Many small businesses across the nation have applied for a PPP loan from the SBA as part of the CARES Act. The program outlines specific requirements to allow for complete forgiveness of the loan.
The CARES Act was passed in March 2020 in response to the COVID-19 pandemic, aiming to assist individuals and businesses as the economy faced a downturn. The CARES Act outlined sources of emergency relief, including sending stimulus checks to many Americans and providing funding for the Small Business Administration (SBA) to provide new loan assistance programs to struggling businesses.
According to data from the National Federation of Independent Business (NFIB), 80% of small businesses that are NFIB members applied for a Payment Protection Program (PPP) loan from the SBA, and nearly 90% have received the funds.
CNBC reports that now over half of small businesses are seeking loan forgiveness as part of the PPP. Here’s an overview of this loan program from the SBA and how small businesses can apply for loan forgiveness.
SBA loan details – Payment Protection Program
Many small businesses across the nation have applied for loans from the SBA. One popular option in the time of the coronavirus shutdowns is the PPP loan, which helps businesses continue to compensate their employees even when they face financial distress. The CARES Act granted the SBA up to $349 billion in PPP loans to be distributed by June 30, 2020.
The program aims to ensure that small businesses don’t have to lay off or furlough workers or encouraging them to rehire workers that have already been laid off.
Payments on PPP loans will be deferred for six months. The loans have an interest rate of 1% and maturity of two years. The SBA doesn’t require collateral or personal guarantees for the loans.
One major benefit of a PPP loan is the potential to have it forgiven, explained in detail below.
PPP loan forgiveness
The terms of the PPP loan state that the SBA will forgive the loans if:
- All workers are kept on the payroll for eight weeks (this does not include independent contractors since they can also apply for the loan)
- The loan is used solely for payroll costs, rent, mortgage interest, or utilities (at least 75% must go to payroll)
- The funds are used within eight weeks so that organizations are prevented from sitting on the money for a long period of time
The entirety of each PPP loan received by small businesses could be forgiven, which includes the principal amount plus any accrued interest.
The application for PPP loan forgiveness is available on the SBA website. The application must be completed and submitted to the lender servicing the loan, and it may be submitted electronically.
The PPP loan forgiveness application requires acknowledgment that during the covered period of eight weeks (56 days):
- The number of full-time employees did not decline
- Salaries or wages did not decrease
The application requires disclosure of the number of employees when the loan application was submitted, and the number at the time the forgiveness application is sent. It also requires confirmation that the forgiveness terms were met.
Other COVID-19 relief resources for small businesses
There are a few other relief programs to be aware of if you’re running a small business. The SBA maintains a list of COVID-19 emergency relief resources and loan programs. Check this page regularly for applicable deadlines and eligibility requirements.
If your small business is reopening soon, there are precautions to take to mitigate risks for employees and customers. The CDC outlines everything to know about preparing your business in the time of the coronavirus, from cleaning and disinfecting tips to tips for responding to issues.
There are also many grant programs available for small nonprofit businesses and other companies, depending on your location and eligibility. These grants come from government programs as well as corporations like Google and Verizon. Millions of Americans are struggling because of the impact the COVID-19 pandemic has already had on the workforce and businesses nationwide. Make sure you are aware of all relief funding programs available to your organization so you can stay afloat and continue to support your workers.