The $2 trillion stimulus package passed by Congress and signed into law by President Trump strives to keep small businesses and nonprofits afloat, and workers on the job, by making billions of dollars in forgivable loans available to the country’s 30 million small businesses.
Q. I run a small business that has been all but shut down by this crisis. I want my employees to be working, but I’m not sure that’s possible as my company’s revenue has plummeted. How can the stimulus package help small businesses like mine?
A. For many small businesses and nonprofits, the most powerful piece of the package may be the extremely attractive terms it provides for borrowing money to pay employees and to cover some basic operating costs.
Q. What are the terms?
A. Small businesses and nonprofits may obtain forgivable loans to keep employees on the job (or bring back ones already laid off) and to pay overhead costs such as rent, mortgage interest, and utilities.
Q. “Forgivable,” as in I don’t have to pay back what I borrowed?
A. Yes, 100 percent of the loans will be forgiven, so long as employers use the money to maintain their payrolls at about the same levels as before the COVID-19 outbreak.
Q. How much money is the government putting into this?
A. The program is already funded with $350 billion and it’s certainly possible more will be added as the government scrambles to avert a total economic meltdown. It’s a very large investment by the government to keep money flowing to workers, while at the same time positioning businesses like yours to snap back quickly once the crisis subsides. The loans, made by private lenders, are 100 percent federally guaranteed.
Q. Can I cover my payroll with forgivable loans as long as the crisis continues?
A. No, as it stands now, you can cover no more than eight weeks of payroll and operating expenses with forgivable loans.
Q. What happens if I borrow more money in forgivable loans than I actually end up using for payroll and approved operating expenses?
A. Any amount not used for approved purposes becomes a 2-year loan, with a maximum interest rate of .5 percent. There are no fees.
Q. Can I include related expenses, like health and retirement benefits, as part of my payroll?
A. Yes, benefits, including health, retirement, and parental, family, medical, and sick leave, are covered by forgivable loans.
Q. Can I include even my highest-paid salaries?
A. Up to a point, yes. There is a $100,000 per employee cut off. If you have an employee making $120,000, the forgivable loan will cover only $100,000 of it.
Q. How do I apply for one of these loans?
A. The quickest way to get started may be to contact your existing banker. That bank (or other type of lending institution) is already familiar with your business. Tell them you want to apply for a loan under the Payroll Protection Program, which is administered by the Small Business Administration. Any lending institution previously approved to make SBA loans is already approved for this program. One banking industry official told me the SBA is working to quickly approve any lending institution that requests it.
Q. When can I apply?
A. Be prepared to move quickly. Treasury Secretary Steven T. Mnuchin said on Tuesday he expected to have the program, or at least some portions of it, up and running by Friday, and that applications for loans can be approved by lenders on same‐day basis.
Q. Is that realistic?
A. Maybe not. On Tuesday, the White House began redeploying executive branch staff to help out at the Small Business Administration, which is facing an unprecedented level of demand for loans. Much work must be done. The banking industry official I spoke with said it may take weeks, not days, for the program to become fully operational.
Q. What needs to be done?
A. The Small Business Administration needs to complete its loan application and then build out an online platform for it.
Q. So I would apply for the loan online instead of in a face-to-face meeting with my banker?
A. That’s the goal. If it doesn’t work out, banks say they can make appointments to meet with business owners in bank offices that are otherwise mostly closed to the public.
Q. What can I do to get ready?
A. You need to be able to present documentation of what you paid in wages and benefits for at least the last 12 months, plus the number of employees.
Q. Who is eligible?
A. The definition of a small business or nonprofit may be larger than you think: up to 500 employees. If you think you may exceed that limit or be close to it, check the Small Business Administration’s website for something called the North American Industry Classification System. It will help you determine your eligibility based on staffing at each physical location.
Q. What categories of businesses are eligible?
A. Businesses and nonprofits with 500 or fewer employees, veterans organizations, and tribal business concerns, plus individuals who operate a sole proprietorship or as an independent contractor. Some self-employed individuals are also eligible.
Q. How much can I borrow?
A. It depends on how much your business or nonprofit paid its employees between Jan. 1 and Feb. 29 of this year. The more you paid in payroll before the COVID-19 outbreak, the more you can borrow. The maximum loan amount is $10 million.
Q. Will loan forgiveness be affected if I wind up laying off some workers or cutting their pay?
A. Yes, there are penalties for doing so. Remember, the goal is employee retention at or at near full compensation.
Q. Does the stimulus have other programs to help my business?
A. Yes, there is a debt relief program.
Q. How does it work?
A. Businesses and nonprofits with existing Small Business Administration loans may get six months of relief, meaning the SBA will temporarily cover their loan payments, including principal, interest, and fees. The same terms are available for new borrowers who take out SBA loans within the next six months.
Q. Are there other loans available for businesses hit by the virus outbreak?
A. Yes, the Small Business Administration is also providing low-interest economic injury disaster loans. One special feature of these loans is that applicants may also be approved for a grant of up to $10,000, which does not need to be repaid and is supposed to be processed in a only a few days.
Q. Who is eligible?
A. Businesses and other entities that have suffered substantial economic harm, including businesses and nonprofits with 500 or fewer employees, sole proprietors, independent contractors, cooperatives, and employee-owned businesses, and tribal small businesses.
Q. Are tax credits also in play?
A. Yes, businesses that don’t take Small Business Administration loans may be eligible for a tax credit administered by the Internal Revenue Service.
Q. Who is eligible?
A. Businesses (of any size) that keep employees on their payrolls despite being under a full or partial government shutdown order or that have revenue of less than 50 percent of a comparable period last year.
Q. How does it work?
A. Employers get a credit toward Social Security taxes they owe, based on the number of employees they retain while in dire financial straits.