Apply before June 30, 2020
Where can I apply for the small business loans under this program?
- ANY FDIC lender i.e. Banks or Credit Unions. Start with your current bank first.
- ANY Existing SBA lender visit www.sba.gov for a list of SBA lenders
- Directly on the SBA website
[Updated with latest provisions] Under the recently enacted $2 trillion Coronavirus stimulus bill (CARE) additional help has been provided to small business owners to help them stay in business and incentivize them to keep paying bills and their workers. This in turn will help their employees personally and buffer the economic pain from the Coronavirus induced recession. Here are the main provisions for SBA support in the massive 2020 stimulus bill:
Paycheck Protection Program and Forgivable loans: $349 billion was allocated for the Small Business Administration (SBA) to provide federally guaranteed loans of up to $10 million per business (including non-profits and veteran organizations) under Section 7(a) of the SBA act. The $10 million loan cap is double the current amount and will be in place till June 30, 2020, unless extended. Loan eligibility rules have also been relaxed to allow SBA Approved lenders (approx 1800 nationwide) to get these loans to businesses ASAP.
Any portion of the PPP loan used to cover payroll, keep workers on the books or pay for rent, health care costs, mortgage interest and existing debt payments could be forgiven, provided workers stay employed through the end of June. Business owners won’t need to provide a personal guarantee or collateral to get this loan. Amounts not forgiven continue to be guaranteed but will have to be repaid within 10 years from the date the borrower applied for loan forgiveness.
The PPP or economic injury disaster loans cannot exceed the sum of 2.5 times the average monthly payroll cost during the year prior to the loan and the amount of economic injury disaster loans being refinanced under the program; it must be capped at $10 million and have a maximum interest rate of 4%. Loans are available to eligible borrowers under the program through June 30, 2020, fees are waived, payments are deferred by at least six months (but not more than one year), and the SBA’s “credit elsewhere” test (the ability to obtain funding from other sources without undue hardship) is waived.
Relief for existing loans: $17 billion was also allocated to cover six months of payments for small businesses already using SBA loans. In addition, the SBA express loan maximum has been increased from $350,000 to $1 million.
A fully refundable tax credit will be available for businesses of all sizes that are closed or distressed to help them keep them open and as many workers as possible on the payroll. The credit covers to 50 percent of payroll on the first $10,000 of compensation, including health benefits, for each employee. Eligible employers with 100 or fewer full-time employees could use the deduction even if they aren’t closed.
Eligibility – A business must be in operation on February 15, 2020, and have paid employee salaries and payroll taxes to apply for a loan via an SBA approved lender. They must have have less than 500 employees to qualify for loans under the PPP, which will be available from April 1st, 2020. But may take a while longer for lenders to update their systems to process these new regulations.
Loans under the program are eligible for forgiveness up to the aggregate amount of business outflows which include payroll payments, interest payments on mortgage obligations, rent payments and utility payments. The calculation period for the aggregate loan amount is during the eight-week period following loan origination and cannot exceed the original principal. The amount forgiven is lowered by reductions in full-time employment and in situations where total salaries and wages fall by more than 25% from the applicable prior period, but this can be mitigated by rehiring employees.
The SBA has announced that it will have this program in place by early April and the loans can be made and disbursed in the same day. Business should work with their current financial institution to process this loan. See an official summary of the program from the US chamber of commerce.
How has your business benefited from this program? Leave a comment and join the discussion.