The Paycheck Protection Plan Nutshell

American twenty dollar stuck in tree branch

As I blogged about before with respect to the Economic Injury Disaster Loan (EIDL) Program expanded under the CARES act, Congress doled out money to help agricultural businesses. The day after I published my article, congresspeople for both parties wrote a letter to the Small Business Administration (SBA) to clarify that EIDL program should cover farms: “Congress intended for farms and agricultural business suffering from economic injury to COVID-19 to be eligible for EIDL during the covered period.” Despite this bipartisan letter from Senator Marco Rubio (R-FL), Representative Nydia Velazquez (D-NY), and Representative Steve Cabot (R-OH), the Small Business Administration refuses to recognize that farms are eligible for EIDL relief.

But I want to focus now on a completely different program that also could be a great source of relief for food communities during the coronavirus crisis: the Paycheck Protection Program. The Paycheck Protection Program has been referred to as PPP—or if you are trying to act hip with bureaucratic terms, P3. But I’ll just call it Paycheck Protection. Paycheck Protection, like the EIDL, grew bigger under the CARES Act – the coronavirus relief bill signed into law on March 27. Payroll Protection is actually a loan agreement between the government and an eligible business. But under the CARES Act, the government promises that it will not seek to collect to the loan if the business uses the loan for one of these purposes:

  1. payroll costs
  2. continued group health care benefit costs
  3. employee compensation
  4. mortgage interest, when mortgage taken out before February 15, 2020
  5. rent, when rent started before February 15, 2020
  6. utilities, including internet, when service started before February 15, 2020
  7. interest on other debt before February 15, 2020

The Small Business Administration (SBA) added another eligibility requirement: Payroll costs must account for at least 75% of the loan. There are also time restrictions. The loan only covers the above uses for an eight week period following the loan. If the business follows these requirements, the CARES Act says that the government will not have “recourse” against the business if the business doesn’t pay the loan back. If business satisfies all these requirements, the loan is forgiven. So the “loan” acts more like a gift—again, as long as these requirements are met.

The Paycheck Protection Plan covers businesses with no more than 500 employees—including the self-employed. The Small Business Administration defined exactly who qualifies for coverage under Paycheck Protection in the SBA’s interim final rule.

For self-employed businesses seeking payroll protection coverage, the SBA lays out five requirements:

  1. Be in operation on February 15, 2020
  2. Have self-employment income
  3. Be a primary resident of the U.S.
  4. File (or be filing) a Form 1040 Schedule C
  5. Make an actual net profit in 2019. Or in SBA speak, the number on your 2019 IRS Form 1040 Schedule C line 31 cannot be 0 or less.

Regardless of whether you are self-employed or an employer of others, if you reduce salary or other compensation by more than 25 percent during that 8-week period , the government may reduce the amount of loan forgiveness.

If you believe you qualify for a loan, find a bank. In the process, be persistent, yet patient. Overwhelmed by demand for Paycheck Protection loans, banking websites have crashed. It may be helpful to apply off hours, when there is less online traffic.

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