As the restaurant industry reels from the effects of the COVID-19 pandemic, many await their due from the CARES Act – the $2.2 trillion relief package meant to stimulate and safeguard the economy through social distancing.
$349 billion of that package was allocated to the small business association (SBA) to distribute as loans to small businesses – like restaurants and bars – that are affected by the shelter-in-place rules.
The Payroll Protection Program (PPP) is intended to help you cover expenses related to your payroll, including wages, salaries, and benefits. It’s supposed to help tide over small businesses like restaurants who cannot normally operate during the lockdowns.
There’s a long way to go from eligibility to getting a loan, and a lot of different (and sometimes conflicting) information out there. Getting the help you and your employees need shouldn’t be as scary as the pandemic: here are ten things you need to know to apply for a PPP loan.
Before we get started, you can find the Borrower Application Form here.
Please note, the information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
1. Only small businesses are eligible to apply
Per the CARES act, any small business with 500 or fewer employees that was in operation as of February 15th, 2020, is eligible for a loan from the SBA.
2. Apply through a SBA approved lender
Stimulus money is only available from approved lenders: here’s a list of every approved SBA lender in the country. We recommend you apply through a lender you already have a banking relationship with to expedite the process.
3. No collateral and no personal guarantees needed
Unlike other loans available from the SBA, like the Economic Injury Disaster Loan, you don’t need to offer any collateral or personal guarantees when applying for the loan.
4. Loans can be taken out at up to 250% of your average monthly payroll in 2019
You’ll need some well-kept books to get the most out of this, but the limit is capped at a maximum of $10 million, and up to $100,000 in compensation per employee.
5. Money is lent at a 1% interest rate with a repayment term of two years
Per the latest guidance from the SBA (which is still subject to change), loans are given with this interest rate to prevent too many losses for lenders. They were originally set at 0.5%.
6. Lenders will ask for a good faith certification that you need this loan
That means you have to make the case that this loan will help your business continue to operate. You need to prove that the loan will be used to pay your employees and keep them on staff during this period of economic uncertainty. You’ll need documentation for workers, their salaries or wages, as well covered mortgage interest payments, covered rent payments, and covered utilities. You can find that list further down in the blog here.
- Payroll costs, according the PPP, include:
- Salaries, commissions, wages, and tips
- Healthcare benefits
Sick pay, vacation pay, family or medical leave allowances
8. Payroll costs do not presently include payments made to independent contractors.
Principal from the loan spent on payroll will be forgiven, under a few conditions
As long as you spend at least 75% of the loan on payroll expenses, the loan will be forgiven at the end of the 8-week period after you take out the loan. The so-called covered period, or the time for which expenses can be covered by the loan, ranges from February 15th to June 20th, 2020. You can choose what 8 weeks you want covered when you sign for the loan.
100% of the money you take out for payroll costs will be forgiven, assuming you do not fire or lay off any employees. The amount forgiven will be reduced by the difference in headcount, between February 15th 2019 and June 30th 2019, or between January 1st 2020 and February 29th, 2020.
If you spend more than 25% of the loan on non-payroll expenses, the additional money you spent will not be forgiven. That means you’re on the hook for whatever you use to cover your inventory, operating costs, or any other business expenses.
9. Loans can be written for up to a 10-year period
For the money you spend on non-payroll related expenses, you can set the payment period for up to 10 years, and defer payment between six months and one year from the date of signature.
In order to fill out the application completely, you’ll need these tax forms:
- Your payroll report for the calendar year ended December 31, 2019
- Your payroll report for 4/1/2019 to 3/31/2020 (or the nearest date applicable)
- Your employer portion of health insurance premiums paid over the last 12 months.
- The employer match of 401(k) benefits paid over the last 12 months.
- The employer portion of state or local taxes (SUTA)
Make note of any employee whose principal residence is outside the US. However, it’s okay to include employees who are not US citizens, provided they reside in the US.
Here’s a great resource for understanding how to calculate your payroll costs for the purposes of applying for a PPP loan, by calculating the maximum amount you can request. To summarize:
- Aggregate your total payroll costs YtY
- Subtract any wages paid over $100,000
- Calculate monthly costs by dividing over 12
- Multiply by 2.5
Within those total payroll costs, be sure to include your employees’ tips (based on your records or a good-faith estimate) leave allowances, and payroll taxes.
Additional information and resources
The information above primarily concerns restaurants (and other small businesses) with employees. Sole proprietors and freelancers can apply for PPP loans on behalf of themselves, too. The calculations are different (and likely yield smaller amounts,) and they can’t include things like tips and leave allowances, but they’re still covered by the package.
There is a lot of confusion surrounding the bill, and plenty of articles out there criticizing it. It’s not a perfect bill, and House Speaker Nancy Pelosi is spearheading a second round of stimulus to go out before the end of April. One particular point of contention that many are having with the loans is whether you should use your gross costs or your net costs that factor in payroll tax withholdings.
The language of the CARES act suggests you should use gross costs, but many lenders are asking for net costs. Some speculate the bill was written with the intent to limit the amount of money that can be forgiven, so the government wouldn’t forgive money it owes itself through taxes, but there’s still some clarity needed. We’ll update you as soon as we know for sure, but for now it’s in your best interest to go with gross costs and adjust as-needed when you talk with your lender.
MarketMan Can Help
All-in-all, the bill is meant to help you keep the lights on and retain your employees. It’s going to be a rough ride for the restaurant industry, but all signs seem to suggest that when the country opens back up, so too will the demand for the restaurant industry. We’re here to help you get through this in every way we can – we’re offering our full product free for 60 days for all new customers, or until reopening, to help our customers survive this once-in-a-lifetime disaster.
If you need any additional help or have any additional questions, reach out your local lender for more information. The process may vary from lender to lender. Good luck – we can’t wait to see you when the country’s open for business again.