This past Tuesday, on March 31st, the third and final revisions were made to the historic $2 billion stimulus bill, meant to serve as relief for a workforce drastically affected by state lockdowns. The bill has been in debate for some time, with a lot of political back-and-forth, so many are confused about some of the finer details that have been settled on. On a wider economic incentive, the most talked-about part of the bill that can help people make it through the pandemic is the Small Business Loan part of the stimulus, effective Friday, April 3rd.
What exactly is it? Here, we’ll break down the basics of it, and how it helps with entrepreneurial liquidity, employment, and incentive to re-hire laid off workers.
These are uncertain times, but there are many steps being taken to help people get through to the other side. Let’s look at what’s being offered:
What is it?
- Called the Paycheck Protection Program, the purpose is to provide relief in the short-term to sustain both employment and operations at small businesses.
- Out of the $2 trillion Stimulus Package, the Paycheck Protection Program composes of up to $349 billion in forgivable loans for small businesses that do not lay off employees.
- Loans carry interest rate of 0.5% to 1%. The first payment is deferred for six months. No collateral or personal guarantees required for these loans, and there will be no application fee.
What Qualifies as a Small Business? Who Is Eligible?
- The loan program is available to companies that have 500 employees or less, where the average annual salary for employees does not exceed $100,000.00 per employee (or more than $33,333.00 per quarterly payroll).
- Self-employed individuals, independent contractors, sole proprietors, non-profits, veterans and tribal organizations are also eligible.
- Priority will be given to small businesses in rural markets, under-served markets or underprivileged markets (such as veterans), and businesses that are less than two years old.
How Much Can A Business Receive? What are the criteria?
- Loans are capped at $10 million maximum, with the loans carrying an interest rate up to 1%. This is so they can cover up to two months of payroll and expenses.
- These loan funds can be used for payroll, rent space, mortgage interest and utilities. They are to cover up to two months of payroll for all employees, based on reported salaries/income, and the loan will usually average two months of payroll costs from the past year plus an additional 25% of that amount for extra costs.
The loans are available retroactively from Feb 15, so if a small business laid off employees, they can rehire recently laid off employees until June 30th. Any reduction of employees or pay compared with Feb 15 levels decreases the loan amount accordingly. This gives small businesses incentive to not lay off their employees, and also gives incentive for them to rehire during our country’s struggle against the shutdowns. The loan amount is reduced if the small business laid off employees recently, and the loan will have no reduction if all employees are rehired and their full salaries restored.
If the borrower retains workers and does not lay off employees, the government will forgive most or all of their loans and repay the bank lenders.
The loan can be used for all costs of business operation, including employee payroll and compensation such as health care, interest on mortgage, rent and utilities, and even debt payments.
The loans are federally guaranteed, which means little to no interest, and without taxes implications. All loan payments are deferred for up to one year. The loan is forgivable for an eight-week period from its start date, meaning no payments would need to be made or negotiated to deferment for two months. With met conditions, the loans can eventually be totally forgiven.
When Does This Start?
- The loans will be available to apply for at all federally insured banks and credit unions, along with other lenders approved for SBA-guaranteed loans, starting Friday, April 3rd.
- Independent contractors and self-employed individuals must wait until April 10th to apply, due to prioritization of small businesses and the amount of employees they have.
Where Can I find Official Information and Updates?
- The SBA and the Treasury Department have set up webpages for the loans which will include updates.
What Does This Mean for Investors?
More than ever, the importance of protecting and preserving your wealth is obvious and crucial. The pandemic sheds light on many vulnerabilities, from institutions to individuals – and those who did not have economic security or savings are in the most need of immediate relief.
Continued help will certainly be imminent for as long as the crisis lasts, and as long as it has an effect on how businesses operate in order to maintain social-distancing guidelines.
The stimulus package, especially the Paycheck Protection Program, offers relief and assistance in a way that will put many back to work, and keep many business doors running and operating after the peak of social distancing is over. It will pull people back into the participating economy and employment. No matter how dire things might seem, there is help being implemented, and it will continue to be implemented.
As uncertain as these times can be, it’s always clear that having money protected and invested is important. Although it is understandable to be afraid right now, it is an opportune time for buying and protecting money, and there will be work on multiple national levels to get the workforce running again.
As an investor, it is good to take advantage of opportunity – such as applying for the Paycheck Protection Program and continuing to invest in the market. Fees don’t need to be an issue, because many mobile trading apps are open to the public, and a trading platform with algorithms designed to protect your cash during vulnerable periods such as iFlip’s Mobile app can help any investor participate with caution.