On March 31st , the Treasury Department released new information about the Paycheck Protection Program (PPP) and economic injury disaster loans (EIDL).
Here are some of the new points and clarifications that business owners should be aware of, according to Ami Kassar, an expert on small-business loans and founder of lending advisory firm MultiFunding.
1. When you can apply
Small businesses and sole proprietors can apply for the loans beginning April 3. Independent contractors and self-employed individuals can apply April 10.
The Treasury Department had not provided dates until yesterday.
2. 1099 workers
Business owners should not include 1099 payments when calculating their average monthly payroll for the purposes of getting a loan. The thinking here is that 1099 workers can apply for PPP loans on their own, so business owners shouldn’t be counting those payments as payroll.
3. Venture-backed startups
The SBA’s affiliation standards, which can require venture-backed companies to include employees of companies that own equity in their employee count, are waived for businesses (a) in the hotel or food services industries; (b) that are franchises in the SBA’s Franchise Directory; and (c) that receive financial assistance from small-business investment companies licensed by the SBA.
As of now, the affiliation standards do not appear to be waived for VC portfolio companies, which means that many would not be able to participate in the PPP. The National Venture Capital Association (NVCA) has sent a letter to the Treasury Department and SBA urging them to include venture-backed startups in the loan programs. You can read more about the NVCA’s regulatory efforts here.
4. Updated loan terms
The loan rate is being initially set at 0.5 percent, with two-year terms.
The legislation had said loans would be at no more than 4 percent interest, and that terms would be no more than 10 years.
5. American-made commitment
Business owners must certify that, “To the extent possible, I will purchase only American-made equipment and products.”
It’s still unclear how, or if, the Treasury Department will attempt to enforce this, but it’s an interesting “America First” inclusion.
6. Loan forgiveness on non-payroll expenses
It is anticipated that no more than 25 percent of the forgiven PPP amount can be used for non-payroll expenses.
Loans used for payroll, rent, utilities, and mortgage interest can be forgiven, but based on the Treasury Department’s new guidance Kassar anticipates that no more than 25 percent can be used for non-payroll expenses and still be forgiven. Note that this is new and separate from the provision stating that the forgiven amount will decrease if you reduce the pay of any employee making less than $100,000 by 25 percent or more. Read more of Inc.’s guidance on getting your loans forgiven.
7. Loan issuers
Institutions that are insured by the FDIC, credit unions, and farm credit systems can issue the loans.
The institution will need to apply and be approved to issue the loans, but they need not be a previously approved SBA lender. There will be a list of approved banks at FDA.gov, though there was no list up as of Wednesday morning.