The CARES Act
that President Trump signed into law late last week included roughly $350 billion for the Paycheck Protection Program (PPP). The PPP makes 100% guaranteed federal loans available to small businesses to help keep American workers paid and employed, and assist employers in paying health insurance premiums. The funds are divided among three small-business programs that offer forgivable grants and loans as well as loan deferral. PPP loans can be used to pay for various types of employee compensation, including group healthcare benefits and insurance premiums.
Businesses that were in operation on February 15, 2020, and had 500 or fewer employees are eligible. The loans are also available to 501(c)(3) and 501(c)(19) non-profits, veterans’ organizations, tribal concerns, self-employed individuals and independent contractors. The “500 or fewer employees” requirement is slightly different for any accommodation or food service businesses; any business under that umbrella can apply for a PPP loan if they have 500 or fewer employees at each of its independent locations.
Small businesses and sole proprietorships can begin applying as early as today, and independent contractors as well as self-employed individuals can begin applying on April 10. PPP loans will be fully forgiven when used for payroll costs, interest on mortgages, rent and utilities (at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. A small business can obtain up to $10 million in loans or 250% of an employer’s average monthly payroll cost during the period February 15, 2019, to June 30, 2019.
Borrowers can use the PPP loan on: employee compensation, including: salaries, wages, commissions or similar compensation; cash tips or equivalents; vacation, parental, family, medical or sick leave; payment required for providing group healthcare benefits (including insurance premiums); payment of retirement benefits; and payroll taxes. However, any compensation or income of a sole proprietor or independent contractor can be no greater than $100,000 in one year. The loan can also be used to pay interest on mortgage obligations, rent, utilities and interest on pre-existing debt obligations.
In addition to the PPP, the CARES Act allocated $10 billion in funding for the Economic Injury Disaster Loan Program (EIDL), which provides a $10,000 grant that businesses can apply for and which they do not need to pay back. The rest of the EIDL loan, which caps out at $2 million, is not forgivable but can be far more flexible than PPP in the types of expenses it covers. Borrowers must choose one of these programs and cannot apply to both PPP and EIDL.
For more information on the Paycheck Protection Program, please listen to this week’s episode of NAHU’s Healthcare Happy Hour.