The sector that’s had an especially tough time is made up of small- and medium-sized businesses. 

In response, the Federal Reserve Board extended additional lines of credit to help companies that were doing okay before the pandemic preserve productivity and payroll until things get back to normal. 

The Main Street Lending Program and the Paycheck Protection Program (PPP) are resources businesses can use to cope with the crisis.

What Is the Paycheck Protection Program?

The PPP provides loans to small businesses so that they can keep their workers on the payroll in order to get through the current economic conditions. These loans do not have to be repaid; they are forgivable.

Who Can Apply for a Loan?

• Any small business that meets Small Business Administration (SBA) size standards
• Any business, non-profit organization, veterans organization, or tribal business concern with fewer than 500 employees or that meets the SBA industry size standard (if more than 500 employees)
• Any business with a NAICS Code that begins with 72 that has more than one physical location and employs less than 500 employees per location
• Sole proprietors, independent contractors, and self-employed people

What Are the Terms and Amounts of the Loans?

A PPP loan has a maturity of two years and an interest rate of 1%. The maximum loan amount is the lesser of $10 million or an amount that you will calculate using a payroll-based formula.

What Are the Current Guidelines for Loan Forgiveness?

At least 75% of a PPP loan must be used for payroll costs, which include wages, benefits, insurance, severance commissions, payroll taxes at the state/local level, etc.

If you use the remaining 25% for occupancy costs, that money is also eligible for forgiveness. This includes rent, mortgage interest, utilities, etc. Any funds that are not used for occupancy costs are not forgivable. 

Though the Coronavirus Aid, Relief, and Economic Security Act (CARES) cites “transportation” as an occupancy cost, the Small Business Administration (SBA) has not yet defined what that means. 

There are other areas that still require clarification from the SBA. For example, can you pay people more than $100,000 annualized? Can you pay increased benefits? Could you make five payrolls in an eight-week period rather than four? You can find updated guidance in the agency’s frequently asked questions (FAQ) file at this link.

How Are These Guidelines Different From the Original Guidelines?

Originally, the loans limited how much of a reduction a business could make in wages and headcount. The government is no longer going to try to measure whether you have a reduced workforce. You just have to make sure you spend 75% of the loan on the payroll. If you don’t, you have to pay the loan back.

Who Is Eligible to Make PPP Loans?

You can apply for a PPP loan with any federally insured depository institution or any federally insured credit union. 

What Happens After I Apply for a PPP Loan?

You should get a loan number from the bank when you submit your loan application. Once the bank applies for the loan with the SBA, you’ll get an SBA number. If you are approved for the loan, you’ll need to sign the SBA approval form. At that point, you will be placed in the queue to get paid, which could take two to five business days.

Do I Have to Use Funds From My PPP Loan By June 1?

No. The clock starts ticking when the funds are deposited in your bank account. You have to use the money in the eight-week period after you receive it.

Can I Apply for More Than One PPP Loan?

No. This means if you apply for a PPP loan, you should consider applying for the maximum amount. A “one loan per borrower” limit is needed to make sure as many eligible borrowers as possible may get one. 

Can I Get a Main Street Loan, Too?

Yes, there are no restrictions. The Main Street Lending Program was designed to support businesses that could not access the PPP or needed additional financial support after getting a PPP loan. You should apply for both to take advantage of the interest rates.

What Else Do I Need to Know?

Make sure you account for how you’re using the PPP loan. Records need to be kept separate from your other spending. Establish a payroll tracker to track funds and expenses so you can see what forgiveness will potentially look like.

Besides the Paycheck Protection Program and the Main Street Lending Program, the SBA is offering other funding options for small- to medium-sized businesses. Though they may not allow for forgiveness like the PPP, they provide alternatives to help get companies the cash they need in order to carry on and thrive.