The coronavirus has highjacked our life, holding us hostage! We’re left with fear, worry, and unsure of what the future may bring.
To protect our health, we’re diligently washing hands, trying to maintain distance from others, and staying home whenever possible.
While these actions keep us physically safe, they come at a cost. Once the crisis is over, the final price tag will be significant… to the tune of not millions, but billions of dollars.
Since the majority of businesses, including small practices, are affected by the crisis, our government stepped in and passed the CARES Act Stimulus package. The programs are designed to help individuals and businesses counteract economic hardship.
Some of the key provisions for individuals include:
- Direct, one-time payments to Americans who pay taxes.
- Expanded unemployment benefits for W-2 employees.
- Use of retirement funds, waiving early withdrawal penalties.
- Increased 401(k) loan limits.
- Coronavirus testing to be covered at no cost to patients.
While small business relief provided under the CARES Act includes a range of provisions, of particular interest to us are the following:
- PPP (Paycheck Protection Program) for employers
- PPP for self-employed and independent contractors
- The EIDL (Economic Injury Disaster Loan) Emergency Advance
PPP for Employers
This program is geared to help small businesses keep employees on the payroll during the crisis. The loan amount is based on a calculation using the prior 12-month average monthly payroll multiplied by 2.5.
The loan may be fully forgiven if employees stay on the payroll for a full eight weeks, and funds are used for payroll, rent, utilities, or mortgage interest. At least 75% of the forgiven amount must have been applied toward payroll.
The loan does not require collateral or personal guarantees. In case it must be repaid, the loan has a maturity of 2 years, an interest rate of 1%, and loan payments may be deferred for six months.
Loan application may be made with existing SBA lenders; however, many banks will accept applications from current business clients only.
This program has been open since April 3, 2020, and will be available through June 30, 2020.
PPP for Self-Employed and Independent Contractors
Beginning Friday, April 10th, individuals who are self-employed or work as independent contractors may apply for the SBA PPP Loan.
Since this category of worker does not receive wages, in all likeliness, the average monthly income from self-employment will be the basis for the eligible loan amount, multiplied by 2.5. Details about the program have not been released at this time.
Loan application is made through current SBA lenders. Many banks will prefer to work with their existing business clients. In all likeliness, the documentation required will include your schedule C, which shows your net income from self-employment.
Loan forgiveness for this program may be possible; specifics, however, are not known at this time. It’s reasonable to assume that funds must be spent on business-related expenses to be considered for loan forgiveness.
This program opens to applicants beginning Friday, April 10, 2020.
EIDL – Economic Injury Disaster Loan and Loan Advance
The EIDL is designed to provide support to small businesses so that they can bridge the temporary loss of revenue due to the economic disruption.
Who is eligible to apply? Small businesses under 500 employees, sole proprietors, independent contractors, and self-employed individuals experiencing temporary loss in revenue may apply.
The loan advance portion of the program provides an advance of up to $10,000 available within days of application.
Loan application is made on the SBA website. While the program is based on need, you do not have to request a specific amount initially.
According to information obtained from Investopedia, no matter if your EIDL is approved or not, the advance does not have to be repaid.
Here is the million-dollar question?
Should you take on debt if you’re experiencing problems in your business?
If you think you will need cash now or over the coming weeks so you can stay in business, don’t think twice, apply.
Demand for these programs has been overwhelming, and funds may run out. And while more funds may come available later on, it takes weeks to process applications.
The bottom line is this: if you think you need money to stay in business, apply today! Don’t wait!
The information in this article was obtained from several sources. It does not represent legal or financial advice. Please verify all information and consult with the appropriate professional advisor.
Also, understand that the specifics of the programs are likely to change, sometimes from day to day. It is your sole responsibility to obtain, understand, and verify all details before making your decision.
As always, let us know what your experiences have been and what you think about the topic. We genuinely welcome your feedback.
By Johanna Hofmann, MBA, LAc; regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.”