Access to capital is imperative to industrial businesses across New York City right now and understanding the available resources and the best options for your business can be challenging. In order to help with that, we’ve created a series of blog posts on the different financial products in the market to help your business stay in operation during the COVID-19 crisis.
Your business may be eligible for a forgivable loan to help keep your employees on payroll. Applications accepted starting April 3.
The Paycheck Protection Program (PPP) is a provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and provides $349 billion dollars in forgivable loans to small businesses. Starting April 3rd , loans will be available on a first come, first serve basis. We urge those in need to apply immediately, because demand is expected to be high.
Under the program, small businesses with 500 or fewer employees including self-employed individuals, sole proprietorships, independent contractors, and non-profits are eligible for loans to pay up to eight weeks of payroll costs including benefits as well as other costs. Businesses with more than 500 employees are eligible in certain industries.
Loan forgiveness is based on the employer’s maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.
Again, we’d like to stress that this loan is first come, first serve. It is unclear if the federal government will allocate more funding to the program once it runs out. The SBA estimates it just takes 10 minutes to complete the forgivable loan application! Get started below.
Next Steps to Secure a Loan:
- Contact your accountant immediately: Find out if this is a good financial product for your business.
- Contact your bank: Find out if they are an approved SBA lender or a federally insured deposit institution or credit union participating in the program. It may be difficult to become a new client with a SBA lender given demand for the loan. We suggest contacting your local Industrial Business Service Provider for guidance on SBA lenders who can administer the loan. Find a list of Industrial Business Service Providers at the bottom of this article.
- Download the sample application here. Gather the information you’ll need to complete it.
- Calculate your average monthly payroll expense over the last 12 months. Exclude individual salary amounts above the $100,000 cap, payroll and income taxes, salaries of employees outside the U.S., and contractors. Your business is eligible for 2.5 times this amount, up to $10 million.
- Submit your application to an SBA approved lender.
Find more exhaustive information and instructions to apply for a forgivable loan below.
Where do I apply?
Apply for a SBA 7(a) with an SBA lender. Sample Application HERE.
What businesses are eligible?
- Small businesses and sole proprietorships – applications open on April 3rd, 2020
- Independent contractors and self-employed individuals – applications open on April 10th, 2020
- Less than 500 employees
- In operation on February 15th, 2020
- Must be able to demonstrate economic need caused by COVID-19
What are the terms of the loan?
- No Fees
- No Collateral
- No Personal Guarantees
- .5% Interest Rate
- 2 Year Loan Terms
- 6 – 12 Month Payment Deferment (depending on lender)
- No Pre-payment Penalty
- Loan Forgiveness for Businesses Who Meet Requirements
What are eligible expenses?
- Mortgage or Rent
- Group Benefits
- Any interest or debt payments taken on prior to February 15th, 2020
- CANNOT be used to pay mandated sick leave under the families first act, IRS is releasing tax credits for small businesses to help reimburse for those costs
How much can I apply for?
The amount of the loan will be equal to 2.5 times the average monthly cost of payroll, rent or mortgage, and utility payments over the past 12 months. Loans cannot exceed more than $10 million.
- What is included in payroll? Salary, wage, commission, payment of cash tip, payment for vacation, parental, family, medical, or sick leave, allowance for dismissal or separation, payment required for provisions of group health care benefits, including insurance premiums, payment of any retirement benefit, payment of state or local tax assessed on the compensation of the employee.
- What is NOT included in payroll? Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15th – June 30th, 2020, payroll taxes, railroad retirement taxes, and income taxes, any compensation of an employee whose principal place of residence is outside of the United States, qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act.
What documentation do I need to have ready?
Your SBA lender will inform you on the specific documents they require, but you should have ready:
- Organizational Documents
- Names of Officers, Directors, Shareholders & Owners
- Tax Identification Number – possibly Tax Information Authorization IRS Form 4506T
- Payroll, mortgage or rent, utilities, and debt documentation for 12 months prior in order to calculate average monthly expenses
- Sample Application HERE
How do I qualify for loan forgiveness?
Loan Forgiveness will cover the expenses in the 8 weeks following your loan signing date. Any of the eligible expenses that you have used the loan to cover can be forgiven. It is expected that at least 75% of costs forgiven will come from payroll. Eligibility starts 8 weeks after the loan origination date.
Documentation will be very important when trying to receive loan forgiveness. You will need the following:
- Documentation showing the number of employees on payroll and their payrates for February 15th, 2019 – June 30th, 2019; same documentation for current period in 2020 (If an employee has a salary greater than $100,000 the first $100,000 is factored into the loan forgiveness, but any amount above that is not.)
- Documentation to prove your mortgage, lease, debt, or utility payments
- Certification from an eligible representative that these documents are true and correct
What businesses may have a reduced loan forgiveness amount?
- They do not maintain the same average amount of employees currently as they did from February 15th, 2019 – June 30th, 2019
- They reduce employee wages by more than 25% for any employees making less than $100,000
If I have already laid off staff or reduced wages, can I still qualify?
Yes. You just need to do the following before June 30th, 2020:
- Rehire employees that were laid off during this period
- Restore any decreases in wages to a 25% or less wage decrease
Can this loan be used if you have outstanding SBA loans or received the SBA Economic Injury Disaster Loan Program?
- Yes. You can take out this loan if you have outstanding SBA loans. You can also receive this loan with an Economic Injury Disaster Loan – but you cannot use the loans for the same type of expenses. They must be used for different expenses.
Can this loan be used to refinance existing SBA loans?
- The legislation allows for it. Speak to your SBA lender for more details.
SBA lenders throughout the city can help facilitate obtaining this loan. In addition, these funds should also come available to non-SBA lenders. Industrial Business Service Providers can assist you in finding a lender.
Below is a list of Industrial Business Service Providers (IBSPs):