By Carol and Robert Tannenhauser
The federal government has launched a loan program designed to help small businesses and their employees through this period of closings and layoffs.
Small businesses do not just mean mom-and-pop shops and restaurants: they also include nonprofits, the self employed, professional offices, and others, as long as they have fewer than 500 employees and have been in business as of February 15, 2020. The purpose of the program is to lift the burden of payroll costs from employers during this fallow period, and to ensure that employee salaries and benefits continue to be paid.
Robert Tannenhauser, consultant to ConnectOne Bank and a long-time Small Business Administration (SBA) lender (and full-disclosure, the writer’s husband with whom she is sequestered), explained what is called the Paycheck Protection Program to WSR (the only face-to-face interview in a month.) The program is included in the $2 trillion CARES (Coronavirus Aid, Relief, and Economic Security) Act that President Trump signed into law on March 27th.
WSR: Why did they include the Payroll Protection Program and how does it work?
RT: It’s pretty simple; they made it that way because they want to get the money out fast. Basically, the goal is for businesses and eligible nonprofits to retain their employees on payroll for at least the next two-and-a-half months — and, hopefully, to be able to return to normal operations once the crisis is past. The program is structured so that participating banks can give SBA-guaranteed loans to eligible businesses and nonprofits. The amazing part is that the loans can be forgiven, basically, if you don’t fire anyone.
WSR: How much money can businesses get?
RT: The amount is equal to 2.5 times your average monthly payroll costs for the past 12 months not to exceed $10 million. You can only count up to $100,000 of an employee’s salary for this purpose. Payroll costs include salaries, commissions, payments for parental, family, medical or sick leave, health care and retirement benefits, and some others.
WSR: How does someone apply?
RT: You can apply directly to your bank if they are a participating SBA lender.
WSR: How is the loan forgiven?
RT: The borrower submits a certified application for forgiveness to the lender, documenting the number of employees on payroll and their pay rates for the eight-week period beginning on the date of the loan. If there is no reduction on the number of employees, the full amount is forgiven. If there is a reduction, the amount forgiven is proportionately reduced.
WSR: You know what they say if something sounds to good to be true?
RT: In this case, it is true. Just like the government is sending checks directly to individuals, they are directly helping companies retain and pay their employees and keep them off the unemployment rolls. Therefore, the business has a better chance of surviving.