Small businesses devastated by the coronavirus quarantine measures in NYC can soon tap into the $349 billion bailout fund to pay the bills and keep workers on the payroll – and if they meet the program’s requirements, the businesses don’t have to pay that money back.

The Paycheck Protection Program is legislation provided by the federal Small Business Administration, which is offering $349 billion in loan guarantees to a network of 1,800 small-business lenders, much like the traditional SBA 7(a) loan program. Almost any business with fewer than 500 employees that existed before Feb. 15 can access a forgivable loan of up to $10 million.

Independent contractors, self-employed individuals and sole proprietors are also eligible.

Business owners can keep the money when they borrow up to 250% of their payroll cost for employees who earn $100,000 or less. Todd McCracken, president of the National Small Business Association said. “They’re calling it a loan program, but it’s really a grant program being run through the SBA loan infrastructure.”

Treasury Secretary Steve Mnuchin said that he expects regional banks to be able to draw on the Treasury for loan guarantees by April 3, so we recommend looking into immediately. People are already applying.

How does it work? Any portion of the loan that shows up to eight weeks of expenses will be forgiven for the same period of time, as long as small-business owners show receipts. Qualifying expenses include payroll, health care costs, interest on mortgage payments, rent obligations and utility payments.

For those expenses that don’t qualify, loan payments could be deferred up to six months, and the loan has a maturity of two years and an interest rate of 0.5%, according to the SBA.

If a business already laid off staff prior to the legislation, they can rehire staff now and still fully qualify for the loan forgiveness, without a penalty. The goal is to keep businesses intact and employees on staff, according to McCracken, so when the economy reopens they hit the ground running.

How can small business owners protect themselves? Some are concerned that they could be setting themselves up to be trapped by loans they didn’t intend to pay back. It will ultimately hinge on how well lenders communicate the details with borrowers – including how to calculate what they are applying for and how to use the money, so that when they apply for forgiveness there will be no surprises.

The program is set up to be as simple as possible for small-business owners applying for loans during the Covid-19 crisis. The government has even waived the traditional SBA 7(a) requirement for businesses to show creditworthiness. Companies only have to show that they existed prior to Feb. 15 and were paying at least one employee. There’s no underwriting for the banks because there are no requirements to show repayment. The loans are 100% guaranteed by the federal government, so there no reason for the banks not to offer them.

The $349 billion in loan guarantees are designed to keep businesses afloat for eight weeks of costs – but if that isn’t enough, then they may have to come back and put more money in the program.

Source: Crain’s New York Business

Article by Black Car News

Black Car News provides breaking news, editorial, and information to drivers, owners, and other key players in the New York City for-hire vehicle industry.

See All Articles