On June 3, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) of 2020 was signed into law to give borrowers additional time and flexibility to use the Paycheck Protection Program (PPP) loan proceeds. Please refer to this link for updates on the PPP program as of June 3, 2020.
While coronavirus-related shutdowns are causing economic turmoil across the board, small-business owners and their employees have been among the hardest hit financially. Millions of people are suddenly unsure of how long they’ll be idle and where they can turn for financial help.
A key goal at Mercer Advisors is to provide reliable guidance for our clients on how to manage their finances through challenging times. Here is what you need to know.
As the Act is written now, small businesses can get assistance through the Small Business Administration (SBA) in two ways:
Both loans enable businesses to maintain payroll, provide paid sick leave to employees, meet increased costs to obtain materials, make rent or mortgage payments, and repay unmet obligations due to revenue losses.
The CARES Act establishes emergency funding to allow a small business that has applied for an EIDL loan due to COVID-19 to request an advance on that loan. The amount cannot be more than $10,000, which the SBA must distribute within three days. Applicants shall not be required to repay advance payments, even if they are subsequently denied for an EIDL loan.
Small businesses would qualify for loans equal to 250% of their average monthly payroll* up to $10 million. Companies will be eligible for loan forgiveness through the Paycheck Protection Program for an amount equal to the cost of maintaining their payroll during the covered period of February 15, 2020 – June 30, 2020. The program would provide 8 weeks of cash-flow assistance through federally guaranteed loans to small employers who maintain their payroll during this emergency. If the employer maintains its payroll, then the portion of the loan used for covered expenses would be forgiven.
Loans would be available to small businesses immediately through more than 800 existing Small Business Administration certified lenders, which include banks, credit unions, and other financial institutions. The program would allow for automatic deferment of payments for one year, and no prepayment penalties. All small businesses that were operational on February 15, 2020, and had employees or contractors for whom it paid salaries and payroll taxes, are eligible for the loans given that it is not feasible during this crisis for lenders to determine businesses’ ability to repay the loan as they normally would.
If employees are laid off during the loan period, this will reduce the loan forgiveness amount. And the portion of the loan not forgiven is payable over a maximum of 10 years at a maximum of 4% interest.
Even though many of the financial pressures from the coronavirus pandemic are beyond their control, small-business owners can take steps to create breathing room to help weather this crisis.
Here are several interim steps to consider:
Despite how unpredictable and unsettling the current environment may feel, no small-business owner should struggle through it alone. Mercer Advisors offers guidance through webcasts, articles, newsletters, and social media.
Also, check out the Mercer Advisors online resource center for frequent updates on how COVID-19 is affecting the financial markets and our guidance for keeping your wealth management objectives on track as this crisis unfolds.
Contact your HR consultant, payroll provider or attorney for help navigating the specifics of labor law.
*Covered payroll costs include salary, wages, and payment of cash tips (up to an annual rate of pay of $100,000); employee group healthcare benefits, including insurance premiums; retirement contributions; and covered leave. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers who rehire workers previously laid off can include the payroll costs for those workers to obtain a bigger loan.
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