Paycheck Protection Program: An Update for Small Businesses

May 7, 2020

As we continue to endure disruptions caused by the coronavirus pandemic, many small business owners have looked to the CARES Act for support. When the U.S government announced they were offering a relief program for small businesses, administered by the Small Business Administration (SBA), many rushed to take advantage of the opportunity. The loan program under the CARES Act called the Paycheck Protection Program was passed by congress in March, but unfortunately many found the money that was originally appropriated by congress had run out. Because of this, the program has been given an additional $310 billion in funding as of April 27, 2020 to ensure more small business operations can get support.

If you’re a small business owner and missed out on the first round of the relief fund, keep reading for some key points about the updated CARES Act relief package.

CARES Act Overview

Let’s start with a brief overview of what the CARES Act provides and then some specifics surrounding the program. The Coronavirus Aid, Relief, and Economic Security Act was enacted to address the economic fallout of the 2020 coronavirus pandemic in the United States. The bill originally included $208 for business as well as $500 billion for stimulus payments of $1,200 to all qualifying Americans. Along with this was the loan program for small businesses, the Paycheck Protection Program (PPP). This part of the act included $350 billion in funds to encourage small to medium-sized businesses to retain or rehire their employees amid the pandemic.

The Act promised a streamlined application process administered by the SBA and using their already approved list of lending institutions, but it didn’t work out as smoothly as they planned. There have been reports of frustration by both banks and borrowers, but there are signs the situation is improving.

When to Apply

The biggest issue small business owners should consider is whether to apply for the program now or when they are ready to reopen. As discussed already, the program was originally funding $350 billion, but that amount was far from sufficient to meet demands. Because of the additional funding approved by congress on April 24, there is an additional opportunity to apply. Given how quickly the money was distributed, if you’re a small business that would benefit from this second round of application, you might not want to wait.

What the Paycheck Protection Program Provides

There are other aspects of the PPP that should incentivize you to apply. The terms of the SBA loans being offered include a 1% APR and six months of deferred payment, although interest does occur during the unpaid period. What makes this program unique is that if you use the money to retain or rehire employees, the entire loan is forgiven. And the amount you borrow isn’t limited to payroll, however non-payroll items may not be forgiven and a maximum of 25% of your loan amount can be used for things like rent or other operating expenses.

To calculate your potential payroll support, determine your average monthly labor cost, benefits expenses, and even vacation accrual and multiply by 2.5, that is your loan value. Any other loan uses must be approved by your lender and documentation for payroll and all other claimed expenses must be provided.

Is the PPP the Right Option for You?

Only you can know what your prospects are when we emerge from this unprecedented situation. Many small businesses aren’t even open at this point, however the loans are particularly useful for some businesses because you can use them to rehire employees as late as June 30, 2020. If you believe your business will reopen in some form before June 30, then having 2.5 months of payroll, prior to the shutdown, to rehire employees would be a great way to jump-start your business.

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