The recently passed CARES Act includes an important loan program directed to small businesses – including restaurants. Here’s some details on how to qualify and apply to the Paycheck Protection Program.
The COVID-19 shutdown has closed an unprecedented (and largely unknown) number of small businesses. Those businesses in turn have been forced to lay off their workers, leading to a historic surge in unemployment claims. Legislators designed a provision of the CARES Act to address both of these potentially devastating outcomes. The Paycheck Protection Program will loan out $345 billion in forgivable loans specifically to small businesses. The intent is to cover up to two months of payroll and expenses for employers, so they can recover from the shutdown.
In our opinion, this is a clear win/win/win for everyone involved. Employers can cover payroll and expenses, workers can get back to work, which leads to giving state governments a much needed assist with the flood of unemployment claims.
However, the rollout of this program has been shaky. Due to a lack of guidance from the government and pushback from the banks over various loan details, there are widespread reports of issues with applications. Our advice: keep trying. It will be frustrating, but it will more likely work out than not.
Who’s eligible for a forgivable loan?
Any businesses with fewer than 500 employees are eligible to participate. In the case of franchise or multi-unit businesses, you may be eligible even if you have more than 500 employees by seeking loans for each individual property.
How much can I borrow?
Small businesses are eligible for a loan of up to 2.5 times one month’s payroll, mortgage, rent and utilities. Each loan is capped at $10 million – more than enough for most small restaurants.
How expensive is this money?
It’s cheap – interest rates are set at 1% and the term of the loan is two years. Payment on the loan is deferred for the first six months, but the entire amount may be forgiven – costing a borrower no money at all.
How is a loan forgiven?
These loans are not automatically forgiven, so documentation is key. Employers must apply for loan forgiveness and provide detailed documentation of their payrolls, number of employees, pay rates and other information.
If the entire loan is used to cover only payroll costs, mortgage interest, rent obligations, and utility payments during the 8-week period beginning on the date of origination of the loan, it can be forgiven. Payroll must not decline from previous levels established by the employer’s payroll history. If Payroll was reduced due to layoffs and furloughs, payroll must return to previous levels by June 30th, 2020.
The June 30th deadline is an important detail. Many restaurants won’t be able to reopen until May (at the earliest in the best, best case scenario). If timing is correct, an employer could slowly ramp up their staffing levels and meet the requirement by the end of June. For information on how to best meet these requirements, discuss this issue with your lender and legal council for details.
How do employers apply for these SBA loans?
Employers should contact their current lenders and banks. These loans are issued by private banks who are working directly with the SBA through the CARES Act. Your lender or bank should be able to direct you through the process.
How long are these loans available?
The PPP is open until June 30th, 2020. However, you are encouraged to apply as soon as possible. While $345 billion is a lot of money, there are a lot of businesses applying for loans.
For more information and details straight from the Treasury Department, click here