The Senate and the House of Representatives passed a new coronavirus relief package that includes $310 billion in funds for the Paycheck Protection Program (PPP), as well as an additional $60 billion reserved for smaller lenders (those with assets under $50 billion). The President signed off on the bill on Friday, April 24.
The initial $350 billion in funding for the PPP was depleted in 13 days after 1.6 million small businesses submitted their applications and received their loans. The SBA closed down the application process after funding ran out, leaving as many as 30 million small businesses unable to receive financial aid.
Businesses should be compiling the documents needed for the application process, if they haven’t begun the process already with their financial institution. While the SBA does not have a queue of applications to approve since shutting down the application process, financial institutions do have a backlog of applicants whose loans did not get approved prior to funding running out. Many financial institutions have communicated that these applications will be the first to get submitted to the SBA once the system reopens.
If you applied during the first round of funding you should not be required to reapply when the second round opens. Many lending institutions have communicated to their applicants the status of their PPP loan application. Check with your lender if you haven’t received a status update to ensure there are no issues prohibiting them from submitting your application to the SBA.
Any business is allowed to apply for a PPP loan, including self-employed, sole proprietors and independent contractors. The only limitation is that the business must have fewer than 500 employees, with certain exceptions in particular industries.
If you do receive a loan through the PPP, there are specific requirements for how that money must be spent in order to receive loan forgiveness. First, the loan proceeds must be used to cover payroll costs, mortgage interest, rent and utility costs for the 8 week period after the loan is made. You will need to certify later that the funds were in fact used for these eligible expenses, therefore you may want to set up a separate account for the loan proceeds. Second, you must maintain your employee and employee compensation levels during that 8 week period. You have until June 30, 2020 to rehire employees who were laid off between February 15 and April 26, 2020. If you reduce your workforce after receiving a PPP loan, you may end up repaying part of the loan. The interest rate on the loan is 1%.
If you have not yet submitted a PPP application, be prepared to do so quickly. You can ask a bank that you already do business with if you can apply through them, or you can search for approved lenders on the SBA website. You have until June 30, 2020, to apply. For answers to frequently asked questions about the PPP, view the fact sheet prepared by the Treasury department.
If you have questions or would like to discuss how to apply for a PPP loan, please contact our office by calling 312-878-0155.