COVID-19 has spread all over the world, and many different types of businesses and institutions were hit when the economy had to shut down. That is when the CARES Act came into place.
CARES Act: (Coronavirus Aid, Relief, and Economic Security) This act was passed by Congress and signed by President Trump on March 27, 2020, as a way to assist and protect the American workers, their families, and small businesses; and preserving many jobs throughout numerous industries.
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If someone would have mentioned last year that the world would be on lockdown due to a virus, we would have laughed and shaken off that thought. Well, it’s a reality now, and we have to make the best of the situation. As part of the CARES Act, the Paycheck Protection Program, also known as the PPP, went live toward the beginning of April as the Senate and the House passed the act along with the Health Care Enhancement Act in an effort to add $320 billion of funding to the PPP. So, what exactly is the PPP, or P3? The Paycheck Protection Program is intended to provide forgivable loans for businesses that will guarantee eight weeks (it has now been extended to 24 weeks) of payroll and other costs to help keep their workers and businesses afloat.
How much money can a business borrow? When a company is given approval of the loan, the maximum amount of money that can be given will equal up to 2.5 times your company’s average monthly payroll costs or $10 million, whichever is lower. Here is the link for more information on how to calculate your amount for the PPP loan.
So, how does one business apply for this act? “In addition to meeting the size requirement (500 or fewer employees for most companies), you must show that your business has been negatively impacted by the coronavirus. You will do this, in part, by certifying on your PPP application that current economic uncertainty makes the loan request necessary.
Eligibility is further broken down to include:
- Any business categorized under ‘Accommodation or Food Services,’ such as restaurants and hotels that have 500 or fewer employees per location
- Tribal businesses
- Independently owned franchises
- Self-employed workers, independent contractors, gig workers, and sole proprietors. The PPP loan application for those people went live April 10, 2020, according to the SBA.” Investopedia
“The Paycheck Protection Program resumed accepting applications July 6, 2020, at 9:00 AM EDT in response to the President signing the program's extension legislation. The new deadline to apply for a Paycheck Protection Program loan is August 8, 2020.” U.S. Small Business Administration
Businesses can only apply once! More than $130 billion of funds are still available, so if your company has not applied for a PPP loan, please do so!
In terms of loan forgiveness, companies need to keep in mind of the 60/40 rule. This rule states that about 60% of your loan MUST be used for your employees’ payroll costs. In a joint statement that was released on June 8, 2020, by the SBA (Small Business Act), if a borrower uses less than 60% of the loan amount for the payroll costs during the forgiveness period, the borrower is still eligible for partial forgiveness. The statement also said that they will “promptly” issue rules and guidance, a modified borrower application, and a modified loan forgiveness application implementing the amendments to the PPP made by H.R. 7010. Blue
H.R. 7010: “Specifically, the bill establishes a minimum maturity of five years for a paycheck protection loan with a remaining balance after forgiveness. The bill also extends the covered period during which a loan recipient may use such funds for certain expenses while remaining eligible for forgiveness.
Additionally, the bill revises the deferral period for paycheck protection loans, allowing recipients to defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness shall have 10 months from the program's expiration to begin making payments.
The bill also eliminates a provision that makes a paycheck protection loan recipient who has such indebtedness forgiven ineligible to defer payroll tax payments.” Congress.Gov
The other 40% can be used for paying the bills and non-payroll expenses. Now, if for some reason your PPP request was not approved, you need to provide additional documents for your lender, so they can reevaluate.
If your loan application for the Paycheck Protection Program was denied, there is another option to consider that a business owner may forget, and that is the SBA Loan Program. The SBA loan has the same effect as the PPP loan, except there are more restrictions and regulations that must be followed. Such as the loan amounts are given are between $5,000–$5.5 million, the interest rates will depend on what type of loan your business will apply for, the repayment terms are between 6–25 years, and the turnaround time is between 60–90 days. Click HERE to head to the website and learn more about the different types of SBA Loans that are offered.
As a valued credit union, we wanted to inform you that Oak Tree put in place a COVID-19 component for the commercial MBL package, free to our customers who use our commercial loan forms package. Oak Tree Business Systems has been providing lending documents, forms, and disclosures for credit unions in all 50 states, Puerto Rico, and the Virgin Islands. We congratulate the state leaders in PPP lending.
We understand the urgency of what many businesses are going through. We understand that the Paycheck Protection Program (PPP) for commercial borrowers will consist of two additional temporary forms to be used in conjunction with Oak Tree’s package. Both of these forms will go away once the government terminates the program. We are happy to support the credit union community and part of the #CUMovement as credit union help save more than 1.1. million jobs through PPP.
If your credit union is interested in booking MBL loans, please contact us today!