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COVID + Credit: A Primer on the Paycheck Protection Program

Time to read: 2 minutes

While most of the attention from the record-setting $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES Act) focused on the approved stimulus payments to individual Americans, small business owners may also find some relief from the legislation. Included in the act is a provision titled the Paycheck Protection Program, which is an emergency lending program administered by the Small Business Administration (SBA) that includes $349 billion in new lending capacity.

The program is primarily designed to provide short-term financial relief in the form of federally insured, partially forgivable loans to businesses, nonprofits, veterans organizations and tribal businesses with 500 employees or less. There are exceptions for businesses with more than 500 employees if they meet the SBA's size standards for their given industries. Independent contractors, sole proprietors and self-employed people are all eligible for the program as well.

You can apply for the Paycheck Protection Program at any lending institution approved to participate through the existing SBA lending program, which consists of thousands of banks and could include the bank you already use. To find out if your current bank is participating, or to find other lenders in your area, use the SBA’s online Lender Match tool.

Small businesses are eligible to borrow the lesser of 250 percent of their average monthly expenses (intended to cover about 8 weeks of payroll expenses) or $10 million. Borrowers are eligible for loan forgiveness equivalent to the amount spent on covered expenses during the 8-week loan period, which include most of a business's typical operating costs: payroll, rent, utilities and mortgage interest. The covered period during which expenses can be forgiven is between February 15, 2020 and June 30, 2020, and borrowers can choose which 8 weeks during that timeframe they want to count toward their loan period. The loan is forgiven at the end of the 8-week period after it was granted.

It is important to note that employers must retain their employees at their current base pay or face a reduction in debt forgiveness equivalent to the percent decrease in number of employees. If you have already laid off some employees, you can still be forgiven for the full amount of your payroll cost, provided you rehire your employees by June 30, 2020. The application deadline for the Paycheck Protection Program is also June 30th.

Fortunately, borrowers are not required to demonstrate economic harm to qualify. Instead, they simply need to make a series of good faith certifications that current economic conditions necessitate a loan to support continued business operations.

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