Small businesses devastated by the coronavirus quarantine measures in NYC were able to 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 initially offered $349 billion in loan guarantees to a network of 1,800 small-business lenders, much like the traditional SBA 7(a) loan program. Businesses with fewer than 500 employees that existed before Feb. 15 were able to access a forgivable loan of up to $10 million. A second round of $310 million was injected into the funding after the first round was quickly snapped up.
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.”
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 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.
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.
Source: Crain’s New York Business