Today, I’m giving you an update on the FORGIVEABLE small business loan known as the Paycheck Protection Program (PPP) which rolled out over the weekend. If you missed my earlier update on the loan, you can find it in yesterday’s update or at PlanningShop.com/blog. As I mentioned yesterday, this is a “loan” that most small businesses and the self-employed should immediately consider, as it is designed to keep money coming to you and your employees (if you have any) and you likely will NOT HAVE TO PAY IT BACK.
Remember: I am doing a Facebook Live at 1pm EDT/10am PDT. Go here to join or to watch later. This week my schedule is:
- Today, Tuesday 4/7
- Tomorrow, Wednesday 4/8
- No Facebook Live on Thursday
- Possibly Friday (stay tuned…)
And if someone forwarded you this newsletter, you should sign up at PlanningShop.com.
THE PPP ROLL-OUT
Disaster. Debacle. Disturbing. These are only a few words to describe the roll-out of the Paycheck Protection Plan—the forgiveable loan program to help small businesses and the self-employed survive. Frankly, it’s just a mess.
As a reminder: PPP enables you to get up to 2.5 times your average monthly “payroll costs”—which includes money you pay yourself even as a sole proprietor—up to $100,000 annually per individual. Most importantly, you can get that loan forgiven—in other words, turned into a grant—if you use at least 75% on payroll, including yourself. It’s a lifeline for many small businesses.
If you had trouble applying for PPP funds, you’re not alone. Banks rolled out their online applications over the weekend, and by Monday morning, some banks reported they’d run out of money. Wells Fargo stopped taking applications, and other banks limited applications to only those with existing business accounts (leaving out the self-employed who use personal bank accounts). AND THAT’S JUST THE FIRST BUSINESS DAY AFTER THE LAUNCH OF THE PROGRAM.
It’s not the bank’s fault! I want to emphasize this. Banks were given little advance guidance by the Treasury Department. They were overwhelmed with applicants.
Worse—big businesses were actually able to take a big chunk of funds set aside for small businesses and the self-employed. Hotel and restaurant businesses with fewer than 500 employees in one location also qualified for these funds. (There was a typo in yesterday’s update—the number is 500 employees in one location.) Those types of businesses were better poised to scoop up these funds.
But good news on the horizon: The Treasury Department yesterday indicated that they would take the loans off the records of the banks—making more money available from banks that have already exhausted their funds faster.
But these funds can run out. So don’t wait.
Congress has indicated that more help is on the horizon. A “CARES 2” package is already being discussed and the idea has bipartisan support—including House Democrats led by Nancy Pelosi, Senate leader Mitch McConnell, and the President. However, Republican Minority Leader Kevin McCarthy opposes more help for individuals and small businesses at this time. He doesn’t seem to recognize that Americans have bills to pay and mouths to feed.
Here are things for you to know now, in a nutshell:
- Keep checking with your bank, even if they stopped taking PPP applications. Some are just getting their application process up on their website and/or are reopening their application process.
- Don’t wait. Some banks are still taking PPP applications—but they, too, will run out of funds, and the program itself will run out of funds.
- The amount you can get is 2.5 times your average monthly payroll cost, interest rate is 1% and the term is 2 years, with no payments necessary for six months. This amount can be forgiven if you spend at least 75% on “payroll costs” in the 8 weeks after you get the loan and keep employees hired.
- When figuring out how much money you can qualify for, the association of CPAs advise the following in determining “payroll costs:”
- Use Gross Payroll based on 2019 data—which means including federal payroll taxes.
- Only salary over $100,000 is excluded, not healthcare or retirement benefits. In other words: the AICPA advises that if an employee earns $100,000 PLUS gets $20,000 in health care and retirement benefits, your annual “payroll costs” for that individual would be an allowable $120,00.
I’ll take questions about these programs during my Facebook Live sessions, 1pm EDT/10am PDT. Go here to join or to watch the recording later.
Stay well. Stay home. Stay in business.
Copyright Rhonda Abrams, 2020