The Coronavirus Aid, Relief, and Economic Security Act (CARES) makes $350 billion in paycheck protection loans available to small businesses, with individual businesses eligible for up to $10 million in forgivable loans.
Naturally, small-business owners have questions. Here are some of the most popular questions Inc. readers have submitted regarding the Paycheck Protection Program (PPP). Much of the information comes from a recent Inc.com webinar with Ami Kassar, an expert on small-business loans and the founder of lending advisory firm MultiFunding.
1. What are some key things we need to be aware of to make sure we legitimately qualify for the PPP loans?
In general, you're eligible for the PPP loans if your company has fewer than 500 employees and was in business as of February 15, 2020. Unlike with traditional U.S. Small Business Administration loans, nonprofits, sole proprietors, people who are self-employed, and people who make their income as independent contractors are eligible. There had been some confusion about whether having credit available elsewhere makes you ineligible, but we now know that you're eligible regardless of whether you have available credit elsewhere. Some industries, including many agricultural industries, define small businesses differently. You can view the size standards by industry on the SBA website.
2. There's an exclusion for employees earning more than $100,000. Does this mean that their salary is excluded entirely, or simply capped at $100,000?
It means that for the purpose of calculating your loan, their salary is capped at $100,000. if you have an employee earning a salary of $150,000, for example, the size of your maximum loan will be calculated using a salary of $100,000 for that employee.
3. What is the difference between a loan and a grant?
A grant is a loan that gets forgiven, meaning it doesn't have to be paid back. Your PPP loans will be forgiven so long as you don't lay off employees or reduce their pay by more than 25 percent (for employees making less than $100,000) within eight weeks of receiving the loan. If you do lay off employees, you won't be forgiven for any wages you don't actually pay, but your remaining employees' wages will still be forgiven. Here's more on how to turn a paycheck protection loan into a grant.
4. If we have already executed layoffs, could we still be eligible for loan forgiveness if we bring back our employees?
If you rehire an employee, you'll be able to count their wages for the period during which they are on your payroll.
5. Which banks will be participating in the payroll protection program?
A variety of financial institutions will be participating, though many of those details haven't been made public yet. Kassar says that each will likely have their own criteria for the size of the loans they'll offer. For example, some institutions might only take applications for loans of up to $350,000, while others might only offer loans of $1 million to $5 million. It's possible that banks will prioritize working with their existing clients first, so you should ask the bank you work with if it's participating in the program and under what criteria. If you don't meet their criteria, check with another bank.
6. As the owner of the business, is my W2 paycheck from my own company covered by the PPP as well?
Kassar believes business owners' W2 paychecks are included, up to the $100,000 maximum.
7. When will the loans be available?
This is one of the biggest points of uncertainty. "It's really hard to predict," Kassar says. "People are saying 'Oh great, I'll get these PPP loans in a week or two. You can't count on that." While the government has said it's hopeful they could be available by late next week, Kassar thinks it will likely be three to four weeks. If you can get a bridge loan from your bank in the meantime, he says, it's possible you'll be able to refinance it later as a PPP loan, though that will depend on your relationship with your bank.