Starting Friday, April 3, small businesses and sole proprietors can apply for the $349 billion Paycheck Protection Program (PPP). It's unclear exactly which lenders are participating, and some banks are reporting confusion over the program, and there's a good reason why: the program continues to change.
On Thursday night, the Small Business Administration released a 31-page document outlining the latest updates to the program , though the details are still subject to change. Ami Kassar, founder and CEO of MultiFunding, and Inc. columnist who advises business owners on access to capital, hosted a webinar April 3 that was open to small business owners to go over these new additions and clarifications.
Here's what's new as of this week:
1. Raises the interest rate.
The interest rate on PPP loans is now 1 percent. Originally the interest rate was set to 4 percent with a repayment term of 10 years. Then it was lowered to half-a-percent with a repayment term of two years. The newest provisions raise the interest rate to 1 percent, with a two-year repayment term. While you won't need to make any payments for six months following the date of disbursement of the loan, interest will continue to accrue
over the period.
2. Sets domicile and citizenship requirements
If one or more of your company's owners is not a U.S citizen or domiciled in the U.S., the company still qualifies. That means employees who work in the U.S. can get back to work, regardless of where their boss lives or whether he or she is a U.S. citizen.
3. Clarifies ownership status.
The new guidance clarifies who the program considers an owner of a business. For partnerships, limited liability companies, and corporations, anyone who owns at least 20 percent equity in a company is considered an owner. For companies in which a trust owns at least 20 percent of a company, the trustee is considered an owner.
4. Outlines disqualification standards.
You are disqualified from getting a PPP loan if you or any owner is presently suspended, disbarred, or proposed for disbarment. You'll also be disqualified if you are declared ineligible or voluntarily excluded from participation in the transaction by any federal department or agency or presently involved in any bankruptcy.
You are also disqualified if you or any other owner has obtained a direct or guarantee loan from the SBA or any other federal agency that is currently delinquent or has defaulted in the last seven years and caused a loss to the government.
5. Codifies payroll calculations for new and seasonal businesses.
Most business owners can submit their average 2019 monthly payroll when applying for a loan (excluding salary costs of over $100,000 on an annualized basis for each employee). But for seasonal businesses and new businesses this becomes a bit trickier.
Seasonal businesses can now submit average monthly payroll for the time period between February 15, 2019 and June 30, 2019. New businesses can elect to use average monthly payroll between January 1, 2020 and February 29, 2020. For both seasonal businesses and new businesses you still exclude costs of over $100,000 on an annualized basis for each employee.
6. Requires banks to alert the authorities.
Financial institutions will be required to notify law enforcement if they detect fraud, money laundering, terrorist financing, or other criminal acts and the misuse of financial institutions.