Friday is the first day small contractors and other companies with fewer than 500 employees can take advantage of a provision in the recent federal stimulus legislation meant to encourage private employers to keep people on their payrolls.
Various industry groups were out with advice this week on how companies can sign up for the $349 billion Paycheck Protection Program, which is just one part of the massive piece of legislation federal lawmakers passed last week in response to the coronavirus pandemic.
“Contractors who are pursuing these loans should contact their banks as soon as possible because these institutions will be overwhelmed with demand and funds are likely to run out,” warned the Associated Builders and Contractors of Wisconsin, which represents many small construction companies. “It is unclear whether banks will give priority to existing clients.”
The Wisconsin Bankers Association issued its own statement acknowledging that the demand for loans will be difficult to meet and calling for patience from the public. The association said there are fewer than 170 institutions in this state that are qualified to take part in the program.
“Sheer volume won’t be the only reason the program will take time,” according to the statement. “Financial institutions still need guidance from federal agencies and regulators in order to move forward with (Paycheck Protection Program) loans. Currently, there are more questions than answers about the expectations of the federal government in the steps needed to begin issuing funds.”
The program could be essential to the economy’s recovery: Small businesses employ about half of all people in the private sector. By some estimates, as many as 20 million people will lose their jobs by the end of April.
Here are questions and answers about financial help available through the government and other sources:
ARE THESE PAYCHECK PROTECTION LOANS FREE?
They can be, if they’re used to retain or hire workers. Starting Friday, the Small Business Administration is guaranteeing $349 billion in forgivable loans. A business with as many as 500 employees, including owners who work solo and freelancers, can borrow as much as $10 million to be repaid over two years at an annual rate of 0.5%. The money that’s used to pay salaries can be forgiven, and at least part of any money used for rent, mortgage interest and utilities can also be forgiven. Payments will be deferred for six months.
You technically can get the full amount of a loan forgiven. But if you cut jobs — say you had 10 employees, let them go, and hired back only five — the amount of loan forgiveness will be reduced, and you’ll have to repay some.
And there’s a caveat from the government: Because so many owners are expected to take advantage of the loans, it’s believed that no more than 25% of the forgiven amount may be for things other than payroll — rent, mortgage interest and utilities. So there’s a good chance you will have some repayments ahead.
You can learn more about the loans here.
HOW DO I GET ONE?
The government says this will be a fast, streamlined system — some companies could get money the same day, rather than having to wait the weeks it usually takes for a standard SBA loan. You can apply through any federally insured bank, credit union or farm-credit institution, not just an SBA lender. Most businesses are expected to apply online, through a financial institution’s website.
You don’t need collateral or a personal guarantee. But you’ll need to document your payroll, rent, mortgage interest and utilities expenses. The payroll part of the loan is set according to the monthly average of what a company paid employees during the year before the loan was granted.
WHEN WILL MY LOAN BE FORGIVEN?
The government will wait until after June 30 to calculate how much of a loan will be forgiven. The program covers the period from Feb. 15 through June 30 and owners will need to document how many workers they employed during that time and how much they were paid.
If you’ve laid off workers, you have until June 30 to rehire them — but the sooner you rehire and start paying them, the larger your loan forgiveness will be.
CAN I GET A DISASTER LOAN TOO?
Yes, but …
The SBA is giving out what are called economic-injury-disaster loans. These are intended to help companies whose revenue losses have left them without working capital, making it difficult or impossible to pay their operating expenses, including payroll, fixed debt payments and accounts payable bills. But a company that gets a disaster loan cannot use the money for payroll purposes if it’s also getting a paycheck protection loan.
The disaster loans give owners as much as $2 million at an annual rate of 3.75%. The loans can be taken out for as many as 30 years, but the terms of each loan will be determined on a case-by-case basis and will depend on each company’s financial situation.
Companies can also apply for a $10,000 loan advance that can be granted within three days, the SBA says. This does not have to be repaid.
Disaster-loan applications are made directly through the SBA on its website https://covid19relief.sba.gov/
WHAT OTHER MONEY IS AVAILABLE?
The Federal Reserve is working to provide loans directly to small businesses. The details have not been announced yet.
Individual states, counties and cities may have loans or grants for small businesses. And those that have not yet announced any programs may yet create them — the outbreak has not yet reached its peak. Check online with your state or local agencies that support small businesses.
CAN FREELANCERS GET UNEMPLOYMENT BENEFITS AND A LOAN TOO?
Yes. The rescue package provides unemployment benefits for freelancers and independent contractors who haven’t qualified for such help in the past. So millions of people, including wedding photographers, graphic artists and writers, who have lost gigs or projects can get unemployment benefits. They’re also eligible for paycheck protection loans — but if they have both types of loans, they cannot use disaster loan money to cover their payrolls.
WHAT ABOUT ONLINE LENDING?
Online lenders promise fast money — some turn loans around the same day — and even in the best of times, many companies with cash flow crunches turn to them. But in many cases the money carries a steep interest rate and big payments. And unlike standard loans, the size of a payment may not be predictable — companies like PayPal, for example, will take a percentage of revenue that comes into a borrower’s account.
Keep in mind that even that even if you end up paying back the full amount you borrow under the Paycheck Protection Program, you’ll be paying just 0.5% over two years.
HOW ABOUT CONCESSIONS FROM LANDLORDS AND OTHER BUSINESSES?
Many small-business owners have been in touch with their landlords, bankers and suppliers, asking for more time to pay. And some have gotten concessions, especially when the business and its creditor or banker have a long-time relationship.
Any concessions or grace periods you can get, especially if they’re interest- and penalty-free, may be a good route to go. Landlords and business associates who want to hold on to your business can be accommodating unless they’re also struggling with cash flow problems. It’s also true that some, perhaps many, are tough business people; some are already suggesting to their tenants and customers that they should seek government loans rather than help from them.
THERE ARE ALWAYS FAMILY AND FRIENDS, RIGHT?
Certainly. And the people close to you may be ready and willing to help — if they can right now. But, for the sake of keeping these relationships solid, if you get a loan from someone close, you need up-front and honest communication now and going forward about how the business is doing, and when you’re likely to repay them.
– The Associated Press contributed to this article