Over the past few weeks, I have discussed with dozens of landscape businesses how COVID -19 has impacted their workflow. Some have been hit harder than others, and many do not know how they are going to stay afloat in these uncertain economic times. However, for the first time in a while there is some good news: The Coronavirus Aid, Relief, and Economic Security (CARES) ACT. I wanted to provide a quick and simple explanation of a specific part of the bill - the Paycheck Protection Program. It is my hope that this would help landscapers make an educated decision on whether it is a viable option for their business and begin to move forward on the road to recovery.
What is the Paycheck Protection Program?
The Paycheck Protection Program is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, commonly known as the stimulus package that was just passed by Congress. This program provides $349 billion in 100% federally guaranteed loans to small businesses, 501(c)(3) nonprofits, and other organizations.
The program is offering terms of 4% interest for up to 10 years with no collateral or personal guarantees. However, most people are interested in finding out about the "forgivable loan" portion of the program that has been widely referenced.
What businesses are eligible?
Any business with less than 500 employees can be eligible for this program, given they make a "good faith certification" of the following:
Due to the uncertain economic situation the business needs the loan to continue operations
Acknowledge the funds will be used to retain workers and maintain payroll, make mortgage payments, lease payments and/or utility payments
The applicant has not applied or received funding under this bill already
Sole proprietors, 1099 contractors, and self-employed individuals are also eligible.
What can I use the funds for?
Technically, businesses can use the funds for any purpose they want, but in order for the loan to be forgivable funds have to be used for:
Payroll and commission payments
Group health care benefits and health insurance premiums
Rent and lease payments
Interest on any other debt that was incurred before February 15, 2020
If the funds are used for any other purposes the loan will not be eligible for forgiveness.
How much funding can I receive?
Businesses will be required to provide documentation on payroll, mortgage, rent, and utility payments over the previous 12-month period. They will average the monthly cost of those expenses and provide you with up to 2.5 times that amount, but no more than $10 million.
If you are a seasonal business, they will take your costs from a 12-week period either beginning on February 15, 2019, or March 1, 2019, and ending on June 30, 2019.
If your business did not exist in 2019, your costs will be taken from January and February 2020.
How do I get my loan forgiven?
In the 8-week period following your loan signing date all of the following expenses can be forgiven:
Payroll - salary, wage, commission, payment of cash tips, vacation, parental, family, medical, or sick leave
Mortgage interest (contract signed before February 15, 2020)
Rent (agreement in effect before February 15, 2020)
Utilities (service began before February 15, 2020)
The lender is required to make a decision on whether your loan is forgivable 60 days from submitting the application. I also want to note that these are the guidelines stated in the 880-page CARE ACT. The SBA has been given 30 days to issue official requirements on what makes a loan forgivable.
How do I apply?
As of now there are 1,800 banks participating in this program nationwide. You simply need to walk into a bank and tell them you want to apply for a Paycheck Protection Program loan. If they aren't sure what you are talking about, go to a different bank.
The point of this bill is to get money into the hands of businesses that need it as quickly as possible. Permission has been granted by Congress, but banks are still going to have to figure out their own processes and procedures for actually issuing these loans. Needless to say, over the next week or so we will continue to learn more.
This program is the solution to the “Does my insurance cover business income losses?” problem. It does essentially the same thing that business interruption coverage would do, but at a lower cost to the insured. It provides funds to retain your employees and pay your essential expenses, and if done right you don’t have to pay back the loan. Like the saying goes “nothing in life is free”, so I’m sure businesses will end up paying this money back somehow, be it taxes, or another form, but if it helps get you through this current crisis it is worth it.
At Allen Insurance Group we care about helping all businesses, whether they are our clients or not. We do not simply write insurance policies, we help businesses develop a holistic strategy for continued growth. In times like this, we help businesses tweak their strategies to stay afloat. We want to do whatever we can to help all businesses thrive. If you have any questions please do not hesitate to reach out.