If your business is affected by COVID-19, there are two types of relief you can apply for:
(1) Economic Injury Disaster Loan (EIDL); https://covid19relief.sba.gov/#/
This loan can be directly applied from SBA. The loan amount is up to $2 million with the term of 30 years and an interest of less than 4%. The loan amount is determined by SBA with the factors of how much revenue (or gross profit) your business projects to lose during the pandemic and your ability to repay the debt based on your personal financial statement.
Additionally, SBA may advance up to $10,000 to the applicant who experiences a temporary loss of revenue. Although SBA aims at providing the advance in 3 days, many of our clients, who submitted the applications over a week ago, told us they had not received the advances yet.
(2) Paycheck Protection Program (PPP) Loan
The objective of this PPP Loan is to help businesses with less than 500 employees continue to operate from the forgivable loan during the period from Feb 15, 2020 to June 30, 2020 (covered period).
Eligible businesses include corporation, S-corporation, LLC, partnership, and sole proprietor (self-employed contractor).
These are the key benefits of this program:
a. The loan could be forgiven if the loan proceed is used in payroll, employee benefit, rent (or mortgage for business building) and utilities for 8 weeks in the covered period.
b. For the portion that can’t be forgiven, the loan repayment is not required for the first 6 months. The interest is 1% with the loan term of 2 years.
c. The forgiven amount is not taxable.
What’s the loan amount?
It is 250 percent of the monthly payroll cost. The payroll cost includes payroll (up to $100,000 per employee, and excluding compensation to employees who live in outside of the U.S), employee benefits, state payroll tax (SUI and ETT), and retirement benefits.
For example, if the monthly payroll cost is $50,000, then the loan amount will be 2.5 * 50,000 = $125,000.
How much of the loan is forgiven?
If the loan proceeds are used in payroll (the cap for each employee is up to $100,000 for the annual compensation), rent, mortgage, utilities for 8 weeks in the covered period, the amount paid for these expenses could be forgiven.
As this program aims at encouraging small businesses to keep their employees during the pandemic, the forgiven amount will be reduced by the ratio of the cut of the headcount compared to the same period in 2019, or the payroll amount to the employees is reduced more than 25%.
Warning
Reach out to your banker today! $349 billion has been allocated to this PPP loan, it sounds a lot, but who knows when it could be run out. Don’t miss this opportunity!
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