The effect of the COVID-19 pandemic on the US economy could be devastating. There is no predicting the true extent of it at the moment because the level of uncertainty is too high. However, the longer the lockdown measures are in effect, the worse the consequences would be. The Paycheck Protection Program (PPP) is the most effective tool in the CARES Act, which aims to help businesses survive these trying times. Any small business, meaning one with fewer than 500 employees, should use the opportunity presented by this type of loan. Most importantly, they should get on with this as fast as possible.
What Is the Paycheck Protection Program?
The Paycheck Protection Program is an SBA funded program that will provide US entrepreneurs and small business owners with about $350 billion in loans. The explicit purpose of these loans is to guarantee eight weeks’ worth of payroll.
The program is a response to the COVID-19 pandemic, which is all but guaranteed to cause the next economic recession. A great number of small businesses are closed because of lockdown measures. Even if they still function, current conditions prevent them from operating at full force. This results in layoffs because business owners simply don’t have the money to pay salaries.
PPP loans should take care of this problem. This type of loan is an incentive to keep those workers on payroll despite the difficult time. It can be used to cover payroll, mortgage interest, utilities, or rent bills of any business that has fewer than 500 employees. The loans are also available to non-profits, self-employed, Tribal business concerns, veterans organizations, sole proprietors, and independent contractors.
How Does the PPP Work?
First of all, you need to find out if you are eligible for this loan. Check out the SBA regulations regarding this. If you meet the eligibility requirements, you should find a suitable lender so you can apply for Paycheck Protection Program loans. Note that only SBA-approved lenders can offer this type of financing. Be sure to check whether the lender is accredited and is a participant of the program.
Once you are approved, you get the money you need to pay your employees for the next eight weeks. The best thing about this loan is that it will be completely forgiven once the situation settles. Moreover, unlike other loans that can be forgiven, this one won’t incur any additional taxes. Therefore, this is more of a grant than an actual loan.
However, it’s imperative to remember that a PPP loan will be forgiven only if you use the money right. This means your business can use it to pay:
- Interest on mortgage
- Utility bills
Another mandatory condition is that the employer does not allow layoffs. Therefore, you must either keep or immediately rehire all your staff.
If the number of employees goes down, so will the forgiveness rate. It’s the same for the size of salaries and wages.
This means that you can only use this loan to its maximum benefit if you retain all your employees and avoid any cuts.
Who Can Give Paycheck Protection Loans?
Not every lender out there is authorized to disperse loans under the PPP. Therefore, you need to be extremely careful to avoid potential scammers. Unlike with other loans, you don’t have to look for the lowest interest rates or best terms when choosing. However, it’s wise to choose carefully in order to avoid any issues in the future.
SBA-certified lenders and those who received approval for this specific program all receive compensation. There are also authorized agents that can receive compensation from the government for attracting borrowers. Considering this, you need to understand that all financial institutions are interested in making you choose them specifically. Therefore, they might offer extra incentives. That’s also a reason why you should research your options carefully.
However, you should do that research fast. In fact, it might be best to use the services of an agent to find the best lender as quickly as possible. Borrowers won’t have to pay any fees for anything under this program. Therefore, it’s merely a matter of convenience.
The speed is important because the funding is limited. $350 billion seems like a humongous amount, but considering the number of eligible businesses, it will run out soon.
Impact of Paycheck Protection Program on the US Economy
One thing is clear, without the Paycheck Protection Program and other stimulus from the government, the US economy would have collapsed under this crisis. This might still happen because no financial aid can complete with a prolonged lockdown.
The unemployment rate has already skyrocketed in the US with the record 3.3 million people filing for benefits. The PPP can help bring that rate down, or at least, stop it from rising.
But the crux of the matter is when the economy will get a restart. At the moment, it seems that the lockdown would last for no less than another month. Therefore, the rate of consumption will keep falling. And the further it falls, the slower it will take to get back up after the lockdown.