Small businesses hit hard by economic turmoil amid the COVID-19 pandemic may gain some relief through a new $349 billion lending program.
The Paycheck Protection Program (PPP) through the Small Business Administration launched April 3.
It’s a key component of a $2 trillion economic stimulus package dubbed the Coronavirus Aid, Relief and Economic Security Act (CARES). The business components of the act largely are geared toward employee retention and offsetting the loss of revenue.
Loans dispersed through the Paycheck Protection Program are federally guaranteed and are being offered at a 4 percent interest rate over 10 years.
The first six months of principal and interest are automatically deferred.
Download the PPP application form online.
The SBA says PPP loans are available for businesses with less than 500 employees, including sole proprietorships, independent contractors and people who are self-employed. Private nonprofit and veterans’ organizations affected by the COVID-19 pandemic also can apply.
Employers that meet that criteria can take out PPP loans up to two and a half times their monthly payroll costs, up to $10 million. Payroll costs are based on 2019 figures except in cases of seasonal operations or newer businesses.
Applicants need to provide the SBA information on:
• Employee compensation (excluding compensation over $100,000).
• Health care benefit premiums.
• Retirement plan costs.
• State and local taxes.
• Federal unemployment taxes.
Those interested in applying for a PPP loan can do so through any existing SBA 7(a) lender, federally insured depository institution or credit union and participating Farm Credit System institution. Additional lenders will be added following approval and enrollment in the PPP program, according to the SBA.
Consult your local lender to determine if it is participating in the PPP program.
The PPP program is in effect through June 30, 2020.
Loan forgiveness options
Borrowers who maintain their payroll during the coronavirus pandemic or return to their previous payroll level after the crisis could have their PPP loan forgiven, the SBA says.
At least 75 percent of a PPP loan must be used for the borrower’s payroll to be eligible for loan forgiveness. The money also can be used to pay rent, a mortgage or utilities.
The SBA says loan forgiveness will be reduced if a borrower’s full-time headcount declines or if salaries and wages decrease.
Personal guarantees or collateral are not required to obtain a PPP loan, and borrowers will not be charged any fees to participate in the program.
Forgiven loans are not subject to tax.
Employee Retention Tax Credit
Employers may choose to forego a PPP loan in favor an employee retention tax credit through the U.S. Treasury Department and the Internal Revenue Service.
The IRS says all employers and tax-exempt organizations regardless of size are eligible for the credit with certain exceptions. State and local governments and small businesses who take small business loans are not eligible.
Small businesses that are experiencing closure or a COVID-19-related decline of 50 percent in gross receipts of the comparable quarter in 2019 can redeem the credit to delay paying employer payroll taxes.
The IRS says the employer no longer qualifies for the credit once gross receipts go above 80 percent of the comparable quarter in 2019. The employer would finish the current quarter before the tax credit expires.
These calculations are based on calendar quarters.
How it works
A retention credit is a fully refundable credit equal to 50 percent of certain employee wages paid up to $10,000 from March 13, 2020 through Dec. 31, 2020. Types of wages include cash payments, and a portion of the employer’s cost of health insurance paid per employee.
Employers with more than 100 employees can obtain a retention tax credit for 50 percent of wages paid to employees who are not working during the calendar quarter due to COVID-19. Employers with less than 100 employees could use that credit for 50 percent of wages paid to all employees, regardless of whether they were working. The employer can still receive the credit if employees were paid for full-time work.
According to the IRS, eligible employers must report their qualified wages and related health insurance costs on their quarterly employment tax returns or Form 941 starting with the second quarter to receive their tax credit.
Employers also have the option to defer paying their social security tax liability. However, half of all deferred amounts must be repaid by the end of 2021, with the other half paid back by Dec. 31, 2022.
About us: As the Heartland’s leading employer services company, Syndeo partners with local business owners to help them minimize risk, improve efficiency and maximize profitability allowing them the freedom to focus on growth and fulfilling their mission. Syndeo fulfills its mission by taking on all of the HR responsibilities for our clients’ workforce, including employee relations, benefits, risk management and payroll.
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~Josh Heck, Marketing Manager, Syndeo