The Corona Pandemic has forced the economy into a slump which can take at least a year to return to normalcy, considering the vaccine is around. The March and April have witnessed the US economy buckle like never before: the stock market sunk, the unemployment rate shot up faster than the 2008 recession as the lockdown guaranteed closure of factories of all the sectors. The economy did not just stand still but has plummeted giving out a rude shock.
COVID-19 & Implementation of CARES Act:
However, the $2 Billion CARES Act, since its implementation has been helping the economy stay afloat by providing relief to the businesses, individuals, American households & government organizations that have been hit hard by the pandemic. The implementation of the CARES Act has triggered the healing of the economy in more ways than one. The economic relief for businesses in the form of loans, tax provisions, rebates, and other relief programs is slowly paving the way for the economy to rebound.
Especially, The Pay Check Protection Program under the CARES Act has played a crucial role in helping millions of American employers sustain their businesses, thus helping American workers keep their jobs during the pandemic. However, many businesses are not aware of the coveted Pay Check Protection Program to seek the help required. With this article here, Outsourced Bookkeeping has decided to give a fair idea about the Pay Check Protection Program to the business owners, and here we go:
What is the Pay Check Protection Program?
The Pay Check Protection Program (PPP) is a $350-billion loan program which is one segment of the CARES Act. Under this program, eligible American businesses are provided federally guaranteed loans to pay towards payroll of the employees and other business expenditures, as directed by the government.
The highlight of this Pay Check Protection Program is that the loans given to the businesses are forgiven by the government, as long as the loans are used to cover the employee payroll, rents, utilities, business mortgage, and interests. Other highlights of the Pay Check Protection Program include:
- All small businesses are eligible for the loans by SBAs
- If not forgiven, the loan can be paid within 2 years at a fixed interest of 1%.
- It contains no overhead fees and all the loan payments shall be deferred for 6 months.
- Neither personal guarantees nor collaterals are required for the loan.
How much loan funding is sanctioned to the businesses under the Pay Check Protection Program?
The loan amount shall be to the tune of 2.5 times the average monthly payroll cost incurred to the business in 2019. For a seasonal business, the average monthly payroll is calculated for 12 weeks anytime from Feb 2019 to June 2019. And the maximum loan amount to a business is capped at $10 million. Independent contractors and self-employed individuals are also eligible to apply for the loan under Pay Check Protection Program but need different documentation during application.
How does the loan qualify to be forgiven?
For the loan to be forgiven, the government wants the business to spend at least 75% of the loan amount towards employee payroll and benefits which can constitute salary, commission, wages, personal, family, parental medical allowances, insurance premiums, and healthcare benefits. And the remaining 25% of the loan amount can be spent on rents, mortgages, and utilities. The loan amount must be used as directed by the lender over the next 8-weeks after getting the loan amount.
The recipients must keep all the accounting and bookkeeping necessary to prove his expenses during these 8 weeks. And as they apply for the forgiveness, the lender upon verifying the records decides within 60 days of the application.
Pay Check Protection Program – Impact on the businesses:
Pay Check Protection with its forgivable loans essentially guards the employers and its employees during this economic slump by helping the business stay afloat. Since its implementation in March, Pay Check Protection Program has directed excess of $530 billion (extended) to 4.5 million businesses across the states. With more than 2.5 million jobs added in May, the Pay Check Protection has triggered the stabilization of the economy. However, the best is yet to come.
Economy Update 2020 – Pay Check Protection Program Flexibility Act of 2020:
On June 5, 2020, President Trump has signed the new Pay Check Protection Program Flexibility Act that provides the freedom to the business owners in spending the loan amounts making it even easier for businesses to score loan forgiveness.
This Act reduces the mandatory payroll spending from 75% to 60%, extends the spending period from 8 weeks to 24 weeks, and further pushes the time to pay off the loan from 2 to 5 years. These amends in addition to other minor tweaks further increases the chance of scoring loan forgiveness for the business thus, helping millions of businesses and employees, while stabilizing the economy.
However, there are few rules and regulations when it comes to Pay Check Protections Program. For example, this program may not be clubbed in combination with other tax and business provisions granted under the CARES Act. So if you are a business owner looking to leverage the Pay Check Protection Program you need help from experts who can help you with the PPP program.
At Outsourced Bookkeeping, our team of tax experts we have helped hundreds of businesses benefit from the Pay Check Protection Program and can help you too. You can contact us here: https://outsourcedbookeeping.com/