The New Normal and the Break Your Small Business Needs
Hats off to the doctors, nurses, healthcare staff, hospital janitors, first responders, police officers, grocers, truckers, food runners, and countless others that are truly saving lives and doing their best to maintain order. In this age of COVID-19, society is no longer permitted the latitude we most certainly took for granted during the B.C. time - Before Coronavirus.
In addition to the life savers previously mentioned, heavy infrastructure workers throughout the country check in daily to ensure utilities continue to operate, clean water remains readily available, and unfinished structures remain safe until the world is released from quarantine. Let’s not forget, contractors will be needed to safely build, expand, and maintain hospitals and healthcare facilities to care for COVID-19 victims over and above all of the patients who need critical care.
President Donald Trump's decision this week to extend the country's social distancing guidelines until April 30 was based partly on data from statistical models that predict the peaks and plateaus of the coronavirus outbreak in the U.S. There are no definitive answers as to when normalcy will return, but in the interim the government has approved a stimulus package that small businesses can finally be excited about.
Most of the construction in this country is completed with the involvement of small businesses. Whether they are consultants, specialty contractors, landscape architects, or managers, heavy infrastructure has a high reliance on companies who consist of 50 persons or less and unfortunately, this is the demographic most vulnerable in this current economic downturn.
The “Paycheck Protection Plan” loan or PPP Loan (or more commonly the Coronavirus Stimulus Package) was signed into law on March 27, 2020. On March 31, the SBA issued its guidance and sample application for the loan to be used by banks. Below are some specifics.
Does My Business Qualify?
A small business with fewer than 500 employees that was in business on or before February 15, 2020. This can be an S Corp, a C Corp, an LLC, a Sole proprietorship or an independent contractor. It also includes certain nonprofits, tribal groups, and veteran groups. When obtaining the PPP loan, you need to certify that your business has been economically affected or that economic uncertainty justifies the loan.
How Much Can I Borrow/Apply For?
Up to $10 million dollars, but the amount each business gets is based on its payroll costs. The amount your company will qualify for is based on 2.5x your average monthly payroll costs. Your monthly average payroll is calculated based on your prior 12 months of payroll costs.
What Can I Use This Money For?
Payroll, rent or mortgage obligations, utilities and other debt obligations you may have.
What Is the Interest Rate?
This loan has a maturity of 2 years and an interest rate of .5%. This is virtually an interest free loan.
Will This Loan Be Forgiven?
This is a critical question. You are eligible for loan forgiveness for the amounts you spend over the next eight weeks after receiving the loan on certain qualifying expenses. Recall, the qualifying expenses of the business over the eight-week period includes payroll costs, rent, interest on mortgage debt and utilities. If the number of full-time employees is reduced over this time period or if your payroll costs are reduced 25 percent or more, then the portion of the loan which will be eligible for forgiveness will be reduced.
Let’s Look at an Example
You’re a safety consultant with 11 employees. Let’s assume your total “payroll costs” over the previous 12-month period was $300,000 making your monthly average payroll is $25,000. We then multiply $25,000 by 2.5 and get the maximum loan amount of $62,500.
Let’s further assume that over the eight-week period after you receive the loan that you use $50,000 for payroll costs, $15,000 for rent and $5,000 on utilities. You would then have totally qualifying expenses for forgiveness of $70,000. Since you have qualifying expenses in excess of the loan amount, you would be eligible for forgiveness of the entire loan. Don’t forget, if your payroll in the eight weeks following receiving the loan goes from the original $25,000 a month down to $15,000 a month, you won’t be eligible for complete forgiveness.
Breathe deeply, continue to do your research, and take this all one step at a time. We’re in this together. Your company is certainly a priority, but note the truly important things in life are likely there with you while you’re in isolation.
With Pleasure,
R. Chowdhury