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Free Money for Small Biz? Yes AND…Don’t Lay Off Employees

March 27, 2020

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The largest economic stimulus in our Union’s history will soon become law. The good folks at SRW have analyzed the entire 880 page law to help clarify how it will impact the future of your business.  

Many news outlets have reported on the upcoming direct payments to taxpayers, and payments to large corporations, but as entrepreneurs, we want to provide greater clarity around the federally guaranteed loans to our small business brethren.  

Pursuant to Title 1, KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT, specifically Section 1102, entitled, the PAYCHECK PROTECTION PROGRAM, the Federal government has set aside almost 350 Billion dollars to provide low interest, federally guaranteed loans to businesses with 500 employees or less (i.e., small businesses).  But here’s what the fine print means for your small business…

I have a company with less than 500 employees, does my business qualify?

YES, as long as you can prove that you have paid employees and your business has been adversely affected by Covid19 (i.e. your business shut down; a client cancelled a contract; a client is delaying payment to you, etc.), you may qualify.

I am a sole proprietor, do I qualify?

YES, both sole proprietorships and independent contractors (1099 workers) may qualify.

How big of a loan can I receive?

You can receive a loan up to 250% of your monthly payroll.  For instance, if you pay an average of 50K a month in payroll, you could receive a loan of up to $125,000. The maximum amount for a loan caps out at 10 million.

What can I use the loan proceeds for?

This is important as it may determine whether your loan will be forgiven or not (see below). Loan proceeds can only be used for: payroll and payroll costs; healthcare costs; rent; utilities; and interest on any debt incurred previously.  So you likely cannot use the loan proceeds to purchase new equipment, lease company cars, etc.

Will the loan be forgiven?

Possibly. The purpose of the Federally guaranteed loan is to keep people employed. If after a certain period of time (still to be determined), you can prove you did not layoff any workers, you can apply to have the loan forgiven (factors in forgiving the loan still need to be determined by the Stephen Mnuchin, United States Secretary of the Treasury, the SBA, etc.) In addition, it is critical you only use the loan proceeds for allowable expenses (otherwise you will have to repay the loan). As of today, allowable expenses include: Payroll and payroll costs; healthcare costs; rent; utilities; and interest on any debt incurred previously.

Where do I apply for the loan?

The Small Business Administration will administered the loans through “community banks” (for instance, smaller, neighborhood banks in your community) that still need to be determined.

Do I need to put up collateral or provide a personal guarantee?

NO…the loan will be guaranteed by the Federal government, so no personal guarantee or collateral is required.

Will the application process be time consuming, burdensome?

In theory, no. In practice, possibly, but you should be able to handle it yourself.   It appears that you will need to sign an Affidavit that your business qualifies and prove that Covid19 has detrimentally affected your business. As the details are finalized, it is prudent to gather financial records now (payroll records, cash flow, balance sheets, business emails, etc.), specifically to underscore how Covid19 has adversely affected your business (i.e. you had to shut down your business; client emails cancelling, suspending contracts; slower client pay that impedes cash flow, etc.)

What will be the interest rate of the loan?

The loan interest cannot exceed 4%, a very low interest rate for borrowing.

Should I apply for the loan?

YES.  Since most small businesses have been adversely affected by Covid19, most will benefit from these needed funds.  Plus, if you don’t lay off anyone, you might be able to turn the loan into free money.

If you have additional questions or comments, please do not hesitate to reach out to

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