Quick guide to the CARES act and PPP loans

If you’re a business owner, you’ve probably heard a lot of talk about the CARES act. But what is the CARES act and what’s really in it? 

The Coronavirus Aid Relief and Economic Security or CARES act is a $2 trillion stimulus bill designed to counteract the negative economic consequences of COVID-19. The corresponding economic impact of the virus has been tremendous and millions of businesses are holding on by a string or have already failed due to lack of sales and cash flow. The CARES act brought funding for small businesses and certain individuals to help remedy these issues. 

You’ve probably heard of the Paycheck Protection Program, better known as PPP loans. This program segments about $349 billion of the total $2 trillion stimulus package to small businesses in the form of a forgivable loan (more on this later), so that these businesses can stay afloat and pay their employees for 8 weeks. PPP applies to a wide variety of different types of business (including nonprofits!) as long as they have under 500 employees or meet Small Business Administration standards. There are some exceptions to this rule.

Businesses can qualify to receive a loan up to 2.5x their average monthly payroll, up to a maximum amount of $10 million. These funds can then be used to pay payroll and benefits as well as overhead expenses such as rent, utilities, and interest. To make getting these loans easier, the government has decided to waive fees, collateral, and even personal guarantee requirements. On top of that, payments have been automatically deferred a minimum of 6 months up to 12 months.

To receive a PPP business loan, you must apply through a participating Small Business Administration approved lender. These loans are a new variant of the existing SBA 7(a) loan program offered by these lenders. The SBA has a lender search tool on their website. Be wary of using lenders who advertise these services to you. You should always check with the SBA lender search tool before using a lender to apply for a PPP loan. Many reports have come out indicating that scammers are taking advantage of small business owners in need of help applying for these loans.

Earlier we mentioned that these loans are forgivable and that we would touch on this more later: the Paycheck Protection Program business loans come under the terms that certain parts of the principal portion are forgivable. Specifically the funds put towards paying payroll, mortgage interest payments, rent, utilities, and any other type of additional wages paid to employees who are tipped. Payroll must be 60% or more of the amount considered for forgiveness, so 40% of the amount can be used to fund non-payroll related expenses and still be forgiven. Originally these payments would have been required to be made in the 8 week window after loan origination, but the Small Business Administration created an extended 24 week covered period you can elect to use. Borrowers must request forgiveness via submitting an SBA application to the lender that originated the loan.

To learn how your business can benefit from a PPP loan, please reach out to us, we would be happy to answer any questions.