With the CARES Act being signed into law last month, there are two main options small business owners have to help pay for things like their employees’ wages, rent, mortgage insurance, and utilities.
One, the Paycheck Protection Program (PPP), is part of the CARES Act that was signed into law last week. Second, the Economic Injury Disaster Loan (EIDL) is something that has always been available through the Small Business Administration (SBA).
They are different in what they cover and what needs to be paid back. But, with either of these programs, contractors can move through this pandemic without losing some of their most valuable assets, their employees.
First, let’s take a look at the Paycheck Protection Program (PPP). Its primary purpose is to ensure businesses can pay their employees for 8 weeks.
Total your monthly expenses from payroll, rent, mortgage insurance, and utilities. Multiply that number by 2.5 and that is the amount you are eligible for. You will have to show documents of your 2019 payroll. If you are a new business and do not have that information, you are asked to show whatever you can to prove what your expenses were.
When the time comes to show where this money went, if you show you continued to pay all your employees (even the ones who aren’t working), rent, and utilities the entire loan will be completely forgiven. If you did not use all of the loan, or used some of the money on items not included in the program, that amount turns into a 2-year loan with 1% interest.
Additional PPP info:
- Employee Wages
- Covers all benefits and PTO.
- Salaries cap at $100,000. If an employee makes more than $100,000, then they can only count up to $100,000.
- ALL employees count. Even the employees who are not working at all.
- Rent/Mortgage Insurance
- Covers all rent payments.
- It does not cover principle but does cover interest on mortgage (mortgage can be covered in the EIDL loan, will touch on that later).
- Covers all the normal utilities, plus cable/internet.
- Will look at the average monthly cost if available.
- How to apply
- Find a bank that is an SBA authorized bank
- Most national chains are approved and they are working to increase local banks and credit unions quickly.
- If you already bank with one of the national chains, you can/should do it through them as many banks are giving priority to small businesses they already do business with
- Document everything
- Keep clean records on payroll, utilities,
- Who you paid, how much
- Save bills, show payments
- If this is done, the loan is 100% forgiven
- Keep clean records on payroll, utilities,
Now, let’s have a look at the Economic Injury Disaster Loan (EIDL). Keep in mind, this is an actual loan.
- It is a 30-year loan with a 3.75% interest rate
- You can borrow up to $2M.
- You cannot use this to pay for the items you would pay for with the PPP
If you were to apply for the PPP, you could not “double-dip” with the EIDL. If your expenses surpass what you applied for with the PPP (ie. wanted to assure your employees who were making >$100k that their entire salary would be covered or your slowdown is longer than the 8 weeks the PPP covers) the EIDL could pay for wages, rent, utilities, etc… The EIDL is good if you need additional cash flow outside of payroll. It could be used to keep paying an outstanding debt to a distributor so you don’t go into default or to help manage your inventory. At the end of the day though, this is a loan that you will pay back. To apply for this loan, you would do so through the sba.gov website.
The number one worry is keeping us, our families, and our communities healthy and safe. The next biggest worry is the negative effect this will have on our economy… most notably our small businesses. When it comes to what option or options are best for you and your business, be sure to do your homework before making any decisions.
And, keep in mind:
- We are all in this together.
- Our industry has been deemed essential, as it should be
Work may have slowed a little bit but with the vast majority of the population staying home coupled with the weather warming up, Americans’ patience will be short for a warm house. It’s safe to say that they will still call you to fix their AC and/or any plumbing mishaps. I know I will (and have).
If you can put together a plan to take advantage of either the PPP or the EIDL, this turns into a huge opportunity for you to add in some additional training to your staff (online NATE class, financing best practices) and for you to look at some other ways to improve your business (grow maintenance plans and better up to date on all the new tools available to you through technology and coaching).
We are all using this time to grow better and it excites me for what we, as an industry, can do moving forward.
Additional Resources can be found on the following sites: