Congress allocated $349 billion for small business relief as part of the CARES Act. The Paycheck Protection Program (PPP) helps small businesses maintain their payroll costs, keep their employees, and rehire those who were laid off. Here's a breakdown for small business owners, self employed workers, and independent contractors interested in the program. Let's dive in.
What is it exactly?
The PPP consists of low interest loans (up to $10 million) and payments for businesses that are struggling to keep their employees on payroll, as well as rehiring those they had let go. The SBA will forgive the loans as they are used for payroll, rent, mortgage, or utilities, and all employees are kept on payroll for eight weeks.
How loan forgiveness works.
It's basically taking a loan and turning it into a grant. To qualify for loan forgiveness, businesses must maintain what is considered their full time head count, as well as wages for their employees for eight weeks after the loan is dispersed. No more than 25% of the loan can be used for nonpayroll costs such as rent. If a business' head count/wages go down by more than 25%, full forgiveness of their loan isn't given. If their workers have already been laid off, a business can still have their loan forgiven as long as they rehire their workers before the loan is dispersed. Also, they can choose a date between now and June 30, 2020 for their loan to be dispersed if they need more time to rehire their workers.
For the self employed
Self employed workers can claim up to $100,000 a year. This includes wage, income, commission or net earnings. This is according to the CARES Act.
Part-time workers and independent contractors.
Businesses can use the PPP loan to cover their part-time employees which is based on the employee's average hours and earnings before all of this.
Independent contractors and gig workers aren't covered, but they can apply for their own PPP loan.
You must apply through a bank or other lender by June 30, 2020.
If you're a small business owner and wish to apply for this loan, do it as soon as possible. Loans are being distributed by banks and lenders on a first come first serve basis and many banks are choosing only to work with their existing business customers.
I think this is a great step to ease economic hardship for sure, especially if they approve of a budget increase, which they might. Are there any other provisions they should have added to this program? Also, was it wise for congress to let banks and other lenders divvy out the loans? The SBA would be even more bogged down than they already are if not, in my opinion.