By Mark Green
Kentucky businesses with fewer than 500 employees leapt into action to file their applications for forgivable Small Business Association loans covering the cost of payrolls for eight weeks beginning April 1. The SBA application portal opens at midnight tonight (Thursday, April 2) to accept and process applications for a significant but limited amount of money.
Paycheck Protection Loan disaster relief is a key provision of the federal government response to the COVID-19 pandemic that has closed down much U.S. commerce as a result of social distancing measures implemented to stymie spread of the highly infectious respiratory coronavirus. The U.S. has reported more than 216,500 COVID-19 cases, with more than 5,100 deaths; in Kentucky, 687 confirmed cases have led to 93 death as of Wednesday evening.
Businesses are applying for Paycheck Protection Loans through their local banks, a mechanism put in place because many or most of the expected applicant companies have had no previous relationship with the SBA.
The CARES Act passed by Congress and signed by President Trump last month includes $350 billion for Paycheck Protection Loans of up to $10 million per business to cover the cost of salaries capped at a rate of $100,000 a year per employee. Businesses must document their salary costs in the application and can expect full forgiveness of the principle of the loan for employees they keep on the payroll through May. They will have to pay interest at a rate of 0.5%.
The business support services community is referring to the Paycheck Protection Loans program as “free money” and is understandably handling a lot of applications.
Stock Yards Bank in Louisville anticipates at least 1,000 applications this week, bank President Phillip Poindexter said Wednesday during a webinar Greater Louisville Inc. hosted to provide information about how businesses can seek CARES Act relief.
GLI President/CEO Sarah Davasher-Wisdom hosted a Zoom webinar in which Poindexter, Diane Medley of MCM CPAs & Advisors, Bryce Butler of Render Capital and Geoffrey White of Frost Brown Todd explained the SBA loan process and answered questions relating to cash flow and legal questions relating to COVID-19.
“Every business situation is different and the overall business situation including the current and future prospects for the business needs to be reviewed in order to determine which program or benefit is more advantageous,” Medley told The Lane Report afterward. “Sometimes what seems like a benefit is not practical to actually carry out. The banks are going to do their best to process these loans for their clients but the guidance is confusing at best. Get your best professional advice and proceed as best you can under the circumstances.”
Many businesses are using their accounting and law firms and other business services partners to help put together SBA loan applications that will be in compliance with program requirements and more likely to gain approval.
Medley and White stressed certain application compliance details during Wednesday’s 90-minute GLI webinar, such as the fact that anyone with at least 20% ownership interest in a business must have a signature on a Paycheck Protection Loan application.
Businesses will be able to submit a request for loan forgiveness to their lender after the eight-week period ends in late May. Those requests must include documentation to verify a business’s full-time equivalent employee numbers, pay rates and many other costs associated with and required to be able to make payroll, including rents, utilities, mortgage and interest, debt service and more.
Eligible costs include vacation, parental, family, medical or sick leave; group health care premiums and benefits; state and local tax assessed on salaries; retirement benefits; and costs for dismissals and separations.
Businesses may not seek compensation for salary amounts beyond a rate of $100,000 annually, for employees whose principal residence is not in the U.S., or for payroll taxes.
Businesses may bring back on the payroll and include the compensation for employees they have let go due to pandemic impacts, and they must be able to document that they maintained employees on their payrolls through the eight-week period in order to receive loan forgiveness.
The intent of the program is keep money in circulation in the economy by keeping paychecks flowing to U.S. workers, more than 9 million of whom have sought unemployment benefits in the last half of March, according to federal government reports.
Economists believe the impact of the pandemic already is a very steep global recession with no way to forecast how long it might take to recover.
“We anticipate a massive amount of applications” for Paycheck Protection Loans when the portal opens at midnight, Poindexter said.