This article was published in 2020 as part of our COVID-19 Resource Center series. This article will not be updated but please contact us if you have specific questions regarding the information in this article.
Updated 4/22/20: On April 21, 2020, the Senate approved another $310 billion in funding for the Paycheck Protection Program. The package must still pass through the House and be signed by the president.
Updated 4/16/20: The Small Business Administration’s Paycheck Protection Program is no longer accepting applications as it has run out of money. But, Congress is currently considering a $250 billion extension. We will continue to update this article as the situation develops.
Originally published 4/15/20: The United States legislature recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help companies and individuals affected by the COVID-19 crisis. Under this act, there are many resources available for small businesses, including the Paycheck Protection Program (PPP), which is essentially a forgivable loan that can be applied to payroll and rent expenses.
At AQUILA, it’s our goal to act as a resource to help our clients understand rent relief options. In this article, we will explain:
- How the Paycheck Protection Program can help companies with rent
- Which companies qualify for the Paycheck Protection Program
- Your potential loan amount
- What information you need for your application
- Roadblocks that you might run into
How Can the Paycheck Protection Program Help Companies With Rent?
A Small Business Administration Paycheck Protection Program loan can be used for payroll, healthcare benefits, interest on mortgage payments, interest on any other debt, and rent (including utilities) incurred during the eight-week period beginning on the date the loan is closed. Your loan is eligible for forgiveness as long as you follow the guidelines outlined in the program.
The guidelines state you must retain your employees for at least the next eight weeks and more than 75% of the loan has to be spent on payroll costs during the eight-week period. This means, in order for the loan to be forgiven, only 25% or less of the loan can be spent on non-payroll costs like rent expenses.
To learn more about the forgiveness guidelines, read the U.S. Chamber of Commerce’s Coronavirus Emergency Loans Small Business Guide and Checklist.
If your company doesn’t follow the guidelines and your loan isn’t forgiven, you will have to pay back the loan at an interest rate of 1% starting six months from the date you receive the loan.
Which Companies Qualify for the Paycheck Protection Program?
Any small business (under 500 employees) is eligible for the loan program, including corporations (C and S), limited liability companies (LLCs), partnerships, and those that are self-employed. Also, any companies in the food services or hospitality industry with less than 500 employees per location also can qualify.
Not sure if your company qualifies? Use the U.S. Small Business Administration’s Size Standards Tool to find out.
What Is Your Potential Loan Amount?
The potential loan amount is limited to 2.5 times your average monthly payroll up to $10 million.
For example, if your average monthly payroll is $500,000 you’d be eligible for a loan of $1.25 million. With only 25% of that able to be devoted to expenses outside of payroll, you could use $312,500 of that for rental expenses and still be eligible for forgiveness.
What Information Do You Need for Your Application?
Be prepared to provide historical payroll documentation (e.g. quarterly 941s).
In addition to your monthly payroll reports, you will also need to have additional information prepared. These can include specific IRS forms (depending on if your business is seasonal or full-time), bank accounts and routing numbers and, if applicable, medical insurance payment verification, documentation confirming retirement benefits, and your Economic Injury Disaster Loan (EIDL) statement.
If you apply at a bank where you don’t have a current relationship, you will also likely have to provide significant information related to the business (articles of incorporation, bylaws, certificate of formation) and owner identification/personal information (driver’s license, passport, etc). The information you are required to provide will likely depend on the bank you are using and the type of business you own.
What Are Some Roadblocks You Might Run Into During the Process?
Everyone is a little short on guidance for the loan program at this point.
If your current bank isn’t providing these loans and you have to apply at a bank that is participating, the process will be more difficult and sometimes impossible as most banks are only accepting loans from existing customers. According to Forbes, “banks have held up disbursing funds as they wait for more clarity on loan guarantees and other regulations around the CARES Act. Banks are concerned about fraud as they claim the PPP loans don’t require the usual amount of background information or creditworthiness that come with conventional loan applications.” They also say it could take weeks or longer for these loans to be funded as each application has to be reviewed and approved.
If your business lays off employees (or doesn’t rehire previously laid-off employees), the loan amount not used on approved expenses must be repaid over two years at 1% interest.
Is It Too Late to Start the Application Process?
Many banks are currently accepting loan applications. Since the nearly $350 billion in funds are being made available on a first-come, first-served basis, you should apply as soon as possible if you don’t want to miss out on the current opportunity.
Now that you know more about the Paycheck Protection Program you should have a better idea if it is a good fit for your company. The Paycheck Protection Program is a great way to help your company with payroll and rent costs during the ongoing crisis. But, if the Paycheck Protection Program loans don’t fit your business needs, you may want to consider other ways to receive rent relief.
If you don’t receive a Paycheck Protection Program loan, you might want to consider claiming an Employee Retention Credit instead. This is a part of the new employer tax credits established under the CARES act.
To learn more about this option, see the KPMG report: Employer-related liquidity – tax credits, deferrals, and efficiencies (COVID-19).