Paycheck Protection Program: Coronavirus Relief for US Businesses

In March, a whopping $2 trillion economic stimulus bill was enacted by the US Senate to aid millions of businesses that have been hit by the pandemic. What are the provisions of this Coronavirus relief for businesses? 

UPDATE:  Substantial changes have been made to the Paycheck Protection Program since this article was published. Here's what the updates are, how it can affect you as an entrepreneur, and how to account for the forgivable loans granted under this program.

Here are some frequently asked questions, answered.

Coronavirus Relief for US Businesses

Who is eligible?

If you are a small business or a non-profit organization with less than 500 employees, you are eligible for aid. Sole proprietorships, independent contractors, and freelancers are included in the relief programs. 

Here’s where you can check whether your business is small, using the small business size standard set by the SBA.

What aid program/s are available?

There are two primary federal aid programs, both of which are managed under the US Small Business Administration (SBA).

The Paycheck Protection Program aims to provide American small businesses with federally guaranteed loan assistance to help cover the expense of eight weeks’ worth of payroll. This cash flow assistance can help a company retain or hire back workers that have already been laid off.

Another federal aid program that was enacted back in March was the expansion of the existing economic injury disaster program, which allows businesses to take on low-interest loans to cover their expenses. 

Related: The Families First Coronavirus Response Act: What You Need to Know

Paycheck Protection Program

What does this program entail?

The Paycheck Protection Program allows businesses to get loans of up to $10 million for cash flow assistance.

At least 75% of the loan should be spent on employee benefit costs and payroll, while the rest can be allocated for:

• Rent and lease payments,
• Utilities, and
• Mortgage interest payments.

This loan program has a maturity rate of 2 years, and an interest rate of 1%. The SBA has waived many of its usual personal guarantee or collateral requirements to avail of this loan.

What are “payroll costs”?

Payroll costs, as defined by the loan program, include:

• Salary, wages, commissions, or cash tips (not exceeding $100,000 in 1 year for each employee)
  
  
• Payment for vacation, parental, family, medical, or sick leave benefits
  
  
• Allowance for dismissal or separation
  
  
• Payment required for group health care benefits, including insurance premiums, and any retirement benefits
  
  
• State and local taxes assessed on the compensation of employees
  
  

What does the $100,000 cap mean?

Payroll expenses are capped for employees that earn more than $100,000 a year. That means if an employee was paid an annual salary exceeding $100,000 in 2019, you can only claim $100,000 for that particular employee.

How much funding can you receive?

The maximum amount you can receive is your average total monthly payroll in 2019 multiplied by 2.5, up to a maximum of $10 million.

For businesses that did not exist before June 30, 2019, your SBA-approved lender will calculate the amount based on your payroll costs from January 1 to February 29, 2020.

Here’s a useful guide on how you can calculate your Paycheck Protection Program loan. 

How do I apply?

You can use this tool to find an eligible SBA 7(a) lender in your area. 

As part of your application, you will be asked to verify:

• that the uncertainty of current economic conditions makes necessary the loan request to support your business’ ongoing operations;
  
  
• that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; and
  
  
• that you do not have a pending application for the same purpose and have not received any amount under this program

You can access the Paycheck Protection application form here. The form outlines all the financial documentation that you’ll need.

For further guidance, go to the US SBA website. Here you can learn more about the SBA loan and debt relief options available to you as a business owner. You can also read the CARES Act here.