CARES ACT –THE PAYCHECK PROTECTION PROGRAM
by Noah Hopton, CEO of Finvisor, on March 30, 2020
The Coronavirus Aid, Relief and Economic Security (CARES) Act offers cash flow support for startups and small businesses through the Paycheck Protection Program (PPE).
Forgivable Loans for Payroll: The SBA Paycheck Protection Program (PPP)
The PPE is a $350 billion program through the CARES Act to provide business with eight weeks of cash-flow assistance through a 100% federally guaranteed loan.
KEY TAKEAWAYS:
- Unlike the SBA Economic Injury Disaster Loan (EIDL), the PPE loans do not require owners with over 20% ownership to provide a personal guarantee. This is a huge benefit to the startup community where SBA loans are typically a nonstarter for their venture backed owners.
- There is no cost to apply.
- The loans are designed to help employers maintain payroll and other critical operating expenses.
- Employer’s Social Security Tax Deferment - You can delay the employer’s side of social security tax (6.2%).
- The loans and interest can be forgiven. If you show that you used the money appropriately, you don’t have to pay it back!
- In the event the loan is forgiven, it is not considered income (not taxable).
WHO QUALIFIES?
Most businesses with under 500 employees
who can demonstrate negative impact due to COVID-19 will qualify. In order to qualify, the business must have begun operations prior to February 15, 2020. Employers with over 500 employees will qualify if they are classified as “Accommodation and Food Services” with each location under 500 employees or businesses with an industry that has an SBA employee based size standard greater than 500. Sole proprietors, independent contractors, gig economy workers, and self-employed individuals are all also eligible.
Please note that you cannot have both an SBA EIDL and PPE loan for the purpose of covering payroll and operating expenses. Employers will need to choose which option is best for them.
We are waiting for guidance from the SBA on how the SBA affiliation test of ownership will impact startups with venture-backed owners. These startups may be grouped with the other VC’s holdings, giving them an aggregate size too large to qualify for the SBA funding. The current best breakdown of guidance is HERE.
HOW MUCH AM I ELIGIBLE FOR?
Each company is eligible for up to 250% of their average monthly payroll expense, with a salary cap of $100,000 per employee, with a maximum of $10 million.
HOW DO I APPLY?
The application process is done through a lending institution that is approved by the SBA (a bank). We recommend calling your personal banker to see if your bank is participating. If not, start with other local banks near you. The program officially starts April 3rd and you must apply by June 30, 2020. The PPP Application can be found HERE and Information Sheet HERE(new versions as of 3/2/2020).
HOW MUCH OF MY LOAN WILL BE FORGIVEN AND HOW DO I DO THAT?
This money is designed to help you maintain your employee base at the same salary level compared to the previous year average. The amount of the loan that can be forgiven is reduced by both the proportion of the employees you maintain and the reduction in salaries for employees who make under $100K. For employers who already had layoffs, they are eligible to rehire their employees by June 30th without a penalty.
The covered 8 week period for which expenses can be applied to forgive the loan is any 8 weeks the borrower chooses between February 15 and June 30, 2020.
Other (non payroll) eligible expenses (as long as they existed before February 15, 2020):
- Health insurance payments
- Rent, mortange, or lease payments
- Utilities
WHAT ARE THE ACTUAL LOAN DETAILS ?
- The loan is a long term loan with a maximum of 10 years and 4% interest.
- Your first payments are deferred 6-12 months, depending on the lender.
- There are no prepayment penalties
HOW DO I DO ALL OF THIS? WHERE CAN I GET HELP ?
Finvisor is here to support small businesses and startups during these unprecedented times. We are ready to be your remote back-office team and support you with monthly accounting, payroll and CFO guidance. If you need help navigating any of these options, please reach out by submitting the form below.
- Last Modified
- March 28, 2023
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