Making Payroll, Rehiring, and Paying Yourself During the Covid-19 Pandemic
(Bloomberg Businessweek) -- If, like my septuagenarian parents, you run or work for one of the one in four small businesses in America that had to close temporarily because of the Covid-19 pandemic, you’re probably scrambling to understand your options to keep paying your employees, among other concerns. The Trump administration’s Paycheck Protection Program (PPP), a $349 billion rescue package, is meant to help tide you over for a few months. It’s available for a range of small businesses and nonprofits, from those with hundreds of employees (up to 500 employees) to self-employed individuals.
PPP, which launched on Friday, April 3, and is available through June 30, already is getting mixed reviews from business owners who tried to apply. Some banks are imposing unexpected limitations. The administration’s delays in providing guidance meant some lenders weren’t ready to process applications on April 3. The sheer volume of applications is another concern—will lenders be able to process them in a timely fashion? (On April 6, the Small Business Administration’s loan processing platform crashed, and is now up and running again, Bloomberg News reported.)
Here are answers to some of the more urgent questions you may be asking.
How does PPP work?
- Start by checking if your bank participates. You must apply through a participating lender to get a loan of up to $10 million. The interest rate is 1 percent. The Small Business Administration (SBA) guarantees the loan and can later forgive it. A list of lenders offering the loans is available here.
- The SBA will forgive the loan if: you use the money to keep workers on the payroll for eight weeks; rehire workers; pay mortgage interest, rent, and utilities. The program is retroactive from Feb. 15 to encourage employers to rehire recently laid off workers. There is fine print to sift through, including the condition that at least 75% of the forgiven amount must have been used for payroll.
How is the program playing out so far?
In just four days, applicants’ experiences vary widely. As of April 3, more than 17,500 loans valued above $5.4 billion had been made through the program, SBA Administrator Jovita Carranza tweeted that day.
What else beyond PPP is available?
- If you need $2 million or less, consider the Small Business Administration’s Covid-19 Economic Injury Disaster Loan (EIDL) program. It offers an emergency cash advance of up to $10,000 that is essentially a grant that doesn’t need to be paid back.
- These EIDL loans are made by the SBA, not private lenders, meaning you only have to comply with the SBA’s rules. The term is 30 years. Interest rates are 3.75% for for-profits and 2.75% for nonprofits. You don’t need to personally guarantee EIDLs less than $200,000.
- You can apply to both the PPP and the EIDL. The SBA also has a program for loans of up to $25,000 to businesses that have an existing relationship with an SBA Express Lender. And the agency is offering debt relief for a variety of loans.
- If you were turned down by the SBA for a loan before, don’t let that stop you from applying again, says Cynthia Ward Wikstrom, campaigns director at the Main Street Alliance, an advocacy group with about 30,000 small business members around the country. “It’s very important for people to understand that there is a very relaxed set of criteria for these loans,” she says.
Does PPP or EIDL make sense for my business?
- The historic $2 trillion stimulus package pumped significant funding into government agencies and other entities to support owners trying to make complicated decisions, Ward Wikstrom says. These include the SBA’s Women Business Centers, the SBA’s Small Business Development Centers, the Minority Business Development Agency’s Business Centers, and SCORE. They may be able to answer your questions and to help you assess whether these SBA programs will help.
What’s available in addition to the SBA programs?
- States and cities are rushing to provide assistance to local businesses and the people who depend on them. For example, the New Jersey Economic Development Authority (NJEDA) is offering grants of up to $5,000, zero-interest loans of up to $100,000, and other aid. It says it has more than $75 million in state and private money to use. The measures are meant to support up to 5,000 enterprises and complement federal initiatives, NJEDA says on its FAQ page (last updated on April 1).
Be Flexible, Don’t Give Up
Over the nearly half century my parents have run the nonprofit movie theater they started together in New York’s Hudson Valley, they’ve learned to adapt to overcome challenges large and small. Since temporarily closing because of the need for social distancing, they’ve worked with film distributors to send links to new movies that viewers can pay to stream at home.
Today, like many of the 30 million small businesses across the country, they’re trying to make sense of the emergency loan programs with the goal of keeping their dozen or so employees, including five full-timers, on the payroll. They’re trying to apply to both PPP and EIDL and keeping me posted on their progress and hiccups. And, like many, my mom is sewing masks.
FOR ADDITIONAL PROGRAMS AND SOURCES OF FUNDS: Check your governor’s website, your mayor’s site, and your state economic development agency’s site for what is available in your locality. The Main Street Alliance has a resources page and other groups, including the U.S. Chamber of Commerce and Small Business Majority, are also compiling information.
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