As a small business owner, you know that emergencies arise that make it difficult to pay your employees.
Recently, the international pandemic caused many companies to close temporarily, preventing those businesses from making money. In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was created to help put money back into the pockets of Americans.
One part of this plan is the Paycheck Protection Program (PPP), which provides small businesses with cash to pay their employees and other expenses. If you think this can benefit your company, read on to learn why you should apply.
1. The Total Loan Amount Is Calculated From Recent Payroll
If the loss of business and profits has impacted your company, this loan is a good option to regain cash flow.
Since the main purpose of this loan is to pay your employees despite losing business, the amount you can apply for is based on the past year’s payroll. Both part-time and full-time employees count towards this calculation, but contractors don’t.
To figure out how much you can request, calculate the total amount of payroll for the past calendar year, and multiply it by two-and-a-half.
The maximum amount is $10 million, so feel free to request the highest amount you feel you qualify for when you complete the PPP loan application because you can only apply one time.
2. Many Types of Small Businesses Qualify for the Loan
Regardless of what industry your business is in, all small businesses are eligible to apply.
A small business is considered any company with fewer than 500 employees. This means that even if your business only employs you, it is eligible for the loan. There are no limitations to industry, and it includes nonprofits.
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3. This Loan Pays for Other Business Expenses Beyond Payroll
Even though payroll is the largest expense for most companies, this loan isn’t limited to just that amount.
Each month your company must cover the mortgage or rent, utilities, group health insurance, sick leave, and interest on other business loans. Up to 25% of this loan can go towards these other expenses to help alleviate the pressure of past-due bills.
4. Money Spent in the First Eight Weeks Is Forgiven
If your business qualifies for the loan, you receive the money directly from the government. Once you have the funds in the bank, you have eight weeks to pay your expenses.
If you follow the category guidelines and use at least 75% of the loan to cover payroll, all the money paid out during the first eight weeks is forgiven. This means that you don’t have to pay this amount back.
This is a huge advantage for your company because your expenses are paid, your employees find some relief, and you aren’t stuck with a long-term loan repayment requirement.
If you don’t use it during the first eight weeks, the amount borrowed is charged with interest at the rate of 4% and you are required to make installment payments for returning the money.
If you are looking for a way to get your company back on its feet and pay your employees and income, a PPP loan is a great option.