As you (probably) already know, both the Paycheck Protection Program (PPP) and the Emergency Injury Disaster Loan (EIDL) from the SBA could provide a great sense of relief for construction companies and independent contractors who are struggling to keep their businesses afloat.
But with so much information coming out daily on these programs, many contractors have taken a wait-and-see approach. However, we strongly encourage you to take action immediately. More than 30 million small businesses have already applied for PPP, and more than 70% of the $349 billion worth of loans has been approved.
We include below a short summary of the useful information we’ve come across on the PPP. Our hope is that by seeing short, clean and concise information, it can better equip you to move forward and act on these relief programs now.
Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) is one of the most vital components of the CARES Act for small businesses.
Key takeaways about PPP:
- 100% of your loan will be forgiven if you follow the guidelines.
- Apply for PPP as soon as possible.
- Find an SBA-approved lender and apply for PPP through them.
Which Lenders can I Apply for PPP?
There are over 100 banks, financial institutions that are SBA-approved, and will provide lending for the PPP program. For a complete list of SBA-approved PPP lenders - use this resource to find one closest to you.
Here are some lenders we've heard have been helpful in New York City:
When and How can I Apply for PPP?
Due to the urgency, we recommend that you apply immediately. Applications are first-come, first-served, so get on it ASAP. The review, approval, and release of funds is dependent on how busy your lender is. So, we encourage you to contact the lender at the earliest.
To give you a headstart, here's the (very short) application form for PPP.
What is PPP?
- A $349 billion loan program funded under the Small Business Administration (SBA) to help small businesses (1-500 employees) mitigate the economic downturn caused by the coronavirus.
- Goal is to help companies stay afloat and ensure that workers are paid and employed during this period.
- Provides loans up to 2.5 times their average monthly payroll, and up to a maximum of $10 million.
- Loans are available through June 30, 2020. The PPP loans can also be applied through and secured with SBA approved lenders.
- There is no personal guarantee required for the PPP. Also, no collateral is required to apply and secure loans
- The loan interest rate is fixed at 1.0%, and the loan term is two years
- For loans that don't qualify for loan forgiveness — the maximum interest rate is 4%, and the maximum term is ten years
Who is Eligible for PPP?
- Companies with less than 500 employees; you must also show that your business has been negatively affected by the COVID-19 economic crisis
- PPP also covers: (1) Tribal businesses; (2) Independently owned franchises; (3) 501(c)(3) and 501(c)(19) non-profits with less than 500 employees; (4) Starting April 10, 2020 — self-employed workers, independent contractors, gig workers, and sole proprietors can also apply for PPP.
What Can You Use PPP for?
The SBA administered PPP loans were created to help small businesses cover:
- Payroll costs — salaries, benefits, commissions, tips.
- However, payroll costs will be capped at $100,000 annualized for each employee.
- Employee benefits — sick leave, vacation costs, healthcare benefits, retirement benefits.
- State and local taxes on compensation.
- Overhead business expenses — rent, mortgage interest, utility payment.
What Costs Are Not Covered Under PPP?
- Employee compensation of over $100,000.
- Compensation for employees whose principal residence is outside the US.
How Long Are the Loan Payments Deferred?
Loan payments will be deferred for six months. However, the interest will be accrued for six months. The loan is due in 2 years. There are no prepayment penalties of fees.
How Does the Loan Forgiveness work?
Loan amounts will be fully forgiven if:
- The funds are used to cover payroll costs, rent, and utilities, interest on mortgages, and interest on debt obligations over the eight-week period.
- Employee levels and compensation are maintained.
To apply for loan forgiveness, you have to contact your lender directly. You must provide verification to your lender about the number of employees, salaries, expenses, rent, etc. Once submitted, the lender must decide to forgive your loans within 60 days.
Your loan forgiveness will be reduced if:
- You decrease your full-time employee headcount.
- You decrease wages and salaries by more than 25% for any employee.
- If employees laid off or furloughed between February 15, 2020, and April 26, 2020, are not restored to their jobs by June 30, 2020.
For loans that don't qualify for loan forgiveness — the maximum interest rate is 4%, and the maximum term is ten years.
Additional Information about PPP
Even though this program is approved by the Federal Government and administered by the SBA — we encourage you always to take professional guidance.
Discuss this with your accountant, lawyer, payroll provider, etc. Let them know that you are applying for PPP. Work with your payroll provider to prepare the necessary report. Most payroll providers are probably aware of PPP and have already prepared these reports.
You can only qualify for and secure only one PPP loan. Each loan will be registered under a TaxPayer Identification Number at the SBA.
Additional Reading about PPP:
- Paycheck Protection Program.
- The Small Business Owner's Guide to PPP.
- Paycheck Protection Program (PPP) Information Sheet.
