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Last week, the US Government passed an unprecedented $2 trillion dollar stimulus bill in response to the economic impact of COVID-19. That’s a lot of zeros, and with 883-pages in the bill, there’s a lot of info to digest. I’m not sure we’ve ever done this, but we released this episode less than 24 hours after we recorded it, because we know how important this information will be for you and your small business.
Casey Graham is the Co-Founder and CEO of Gravy, the leading failed payment recovery and customer retention solution for companies with recurring revenue. But more than that, Casey is a champion for entrepreneurs, and when the stimulus package passed, he was quick to dive into what it meant for small businesses with CPA and advisory experts, so he could break it down and translate the language for us on the podcast today.
Casey will answer what a stimulus package is, what it means for small businesses, who qualifies, what you need to do to claim it, and all of the important nitty-gritty details broken down into one episode, because I know you’re not using your quarantine time to read all 883-pages of that bill.
Straight to the facts. Let’s talk about the $2 trillion dollar stimulus package and what it means for YOU.
What is a stimulus package?
For a lot of us, this is the first time something like this has happened in our tenure as business owners. The government is stepping in to offer assistance to individuals and business owners in a way that we haven’t seen before.
“The government is printing $2 trillion extra dollars… That they’re going to be giving to individuals and businesses,” Casey started. The stimulus package will pump critical money into the economy with the goal of avoiding a macro economic crisis.
What is the Care Act for Small Businesses?
This is the largest stimulus in the history of the United States with $353 billion of the $2 trillion focused on small businesses alone. The primary goal is to help small businesses keep their people employed.
The Paycheck Protection Program (PPP) will provide a loan from the Small Business Association (SBA) for 2.5 times your average monthly payroll. This loan can become forgivable, essentially making it a grant, if you use the funds for approved expenses.
“Essentially what the government is telling you is that we’re going to give you free money to get [your employees or contractors] back to work,” Casey summarized.
It is a loan, but the forgivable portion is unprecedented.
Who qualifies to receive benefits?
The stimulus bill has outlined the following requirements you must meet for funding:
- In business before Feb. 15, 2020
- Employ less than 500 employees
- Have been impacted by the coronavirus
Some ways you could have been impacted are though lost sales, supply chain issues, product chain issues and lost opportunities. There is gray area there, and experts agree this is for speed to get the funds released and available to those who need it.
While the amount of proof and paperwork required will become clearer in the days ahead, there is a presumption that if you are applying, you have been impacted. You will have to sign an affidavit acknowledging you need these funds as a result of the Coronavirus.
The SBA will be reviewing and approving these loans online within hours. Casey told me that the grey area in eligibility and lack of a “seven step test” to prove need, is simply to speed up the process to get money in the hands of business owners who need it.
How Do I Receive Funds from the Coronavirus Stimulus Bill?
While the process is still being finalized, this is how it will work in the simplest terms. Most business owners should go to their primary bank (as long as it’s FDIC Insured) and be prepared to fill out minimal paperwork.
There are a lot of lenders that are SBA preferred lenders, but every bank that is FDIC Insured is able to release these loans.
Then starts an 8-week clock for small business owners to use the funds on qualifying expenses to keep their business afloat and become eligible for loan forgiveness.
Your total loan amount is based on your payroll expense, but you can use the proceeds for rent, utilities, and health benefits, and other qualified expenses. It is designed to make it possible for you to keep the doors open and your employees paid over an 8-week period.
What would disqualify you from receiving aid?
If you do not have a registered business with an EIN, you might not be eligible for the benefits of this stimulus package. If you were not in business before February 15 of this year, you will not be eligible.
If you don’t utilize payroll (as in, you do not pay 1099 or W2 employees) then you are not eligible for the stimulus package.
If you have already received a Disaster Relief loan, you would not be eligible for this money. One thing to note is this loan from the coronavirus stimulus bill is not the same as the Disaster Loan being touted lately.
Calculate Your Loan Amount
Small business owners are eligible to receive 2.5x payroll to use for things such as payroll, rent, utilities and health care benefits. The loans from the coronavirus stimulus bill are based on a 12-month trailing payroll average. Here’s how to find that figure.
Take your payroll average from Feb. 15, 2019 to Feb. 15, 2020, up to $100,000 employee salary, excluding employer tax. This also includes commissions and bonuses. Then, average that for a 12-month period and multiply that times 2.5 for your eligible loan amount. There is a $10 million cap to the loan.
Even businesses that have been operating for less than a year are eligible; however, you will have to annualize it based on the months you have been operating.
Additionally, if you pay 1099 contractors, their wages are also included in the formula.
How Do I Become Eligible for Loan Forgiveness?
Once the funds hit your account, it starts an 8-week clock for you to use it for payroll, utilities and rent, and other qualifying expenses during that time frame.
Assuming you do that, the full amount is eligible for loan forgiveness at the end of the 8 weeks. Since the entire coronavirus stimulus bill is intended to keep people employed and small businesses afloat, if you maintain employees you had before the crisis began, then 100% of the loan is forgiven.
If you have to let go of 50% of the employees, then 50% is eligible to be forgiven. The goal is to maintain your previous headcount through the 8-week cover period and be committed to maintain it.
The exception to this is anyone you let go from Feb. 15 for 30 days after the bill is signed, if you bring their role back by June 30, you are eligible for full forgiveness as well. Additionally, you are required to keep those employees, but you are also required to keep their pay within 25%.
What happens if 8 weeks fly by and you didn’t actually need the full amount of the loan to keep your business afloat? The remaining funds become a 10-year note at no more than 4% interest. Press play to hear Casey explain more about the loan if you don’t apply the total amount to approved forgivable expenses.
Advice for Utilizing These Funds
I asked Casey how the government was going to track and enforce the use of these funds towards eligible expenses. The short answer is that the details still remain to be ironed out. However, he shared some great advice for tracking it on your own.
Open up a separate checking account for the funds from the forgivable loan. Use that account to pay only the approved eligible expenses as outlined by the PPP.
Keep a folder of receipts, invoices, payroll details, etc. so when you’re at the end of the 8-week period and need to provide proof of where the money went, you have it organized and easy access.
What to do Next if You’re a Small Business Owner
If you are a small business owner impacted by COVID-19, here are your next steps:
- Call or (safely) visit your bank to determine if they’re prepared for the PPP loans yet
- Proof you were in business before Feb. 15
- Proof you had employees or payroll
- Load calculation based on Payroll
- Tax return
- EIN documentation
- Payroll tax return
For more on the stimulus bill, more details on the benefits and access for small business owners, and even information on the impact for individuals, visit onlinestimulus.com.
DISCLAIMER: We are not accountants, lawyers, or government officials and information is subject to change. We are two small business owners and supporters sharing what we have learned through our own research.