On March 27, 2020 President Donald Trump signed the infamous Coronavirus Aid Relief and Economic Security Act (CARES ACT) to deliver emergency assistance for small businesses impacted by the Coronavirus Pandemic. A Small business, depending on the nature of the company, can range from 300 employees to 1,500 employees for definition through the CARES ACT. In the stimulus package provided by the CARES ACT, it gave The Small Business Administration (SBA) funding and allowed them to modify any current loan programs and determine a new loan program that would directly support small business owners nationwide. PPP Loans would hold an interest rate of 1%. Additionally, any loans dispersed after June 5 hold a 5 year maturity date. On April 2, 2020 the Interim Final Rule was put into full effect and introduced The Paycheck Protection Program (PPP) loan. This loan is designed to offer a direct incentive for small businesses to be able to retain their employees and keep them on payroll. This ppp funds program was designed to provide targeted help to small businesses during the COVID-19 pandemic. The Small Business Association has provided full forgiveness of the entire principal amount of the loan that is disbursed to businesses if certain criteria are met. The forgiveness is to help alleviate major financial struggles impacted by small businesses and provide COVID-19 relief by assisting in not only forgiveness but immediate available funds to be able to maintain normal monthly business expenses. Businesses must spend the money on interest payments for any business-related mortgages. The money must be allocated to pay rent on a business rental agreement or utilities that are directly related but not limited to electric, water, gas and vehicle transportation. Businesses must use at least 60% of the funds for monthly payroll costs. All of these obligations must me in full force before February 15, 2020 to qualify as an allowable expense. There are also additional non payroll costs; like protective equipment, that would be eligible for forgiveness if they occurred during the covered period for the terms of this program.
To submit an inquiry and see if your business expenses from the original ppp funds can be forgiven, you must submit a Loan Forgiveness Application (SBA Form 3508) to the lender. Generally, the lender will receive the inquiry and look over the requested information regarding the forgiveness of the loan. Each lender has 60 days from the date the application was submitted to issue their determination findings to the Small Business Administration. Before the loan forgiveness can completely take place, the business must pay out the loan money within 24 weeks of obtaining the funds. When all the resources are spent, the small business owners can apply for the forgiveness. Small businesses should be prepared to provide extensive documentation on how the money was spent along with their application. You must substantiate that the funds were used for mortgage interest, rent insurance, payroll, or other qualified expenses that were listed above. If your application is deemed processable and approved for the loan forgiveness, the lender will then reach out to the Small business Association with the acceptance of the forgiveness and request the funds. The money towards the forgiveness will be paid directly from the Small Business Association to the lender directly. The funds will also consist of any added interested accrued up until the date of payment. This payment must be remitted no later than 90 days after the lender provides a written determination to the Small Business Association.
Many small businesses such as retailer shops and restaurants have drastically seen a reduction in income or have had to shut their doors completely. If the funds were used to help restart your business, then you may be in a position where the loan will not be forgiven. The truth of the matter will not truly be understood of who will or will not qualify until the loan forgiveness application determinations start being issued from the lenders. Overall, the main objective of launching the paycheck protection program is to save jobs. Not only save jobs but save employees and be able to keep them on payroll. It also a financial assistance to make sure that companies are not going bankrupt during a health crisis. According to the unemployment rates you can see a reduction month over month after the economy started to pick up and begin reopening. Unemployment benefit rates were at 14.7% in April when the shutdowns were fist ordered. We watched a rate of unemployment drop to 13.3% in May and then down to 11.1% in June. This is a great indication that the payroll protection program has been a success in savings employees.
There are also additional resources and financial aid that the government is offering during this COVID-19 pandemic. The Federal Reserve has implemented the Main Street Lending Program for small and mid-sized business as well as extending the qualifications to non profit organizations that were in a good financial condition before the COVID-19 impacted the United States. This loan will be disbursed directly from a bank and a website or www.sba.gov.
Proposed on July 27, 2020 by the Senate Repulsions is the Health Economic Assistance Liability Protection and Schools Act (HEALS ACT). This proposed Act was in response to the house proposing the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES ACT) Both of these proposed acts are considered to be Phase 4 of the federal governments COVID-19 relief responded stimulus packages. The cost of the HEALS ACT is assumed to be approximately $1 trillion dollars. The cost of the HEROES ACT is assumed to be approximately $3 trillion dollars. Neither one of these proposed Acts have been passed by both the house and the senate so we will have to keep you updated as the information becomes available.