Now is a tough time for small businesses to stay afloat, but to help them survive the coronavirus outbreak, the U.S. government has come up with a $350 billion relief program. This relief program for small businesses is part of the $2 trillion economic support package, which was signed into law last week. Here is everything that small businesses need to know about the new forgivable loan program.
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Forgivable loan program: who are eligible?
Treasury Secretary Steven Mnuchin has promised that small businesses will be able to apply for the loan this Friday. However, if the latest developments are anything to go by, many banks may not be ready to handle the program.
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No matter, whenever the program starts, here are the details that small businesses need to know:
The objective of this loan program is to help small businesses pay salaries and overhead costs for the next couple of months. This means as long as you use the funds to pay salaries and expenses, such as utilities, rent or mortgage, you won’t be required to pay the loan back. Also, you won’t owe any income tax on the forgiven amount and there won’t be any loan fees as well.
To make sure that your loan is fully forgiven you must not reduce employees' pay and must maintain the headcount as well. In case you have already let go of some employees, you can still be eligible for the loan provided you had employees as of Feb. 15, 2020. And, if your loan is approved, you will have to rehire the staff. Also, the forgiveness provisions will apply only if the employees are rehired by June 30.
Now let’s talk about who all are eligible for the program. All small businesses with 500 or fewer employees are eligible for this forgivable loan program. These businesses include sole proprietorships, independent contractors, nonprofits, veterans organizations and tribal businesses. A business with more than 500 employees may also qualify for the program under a few circumstances.
How can small businesses apply?
Talking of how you can apply, all you have to do is fill out an application form, which is available here. In terms of the documents, you need to prove that your business was in operation as of Feb. 15, 2020. Also, you need to prove that you have employees for whom you paid the salaries and payroll taxes.
Another proof that you need to submit is your last year’s average monthly payroll costs. In case you are a startup, you can provide the information for the first two months of operations. If you are an independent contractor or self-employed, then you will have to wait until April 10 to apply.
You can expect to get a loan amount equaling to your last year’s average monthly payroll costs. You won’t be asked for any collateral or personal guarantee to get the loan. If you use the loan money for unauthorized purposes, then that amount won’t be forgiven. This means you will have to pay it back over two years. However, there is a six-month deferral on payments. So, you can start paying it back, with interest (0.5%) after six months.
On the other hand, if you use the loan money for fraudulent purposes, then be prepared to face criminal charges.
Talking of the deadline for applying for the loan, it is up to June 30. However, the program is on a first-come, first-serve basis. So, you will have to hurry up.
Are the banks ready?
This new forgivable loan program seems a good way to help small businesses survive this coronavirus pandemic. However, there are concerns that banks might not yet be ready to handle it.
Even though the program officially starts on Friday, many banks may not be able to accept the applications from day one. One reason for this could be because the banks got the Treasury Department guidelines (31 pages) on how to lend the money only on Thursday.
Head of the Consumer Bankers Association, Richard Hunt noted they got the guidelines of the program “literally hours before it starts.” Hunt is requesting everyone to be patient as the banks “move heaven and earth” to put in place the proper system to manage the program, according to CNBC.
The biggest U.S. bank has also acknowledged that it may not be able to accept applications on Friday. Further, the bank said it would post updates on its website, Twitter account and also send emails on when it is ready to disburse the loan.
"Financial institutions like ours are still awaiting guidance from the SBA and the U.S. Treasury," JPMorgan Chase told business customers in an email. "As a result, Chase will most likely not be able to start accepting applications on Friday, April 3rd, as we had hoped."
Treasury Secretary Steven Mnuchin, however, at a White House news briefing on Thursday afternoon, reaffirmed that the program is ready to launch. "We just put up the federal register with the new guidelines for lenders,” he said. “I've been assured that the banks will start lending tomorrow."