With the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020 there is a new loan program for small business: Paycheck Protection Program. We recommend that every small business affected by coronavirus (COVID-19) should consider applying for this program. Here is a quick summary.
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This program will apply to most businesses with less than 500 employees including sole proprietors and independent contractors providing quick, cheap loans.
How Much Can Be Borrowed
The maximum loan for businesses in operation in 2019:
- 2.5 time the average total monthly payroll costs with some exclusions
The maximum loan for businesses not in operation in 2019 (started in 2020):
- 2.5 times the average total monthly payroll costs incurred in January and February 2020 with some exclusions
Maximum of $10 million.
- Max of 10 years and 4% interest
- 10-year term
- No fees, collateral, or personal guarantees
- Payments can be deferred 6-12 months
Portions of the loan can be forgiven equal to the amount the borrower spends on payroll costs, rent, mortgage interest, and\or utilities during the 8-week period beginning on the date of the origination of the loan.
Where to Apply
Most lending institutions (banks, credit unions) plus anyone else that is approved will service this program. Do not plan on going to the Small Business Administration (SBA) as they will not be servicing this program.
At a high level, key lending requirements are:
- Business was in operation before February 15, 2020
- Negative economic impact from coronavirus
- Use money to retain worker or pay mortgages, leases, utilities.
At the time of this article, this program is not operational, but should be in coming weeks. There is a lot of detail to this program with much more information coming out regularly. Expect a lot more information to come. For the detail behind this quick take: