Millions of small business owners will be turning to the government, seeking help for an individual and nationwide cataclysm, the economic devastation caused by the coronavirus outbreak.
The government says it will begin disbursing loan money to company owners and freelancers Friday under the Paycheck Protection Program, part of the $2 trillion relief package signed into law last week. For many companies, it may be the quickest way to rebuild the lifeblood of any business: the cash flow that enables a company to pay its bills.
The program could be vital to the economy’s recovery: Small businesses employ about half the workers in the private sector. By some estimates, as many as 20 million people will have lost their jobs by the end of April.
Here are questions and answers about financial help available through the government and other sources:
ARE THESE PAYCHECK PROTECTION LOANS FREE?
They can be, if they’re used to retain or hire workers. Starting Friday, the Small Business Administration is guaranteeing $349 billion in potentially forgivable loans under the rescue package. A business with up to 500 employees, including owners who work solo and freelancers, can borrow up to $10 million to be repaid over two years at an annual rate of 0.5%. The money that’s used to pay salaries can be forgiven, and a portion of money used for rent, mortgage interest and/or utilities can be at least partially forgiven. Payments are deferred for six months.
You technically could get the full amount of the loan forgiven. But if you cut jobs — say you had 10 employees, let them go, and hired back only five — the amount of loan forgiveness will be reduced, and you’ll have to repay some.
But a caveat from the government: Because so many owners are expected to take advantage of the loans, it’s anticipated that no more than 25% of the forgiven amount may be for things other than payroll — rent, mortgage interest and utilities. So there’s a good chance you will have some repayments ahead.
HOW DO I GET ONE!
The government says this will be a fast, streamlined process — some companies could get money the same day, not like the weeks it takes when applying for a traditional SBA loan. You can apply through any federally insured bank, credit union or farm credit system institution, not just a traditional SBA lender. Most businesses are expected to apply online, through a financial institution’s website.
You don’t need collateral or a personal guarantee. But you’ll need to document your payroll, rent, mortgage interest and utilities expenses. The payroll portion of the loan is based on the monthly average of what a company paid employees during the year prior to the loan being granted.
WHEN WILL MY LOAN BE FORGIVEN?
The government will calculate how much of a loan will be forgiven after June 30. The program covers the period from Feb. 15 through June 30 and owners will need to document how many workers they employed during that time and how much they were paid.
If you’ve laid off workers, you have until June 30 to rehire them — but the sooner you rehire and start paying them, the larger your loan forgiveness will be.
Read on how to get yours: Get your loan