Federal and state officials are urging distressed small businesses to take advantage of the Paycheck Protection Program, a new $349 billion pool of relief funds that became available on Friday, April 3.
“This is a very simple program. Businesses will get forgivable loans as long as they keep their people employed,” said Gov. Jared Polis during his Friday press conference.
Businesses and nonprofits with 500 or fewer employees can borrow up to 2.5 times last year’s average monthly payroll, up to a maximum of $10 million. If employees are kept on the payroll for eight weeks and the money is used for employee expenses, rent, mortgage interest, or utilities through June 30, the entire loan can be forgiven.
Partial forgiveness is also available based on what portion of the loan goes toward employee costs. For example, if a small business owner spends $75,000 on payroll expenses through June 30, then up to $100,000 of the amount borrowed can be forgiven.
And even if the complete loan isn’t forgiven, the debt carries a 1% interest rate and two-year term, making it a cheaper source of capital than credit cards or business credit lines that some businesses are using to stay afloat.
The U.S. Small Business Administration is administering the program and lenders that already provide SBA loans are the best option. They represent 84 out of the 131 banks operating in the state. Other banks and credit unions are expected to join the program with approval.
“Working with your current bank is the fastest way for you to move forward,” Kelly Brough, president and CEO of the Denver Metro Chamber of Commerce, said during a webinar Thursday.
The PPP was part of the $2 trillion CARES act stimulus program passed last week and implementation has moved at lightning speed, with rules dropping down to banks on Thursday afternoon. Loans will be issued on a first-come, first-served basis, so those interested should move fast.
The application is only four-pages, much simpler than what is typically required in other SBA programs. But lenders must still verify borrowers are who they claim to be and the amount borrowed is justified. If banks get verification wrong, they could be liable for fraudulent loans, one reason many will be more comfortable working with current customers.
“Our banks know businesses are struggling and they want to give borrowers access to the funds they need as soon as humanly possible,” said Don Childears, chief executive officer of the Colorado Bankers Association, in an advisory.
The federal government is hoping loan funds can star hitting bank accounts by later next week. But Childears said questions continue to outnumber answers and verification takes time.
“The problem is nobody knows what is going on. The banks don’t know what is going on. They are not ready,” said Geta Asfaw, owner of seven McDonald’s restaurant locations in metro Denver.
Although he has had to close one location on the Auraria campus, Asfaw has largely avoided the closures and layoffs many small businesses have gone through. But sales are down and he plans to access a PPP loan, although he plans to wait a few days until the kinks are worked out.
“The most important thing is to get it out as soon as possible. It will be hard,” he said of the new loan program. “When you close your business, one day is like one year. It is too long. When you take two or three weeks off, it is like forever.”
Conditions are grim for small businesses across the country. Nearly a quarter of them report having temporarily closed their doors in the last two weeks, and of those that haven’t closed, another 40% said they will likely close over the next two weeks, according to a survey from the U.S. Chamber of Commerce and Metlife.
Homebase, which provides workhour tracking software, estimates that half of its most small business clients in metro Denver had shut down operations as of Wednesday and that 61% of the employees on its system locally at the start of the year are no longer putting in hours.
Times are also hard for independent contractors and gig economy workers who either have a payroll of one or have to pull money out of the business on an as-needed basis. They will be able to access the Paycheck Protection Program starting on April 10, next Friday.
Because of that, small businesses shouldn’t include outside contractors in their labor-cost calculations. And the individual wages they can count are capped at $100,000. Startups that don’t have a full year of data are allowed to use an average of January and February payroll expenses.
For small businesses that have already closed, the program provides an incentive to hire back workers. For those who can’t stay open, it may sway the calculation in favor of a furlough, where benefits are maintained, rather than a layoff.
But the calculation can get complicated in cases where displaced workers earn a low wage and would make more drawing unemployment benefits, which now include an extra $600 a week from the federal government on top of what the state would normally pay.
Those with questions about applying for a PPP loan or other relief programs are encouraged to contact the state’s Small Business Navigator site run by the state’s Small Business Development Center.
“Depending on your situation, a prudent action would be to apply to multiple products and as you weigh your options and learn more of the intricacies of how they interact together, you can then make additional informed decisions on how you will choose to use and expend each of the grants and loans,” the Small Business Development Center advises.
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