Can the Paycheck Protection Program Help Your Restaurant?

More details were shared Tuesday about the $349 billion set aside for a new small-business loan program. If small businesses, like restaurants, maintain payroll during the economic crisis, some of the money borrowed through the freshly created “Paycheck Protection Program,” can be forgiven. The Paycheck Protection Program is a massive effort—its larger than the GDP of Arizona, according to Fortune.

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Treasury Secretary Steven Mnuchin and the SBA revealed additional details Tuesday, with a senior government official adding it could be possible that millions of loan applications roll in Friday when these loans become available. Mnuchin added they are setting up a system for same-day loan approvals in which borrowers are able to receive funds on the same day they submit an application. Since the approval process will be handled entirely by the lender, there is no separate review being conducted by the SBA. But per The Washington Post, businesses shouldn’t bank on this, noting it would be difficult for most banks to meet that target without increasing the risk of fraud. Most small businesses will take days just gathering the documents needed to apply.

Who’s eligible? Small businesses (this applies to many, many restaurants. Read to the end.) with fewer than 500 employees can apply for the Paycheck Protection Program. These include nonprofit firms, sole proprietorships, self-employed individuals, independent contractors, and veteran organizations. The borrowers must certify that their business was affected by COVID-19 and were in operation as of February 15. The program said it will evaluate business owners’ credit scores, but not require collateral or a personal guarantee. The loans apply to costs incurred from February 15 through June 30. The loan rates are initially being set at 0.5 percent.

Notable for restaurants, the 500-employee cap applies on a per-physical location basis.

A key thing to consider, too: The program includes loan forgiveness covering costs for the first eight weeks of the loan for companies able to keep employees on payroll or continue paying bills throughout the COVID-19 pandemic. The amount of loan forgiveness will include payroll costs for individuals below $100,000 in annual income, mortgage and rent obligations, including interest and utility payments. The total amount will be reduced if your company’s workforce is drawn down through attrition or if wages are reduced. If the company was forced to lay off employees because of economic conditions, they might be able to preserve some of your loan guarantee by hiring them back (this is the point to circle for a lot of restaurants). It is expected that at least 75 percent of the costs forgiven come from payroll.

"The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses,” Mnuchin said. A decision on forgiveness of the Paycheck Protection Program loan will be made within 60 days of forgiveness submission.

The forgiven money will be reduced for employers that lay off employees or reduce wages by more than 25 percent, Fortune reported. Laid-off employees must be rehired by June 30 for companies to recoup their wages through loan forgiveness, a senior SBA official told the publication.

Eligibility for loan forgiveness starts eight weeks after the loan origination date. This is a maximum 10-year maturity after application for loan forgiveness.

What costs do the loans cover? The new loans will cover payroll costs and employee benefits, mortgage interest incurred before February 15, rent and utilities under lease agreements in force before February 15, and utilities for which the service began before February 2020.

Payroll costs include salary wages, commissions and tips capped at $100,000 for each employee. Also, benefits for vacation, parental leave, sick leave, medical leave, and some additional, limited benefit categories. In some cases, they can also cover interest on other debts.

How much money? The Paycheck Protection Program offers small business loans of up to $10 million to cover payroll and certain other expenses, or 2.5 times the company’s total payroll expenses for the loan period. The first payment will be due after six months and the fill loan after two years.

Disqualifying factors: Paycheck Protection Program loans are not available to businesses whose owners (or the company itself) have previously been suspended, debarred, proposed for debarment, declared ineligible, or were voluntarily excluded from the loan program by a federal agency, or are presently involved in any bankruptcy. Also, companies that have taken a loan from the SBA that subsequently caused a loss to the government, is currently delinquent, or resulted in default, are excluded. It also keeps out businesses in which any 20 percent owner is someone currently subject to criminal charges, or who has previously been convicted or otherwise punished for a crime against a minor.

What to prepare, where to apply. The Washington Post said the program will ask for basic identifying information for the business, the company’s TIN number, average monthly payroll, number of jobs supported by the business, and what specifically you want to use the loan money for. The company will also be asked to list all owners who hold at least a 20 percent ownership stake in the company and affirm they are not party to federal crimes. They will be asked to provide documentation regarding employee headcount over time as well as payroll costs, too. Borrowers can apply at the more than 1,800 banks that already offer Small Business Administration loans (contact your current bank first). There is no cost to apply.

APPLY: Find the application and other information here. More details about the Paycheck Protection Program itself can be found here, and click here for a more in-depth breakdown from The Washington Post.