Editor’s Note: this article was last updated on March 30, 2020. We will keep this page updated with new information as it becomes available.
The U.S. federal government just passed a big coronavirus relief bill, aimed at supporting small businesses through this difficult time. As a beauty professional at IMAGE Studios you have options available to you that we’ll discuss in more detail below.
One of the measures in the bill is the Paycheck Protection Program—here’s everything you need to know.
What is the Paycheck Protection Program?
The Paycheck Protection Program is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This is a nearly $350-billion program intended to provide American small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans. You can read the bill in its entirety here.
- There is no cost to apply.
- The funding is meant to help retain workers, maintain payroll, and cover rent/mortgage/utility expenses.
- The loan covers expenses dating back to February 15, to June 30 2020
- The loan can be forgiven and essentially turn into a non-taxable grant.
Do I qualify for the program?
Likely yes! This program is more extensive than the SBA disaster loan. Small businesses, sole proprietorships, independent contractors, and self-employed individuals can all qualify.
- Sole proprietorships will need to submit schedules from their tax return filed (or to be filed) showing income and expenses from the sole proprietorship.
- Independent contractors will need to submit Form 1099-MISC.
- Self-employed individuals will need to submit payroll tax filings reported to the Internal Revenue Service.
How does this differ from the SBA disaster loan?
The SBA also offers a Economic Injury Disaster Loan (EIDL)—often shortened to just SBA disaster loan. This is a separate, but similar, initiative. Here’s how they differ:
- No personal or business collateral is required. The SBA disaster loan may require collateral for loan amounts over $25,000.
- It’s ok if you also have access to credit elsewhere. To receive a SBA disaster loan you generally need to have no other source of credit.
- The funding covers a more restrictive set of purposes (details below). The SBA disaster loan can cover most operating expenses.
- Your loan can be forgiven if you follow the terms. The SBA disaster loan requires repayment.
How is this similar to the SBA disaster loan?
- You need to declare (in good faith) that the uncertainty of current economic conditions makes the loan necessary for your business.
- It’s free to apply.
- Your loan is long-term (maximum 10 years) and low-interest (maximum 4%).
- You have an extended deferment period (6-12 months, depending on your lender) before you begin repayment.
- There is no prepayment penalty.
Can I apply for paycheck protection and an SBA disaster loan?
Yes, you can. However, you can’t apply for an SBA disaster loan for the same purpose as the Paycheck Protection Program.
If approved, the SBA will provide the grant within three days. You can apply for the loan and grant here.
What can I use the funds for?
You must acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments. Funds you use for other purposes will not be eligible for forgiveness.
The funds can be used for:
- Payroll and commission payments
- Group health care benefits/insurance premiums;
- Mortgage interest payments
- Rent and lease payments
- Interest on any other debt obligations that were incurred before the covered period.
How much funding can I receive?
The maximum amount you can receive from your SBA-approved lender is your monthly payroll cost times 2.5, but no more than $10 million.
If you are a seasonal employer, the monthly average cost will be calculated differently. The SBA will use a 12-week period beginning either February 15, 2019 or March 1, 2019, and ending June 30, 2019.
If your business did not exist before June 30, 2019, the SBA will look at your costs in January and February 2020.
How do I apply?
The SBA itself doesn’t lend you the money, they just “back” the loan that the lender provides. You can apply for the Paycheck Protection Program through any SBA-approved lender—you can check out the SBA’s Lender Match tool to find a lender. We have been working with BoeFly who is accepting applications from IMAGE Studios salon professionals here.
As part of your application, you’ll be asked to verify:
- That the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
- That funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments;
- That the business does not have a SBA loan pending for the same purpose and duplicative of amounts applied for or received under a covered loan;
- During the period beginning on February 15, 2020 and ending on December 31, 2020, the business has not received amounts under the Paycheck Protection Program for the same purpose or duplicative amounts applied for or received under a covered loan.
How can I get my loan forgiven?
In the 8 weeks following your loan signing date, all expenses related to the following can be forgiven:
- Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits
- Mortgage interest—as long as the mortgage was signed before February 15, 2020
- Rent—as long as the lease agreement was in effect before February 15, 2020
- Utilities—as long as service began before February 15, 2020
When submitting your application for loan forgiveness, you must provide the following documentation (no exceptions):
- (1) documentation verifying the number of full-time equivalent employees on payroll and pay rates for the periods described in subsection (d), including:
- (A) payroll tax filings reported to the IRS
- State income, payroll, and unemployment insurance filings
- (2) documentation to prove your mortgage, lease, or utility payments
- cancelled checks
- payment receipts
- account statements
- (3) a certification from a representative of the eligible recipient authorized to make such certifications that:
- (A) the documentation presented is true and correct; and
- (B) the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments; and
- (4) any other documentation the Administrator determines necessary.
The lender must make a decision within 60 days of your forgiveness application submission.
What are the conditions for loan forgiveness?
The purpose of the Paycheck Protection Program is to, well, protect paychecks. You must commit to maintaining an average monthly number of full-time equivalent employees equal or above the average monthly number of full-time equivalent employees during the previous 1-year period.
The amount that can be forgiven will be reduced…
- In proportion to any reduction in the number of employees retained.
- If any wages were reduced by more than 25%.
If you rehire employees that were previously laid off at the beginning of the period, or restore any decreases in wage or salary that were made at the beginning of the period, you will not be penalized for having a reduction in employees or wages, as long as you do this by June 30, 2020.
Note: These guidelines are based on the official 880-page bill. The SBA has been given 30 days to issue official guidance regarding loan forgiveness. We’ll share updates as soon as we learn of them.
Other COVID-19 resources
- The Express Bridge Loan Pilot Program (A Simple Guide)
- Six Steps to Take If COVID-19 Shuts Down Your Business
- COVID-19 Resources for Small Businesses, State by State
- Leading a Small Business Through a Recession: Five Best Practices
- How to Get an SBA Disaster Loan (COVID-19)
- Getting Through COVID-19: A Financial Game Plan for Small Businesses
- The Coronavirus Relief Bill: Every Benefit for Small Businesses