Small businesses and nonprofits may wish to investigate the federal Paycheck Protection Program (PPP), which is being implemented as part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act.
PPP is a type of federally-guaranteed loan for small businesses, providing eight weeks of cash-flow assistance specifically meant to help cover payrolls and other essentials during this difficult time.
The loan is only available to small businesses and nonprofits, which are defined as organizations with fewer than 500 employees. For all borrowers, the interest rate is set at 0.50% and the loan term is two years. There is a six-month deferral on loan payments, but interest will accrue over those six months. Collateral or personal guarantees are not required for these loans.
One of the most important features of the Paycheck Protection Program is its loan forgiveness condition. These loans may be forgiven only if the loan proceeds are used to cover qualifying payroll costs, mortgage interest, rent, and utility expenses over the 8 week period that the loan covers.
The application period for small nonprofits, small businesses, and sole proprietorships began on Friday, April 3. The application period for independent contractors and self-employed people begins on Friday, April 10. The application form is available here. Applications may be sent to any existing SBA lender (a list is available here), a federally insured depository institution, a federally insured credit union, or participating Farm Credit System. Other lenders may enroll at a later time; ask a preferred lender before attempting to apply through them.
To go with your application, a business or nonprofit may need documentation that includes:
- Business entity documentation
- 2017 and 2018 business tax returns
- 2019 internal financial statements (or tax return)
- 2020 interim financial statements (eg. balance sheet, income statement, accounts receivable/payable)
- Debt schedule
- List of business owners
- Copy of driver's license for loan signers
- Health insurance premiums paid by the company owner
- Retirement plan funding paid by the company owner
- 2019 IRS quarterly 940, 941, or 944 payroll tax reports
- Monthly payroll reports for 2019, including gross wages for each employee, paid time off, vacation pay, medical leave pay, and state and local taxes on employee compensation
- 1099 forms should be provided for 2019 covering any independent contractors who would otherwise be considered an employee (not for services)