Updated: Apr 4, 2020
If you are a small business owner like me, you may have wondered lately how you would stay afloat during these trying times. It is easy to get caught up in the bleakness of it all. (I personally find that it is also easy to fill one's face with Girl Scout cookies.)
You have probably heard about several bills passed by the federal government to help taxpayers and small businesses. If you are a company with fewer than 500 employees, you and your employees could benefit from the Paycheck Protection Program (PPP). An overview for borrowers can be found here. (NOTE: I am not a tax attorney, not an accountant, not a banker, or--in most cases--not YOUR lawyer, so you need to do your own research and consult with the professionals with whom you do business.)
Unless you are an accountant or a banker, your eyes may go all googly (like mine) when someone starts talking about finance and tax legislation. Luckily, I have some attorney friends who are also brilliant business people and who are willing to dumb it down for me. This allows me to [mostly] understand what I am telling you here.
Essentially, the PPP provides up to $349 billion in small business loans to help businesses pay their employees during this downturn in the economy related to COVID-19. The goal is to keep employers employing. Beginning April 3 for small businesses and sole proprietors, and April 10 for independent contractors and other self-employed individuals, a borrower can apply for an SBA loan to cover payroll costs for eight weeks. Loan payments will be deferred for six months. The application is the same for all borrowers, and it is only a few pages long.
If you are thinking of hesitating because you already owe a bazillion dollars you are now afraid you may never be able to pay back, then let me skip to the really good part: If you use this money to cover payroll and certain other expenses for those eight weeks, and if you continue to maintain your staff and their compensation levels, your documentation of this will most likely result in your loan being forgiven.
That's right. POOF. Be gone. And because the point of the law is to keep people at their small-business jobs (and keep us solos in business), you will not have to pay tax on the forgiven balance. If you do find yourself paying back the loan after those six months of deferred payments, your interest rate is locked in at one percent with a two-year payback. You do not have to provide security (meaning collateral) for this loan.
Again, the point of this loan is to maintain employees--even if your only employee is you. Team USA has decided it wants to see you and your people succeed!
You may have already received an application from your lender. Take this seriously, and act with urgency: once the fund runs out, it's gone. If your usual lender is not participating, you can contact another in your local area by phone to inquire.
I wouldn't be a decent lawyer (or person) if I didn't warn you that this loan requires you to certify certain facts, and if you fudge it (or its requirements), you can and will be prosecuted. But this is money you have paid in taxes, and it may be time for you to take back your hunk so that you don't have to let anyone go or permanently close your doors. Isn't it worth a second look?
Now, put down the cookie and step away slowly. And go call your banker.
[NOTE: An earlier version of the blog stated that the nonvariable interest rate for the PPP was 0.50%. Overnight on April 3, the Department of the Treasury released the Interim Final Rule (IFRN) giving banks a bit more incentive to participate by increasing the interest rate. The application was also amended, so if you downloaded an application prior to April 3, you will need to update this prior to submission.]