How to Get Federal COVID-19 Small-Business Loans

What You Need to Know about the CARES Act’s Paycheck Protection Program

On March 27, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, allocating $350 billion to help small businesses and nonprofits survive the pandemic-induced economic freefall. 

One initiative within this legislation, the Paycheck Protection Program, provides federally guaranteed loans to help eligible organizations maintain payrolls through June 2020. All, or a portion of these loans, may be forgiven if organizations meet certain requirements. 

Applications for the Paycheck Protection Program are run through private banks and credit unions. Some institutions started receiving applications April 3, some plan to offer them next week, and some have declined to participate at all.

Who is Eligible for a Loan through the Paycheck Protection Program?
  • Small businesses and private nonprofits with fewer than 500 workers (full-time, part-time and any other status) 
  • Self-employed people, sole proprietors and independent contractors
  • Veteran organizations
  • Tribal businesses

Businesses must have been operational on February 15 to apply.

How Much Can You Borrow?

Organizations may borrow up to 2.5 times their monthly payroll costs, up to $10 million, with interest rates capped at 4 percent. Payroll costs exclude wages over $100,000, payroll taxes, income taxes, railroad retirement taxes and compensation for workers who live outside the United States. To calculate monthly payroll costs, businesses should subtract excluded costs from yearly payroll totals and divide by 12. 

Unlike other SBA programs, the Paycheck Protection Program does not require personal guarantee or collateral, and applicants will not be asked about previous credit applications.

What Are the Requirements to be Eligible for Loan Forgiveness?

Borrowers are eligible to have their loans forgiven if they maintain payroll levels, and continue to pay workers normal wages for at least eight weeks after the origination of the loan. Funds used to pay qualified payroll cost, mortgage interest, rent, utilities and additional wages for tipped employees are all eligible for forgiveness. 

If a business or nonprofit reduces the number of full-time employees or wages to staff by more than 25 percent of the previous year’s numbers, the amount forgiven will be reduced. 

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