One of the simplest loans made available from the Fed to aid small businesses impacted by COVID-19 (under the CARES Act) is the Paycheck Protection Program (PPP). It is relatively easy to apply for it and many car audio dealers will meet its requirements. Businesses may begin to apply on Friday, April 3.
Todd Ramsey of the Ramsey Consulting Group, which is helping dealers to fill out loan applications, stresses that THIS IS A FORGIVABLE LOAN. There’s no collateral and it takes 10 or 15 minutes to fill out the initial form.
The PPP provides 2 1/2 months of payroll monies and operating costs such as rent, utilities, etc. for your business. As long as the money, in fact, goes to cover payroll and those critical operating expenses, there’s no need to pay back the loan, said Ramsey. You must retain your employees from February 15 through June 30.
Again, banks start accepting PPP loan applications on Friday. A sample application you can submit to most banks (any bank affiliated with the Small Business Administration-SBA) can be found here. Although the SBA backs the PPP loan, it is administered by banks and NOT the SBA itself. So you will need to apply through your bank.
Every expert we polled said it is very important to file early. Loans are granted on a first come, first served basis! While $349 billion has been earmarked for the program, when it runs dry, it will take another act of Congress to approve more funds.
Ramsey helped answer some basic questions about the PPP loan application process:
Who should apply?
Anyone with employees, employees on commission, or
independent contractors. According to Ramsey and our local SBA representative, if you are self-employed without employees or if you are a contractor, you may also apply. But, contractors and self-employed without employees should apply starting April 10, said the SBA.
Ramsey adds, “I’m afraid some dealers will be too proud to apply and think, ‘I don’t need a loan.’ But this frees up cash flow for something else.”
How to apply
Forbes and a NY accountant we contacted suggest you fill out the sample PPP loan application here and call your bank to make sure it is SBA affiliated and then ask it how to proceed. And again, do it soon, to get your application in ASAP! (Update: Many banks are offering the PPP loans so contact your bank for their particular form and application process).
How do you determine the amount of the forgivable loan?
Forbes magazine and Ramsey say the following: Calculate your average monthly payroll expense over the last 12 months. Cap any one individual salary amount at $100,000 (that’s the limit of any one employee allowed, even if they earn $120K). Add up payroll and income taxes, include contract workers, and commissions. Divide by 12 so you get the payroll of one month and multiply that by 2.5 times. You effectively get a forgivable loan for 2 1/2 months of payroll as long as it doesn’t exceed $10 million.
Forbes suggest you fill out this worksheet to have the info ready.
What’s the Advantage of the PPP vs. furloughing employees?
If an employee is furloughed, he or she is not supposed to come into the shop and do work on the side. But if he’s on the payroll with the PPP forgivable loan, then the employee can help clean up the shop or he can receive sales and product training during those 2 ½ months, said Ramsey.
What happens if I don’t use it all for payroll?
The loan is intended specifically for payroll and is forgiven if you use it for that. If used for other expenses, then the monies revert to a two year loan at a 0.5% fixed rate.
What are the loan requirements?
You must show your business was in operation as of Feb. 15, 2020, and that it had employees for whom it paid salaries and payroll taxes. If you are self-employed, you show your earnings, we assume. It is important to stress that you must retain the employees to get the loan forgiveness of 2 1/2 months. More details may be found here.
We should add that there is still much confusion on the loans and requirements. A NY accountant said the application for PPP literally changed in the past 24 hours. Even as of this morning, some local banks have not yet been instructed on details.
There are two other SBA loans available that we don’t discuss here. See our story here. The second key loan is called the Emergency Economic Injury Grant. The Bridgeport CT SBA representative said it is designed to provide working capital to a business to cover its fixed costs at 3.75 percent. $10K of that loan is forgivable. The third loan, Small Business Debt Relief Program, helps you keep up with your payments on an existing SBA loan, if you have one.
Additional questions on the PPP loan are answered by INC magazine here.
Additional sources of information: