Of the various ways the Small Business Administration (SBA) is offering assistance to businesses during the COVID-19 crisis, the most significant is the Paycheck Protection Plan (PPP). It provides $349 billion in forgivable loans to small firms that retain workers.
For the SBA, lending at this scale is unprecedented. The PPP requires the agency to dispense 12 times more money in just a few weeks than it typically dispenses in a year. To meet the needs of the 6 million small businesses with paid employees, the agency will rely on its network of 1,800 lenders and will recruit more additional lending partners.
1. How big are the payments?
The payments are capped at $10M per company. The size is determined by eight weeks of prior year’s payroll minus a few exclusions (such as the employee’s share of payroll taxes) plus 25% for certain operating expenses associated with keeping people working, such as rent and utilities. The goal is to keep people working rather than filing for unemployment.
“It’s really a grant disguised as a loan,” said Doug Criscitello during a recent webinar for the Association of Equipment Manufacturers. Criscitello is a managing director in the Public Sector practice at Grant Thornton.
2. How can I achieve loan forgiveness?
But how do you ensure it’s a grant? The law specifies that loans will be forgiven if wages are at least 75% of the usual payroll spend, and your full-time equivalents hold steady. Even if you fall below the 75% threshold, forgiveness isn’t binary. Loan forgiveness will be prorated, based on your employment level.
3. Where should I apply?
Given the volume, complexity and speed of the program, the SBA is delegating key decisions to lenders. “The role of the lender is critically important not only in determining eligibility and loan amount but also in making the determination about loan forgiveness,” Criscitello said.
The program is attractive for lenders — there is no risk, because the loans are government backed; the banks can earn origination fees — so they have reason to act with alacrity.
4. Which firms qualify?
Small is generally defined broadly. The lowest threshold has been raised to 500 employees. For some industries, such as oil and gas extraction, it’s more than twice that. Other industries, such as single-family new home construction, can use a revenue figure.
While PPP qualifications may differ from general SBA qualifications, the latter provide a good starting point. You can consult a useful calculator on the agency’s website.
While “small business” is generally defined broadly, businesses with affiliates do need to group them together for the purposes of qualification. Given the larger purposes of the CARES Act, this rule may be eased in the future.
5. When should I apply?
Because the CARES Act sets aside limited funds — in this context, $349B is limited — companies have already rushed to apply. While initial funding has run out, there are strong indications that Congress will continue to fund the program.
At the very least, you’ll want to apply by April 30. Relief lasts for eight weeks and extends through June 30.
6. Are there other programs besides the PPP?
Yes. They include: 1) the Economic Injury Disaster Loan Emergency Advance, which was designed as relief for small business in disaster areas and has now been repurposed for nationwide relief; 2) SBA Debt Relief, which pays scheduled principal and interest for six months on SBA 7(a) loans, including ones taken out by Sept. 27, 2020; and 3) SBA Express Bridge Loans, which provide additional, fast-tracked help.
The scope and availability of assistance will evolve as the crisis evolves. But, for now, Congress is committed to relief that keeps people working. And the SBA is committed to using its lender network to augment its own staff to administer these opportunities.
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