President Trump signed the law on March 27, 2020 in order to provide economic support to individuals and businesses during the economic downturn related to COVID-19. While there are a few helpful provisions in this new legislation, the most beneficial to small businesses is the creation of the Payment Protection Program that will be administered under the Small Business Administration as an extension of the 7(a) loan program. While this loan program is fairly complex, what you need to know is as follows:
1. The loan is designed to encourage small businesses to retain employees during the economic downturn.
2. Small Businesses are eligible to receive a loan up to 2.5 times the amount of their average monthly payroll expense during the previous 12 months from the date of the loan.
3. If the borrower uses all of the proceeds of the loan to pay payroll, rent, mortgage interest, or utilities, the loan amount will be forgiven.
4. You will apply for this loan through a bank or other lending institution that normally provides 7(a) loans.
5. You will not be required to sign a personal guarantee for this loan program.
6. Self-employed individuals with no employees may be eligible for this program.
7. Upon forgiveness of this loan, the borrower will not be required to recognize income due to cancellation of debt.
8. This program will not harm your credit score due to the loan cancellation.
9. Banks will have final instructions within 30 days after the passage of the law.