The biggest pain point I am hearing from business owners is, how do I make payroll this week? The good news is that the CARE stimulus bill has resources for payroll, but using it to pay your employees on payday is a little challenging. News from recent applicants can show us how to go about this in a way that keeps the lights on today, tomorrow and throughout the rest of quarantine.
Maximum Paycheck Protection Program (“PPP”) loan (4% interest): $10,000,000.00
Maximum amount of PPP loan that can be forgiven:
8 week period of operating costs payroll costs (not exceeding a $100,000.00 salary per employee)
Payments Maximum EIDL loan amount (4% interest):
***These numbers do not represent your amount eligibility***
As you sit down and review your losses, current, and future expenses, these numbers will help you visualize what you can work with. If you cannot afford to take on any more debt or interest, you will want to avoid any rash decisions to use the PPP and EIDL loans to cover more than the 8 week period of operating costs.
How to Access Stimulus Money Immediately
Here is the Good News! The Small Business Administration created a streamlined process for obtaining an advance of emergency funds of up to $10,000.00 for businesses affected by the Coronavirus. The CARE act states that this can be provided within 3 days of the request, however; reports from current applicants suggest that the waiting period will be closer to 10 days.
Before you take advantage of that of this advance, you need to understand the scope of economic resources that 1. Cover non-disaster-related expenses 2. Cover losses already occurred and 3. Cover losses projected to occur.
1. Resource for Already Occurred Losses
Economic Injury Disaster Loans andEmergency Economic Injury Grants (EIDL)
EIDLs are lower interest loans of up to $2 million, with principal and interest deferment at the Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
How the loan amount is calculated:
The SBA calculates the amount by subtracting business interruption insurance from the total injury that occurred by the coronavirus. A loan officer will call you after the application to make this determination.
2. Resource For Projected Losses
Paycheck Protection Program Loans (PPP)
PPPs are an average of 4% interest loans of up to $10 million. They are for the purpose of keeping or re-hiring laid-off employees. This loan includes a loan forgiveness program for up to 8 weeks of operating expenses.
How the loan amount is calculated:
If you were in business February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019, as your time period start date.
3. Non-Disaster-Related Expenses
Small Business Debt Relief Program
This program will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the President signing the bill into law.
How To Request the $10,000 Emergency Advance
The SBA has created a streamlined application for the EIDL HERE. At the last page of the application, you will see the option to request the $10,000 advance by checking a box for it. Applicants are reporting that the advance comes within 10 days of requesting it.
If the advance is used to make payroll and operating costs, you will not be required to pay it back, even if the loan is denied. If your EIDL is more than $10,000, then you will be responsible for paying back the remainder of the loan with interest.
This will help to keep the lights on for now, but in order to make the most of the stimulus, you will want to strategize how to allocate those funds in combination with PPP and other SBA loans.
How To Use the EIDL $10,000 Advance In Combination With The PPP Loan
If you are looking for more than $10,000 to be forgiven, then you may be eligible to use the PPP to cover the difference instead of paying 4% interest on more requested funds through the EIDL.
Remember, that the PPP allows a total of 8 weeks of operating costs to be forgiven.
You cannot use your EIDL for the same purpose as your PPP loan though. Any advance amount received under the Emergency Economic Injury Grant Program would be subtracted from the amount forgiven in the PPP.
For example, if your total payroll, rent, and utilities for 8 weeks equals $100,000, and you used the EIDL $10,000 advance, $90,000 will be forgiven.
How To Cover Non-Disaster-Related Expenses in Combination with EIDL and PPP
You may discover that after crunching all the numbers, your business needs more than 8 weeks of operating expenses covered in order to stay in business. The SBA is offering to cover 6 monthly payments of 7(a), microloans, and 504 loans. This is for existing and new loans requested within 6 months of the bill’s signing. This does not cover disaster loans like the PPP and EIDL. It is important to avoid using these funds to cover operating expenses during the crisis. This can be used to invest in a new property or addition to the business.
I understand how stressful this time is for small businesses. If you have employees, the burden of securing their employment can keep you up at night. Most business owners don’t have time to research every nuance in this stimulus package and weigh it against other resources like business interruption insurance and emergency loans. If you have any questions or would like guidance through this process please schedule a consultation or give us a call.