To state the obvious, the COVID-19 virus has wrecked havoc on the world as we know it, causing our business and personal lives to turn upside down. Nobody can answer when the pandemic will end. Nobody knows when we can get back to ‘normal’ business, if ever. The good news is the government took quick monetary and fiscal policy action to help keep our economy afloat. However, like everything in the this pandemic, we are all trying to figure our the various stimulus packages on the move. Once of these is known as the Paycheck Protection Program Loan, or PPP.
The Paycheck Protection Program loan is part of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. $349 billion was earmarked for the PPP to provide small businesses payroll relief. The general idea is that PPP is a forgivable loan to provide incentive for employers to keep employees working during this economic crisis. As a business that relies on bonding as part of their lifeblood, it’s important companies are taking advantage of the PPP. In this article we will provide a clarity on the PPP and its impacts on your bond program.
General Overview of the PPP?
- Implemented in Sections 7(a) of the Small Business Administration
- Loans can be up to $10 million, but maxed at 2.5 times its average monthly payroll costs
- Any company of any industry with under 500 employees are eligible (others may qualify, click here for more info)
- Interest rate is 1% (up from original .5%)
- Loans are granted in ‘good faith’ that borrower will use funds to retain employees
- Loan can be used as working capital, in addition to payroll*. *See guidelines below for more details.
- Loans are available through June 30, 2020
How to Apply for PPP?
To apply for the PPP, you go through a registered SBA lender. Here is a link to find a lender. The banks have teams of SBA specialist to walk businesses through the process of applying. Once a loan is processed, the unknown is when the loan is actually funded. But from all our research, businesses should apply now as the government, banks, and everyone else sorts out the rest of the details.
How is the Loan Forgiven?
The purpose of PPP is to get cash in the hands of businesses to keep their workers employed and to minimize cash flow issues. Your SBA lender should advise you on the terms in greater detail, but the act states that borrowers will have their loans forgiven if they use money for designated expenses. Those designated expenses is equal to 8 weeks (after loan closes) of payroll costs, mortgage interest, rent, and utility costs so long as employee and compensation levels are maintained. Here is an information sheet from the Treasury department. Be sure to check with the SBA lender about what part of the loan will be forgiven, and what happens if employees are not retained.
How Does this Help Your Bond Program?
Whether we are in good times or bad, the old saying still applies. Cash is King. Bonding is the lifeblood of public works contractors and cash is the key to that lifeblood. We as a society have no idea how this plays out. We don’t know the short, mid, or long term impacts on our well being, our economy, our world. What we do know is that relief is available through the PPP, which will help businesses financially. The PPP loan will help with cash flow and keep your people employed. It keeps the people employed that actually do the physical work. This will all help keep your bond program stay in tact. We can also use this as an opportunity to make sure you are doing everything you can to maximize your bond capacity. Here is an article about 10 things you can do now to help increase bonding.
We are in uncharted waters but we are all in it together. If you have any questions about bonding or your bond program, we are here to help. Visit us at www.surety1.com or call at 877-654-2327