Do you know, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law in the United States on March 27, 2020. It is the largest economic aid program in American history that is offering financial assistance to millions of citizens who have been devastated financially by the coronavirus pandemic. According to “The Washington Post”, A record 3.3 million Americans applied for unemployment benefits last week, the Labor Department. Despite the fact that the CARES Act contains many guidelines for small businesses, the $350 billion Paycheck Protection Program (PPP) may be the most promising part of the American economy.
As we are talking about the Paycheck Protection Program, are not you curious to know about this term? Keeping this in mind, we shall be sharing about the Paycheck Protection Program and how you can apply for it. But wait, have you heard about the employee benefits software? Well, we will discuss this later. But as of now stay tuned with us!
What Is The Paycheck Protection Program?
The Payroll Protection Program ( PPP ) is a $ 669 billion business loan program introduced by the United States Federal Government under the Assistance, and Economic Security Act (CARES Act) 2020 to assist some organizations, self-employed workers, individuals, designated non-profit organizations, and other enterprises in continuing to pay their employees. In other words, The Paycheck Protection Program is a Small Business Association (SBA) loan system that has intended to support small companies in continuing to pay their employees at their usual pay rate while also covering crucial expenditures that maintain their basic survival like bills and other related components.
As per the forecast shared by Forbes, employers are struggling with cash flow management and there are about half of small businesses who don’t even have enough working capital to last more than 28 days without sales, along with this about one-fourth of them can only last 13 days or less. Small companies will be able to extend their current cash reserves even more with a Paycheck Protection Program loan system to cover around two months’ total expensive expenses such as (payroll and rent).
This would be certainly long enough for all the turmoil that employers are facing in order to start over and also help them in resuming their operations. Apart from this, small companies should be able to maintain their current employees by helping them with the current utility providers along with this loan. During COVID-19, it will also allow small business owners and their workforce to collaborate together to find a suitable way of pivoting the trade in order to get alternate revenue sources. Let’s understand some vital points of the Paycheck Protection Program. Apart from this, compensation management software is also helping many business owners to understand their compensation in the workplace.
Are You Eligible For Paycheck Protection Program?
As we have seen, the Paycheck Protection Program loan’s offer a wide reach as compared to Small Business Association’s disaster loans. If you want to know the eligibility of the Paycheck Protection Program make sure you are falling into the below-mentioned categories.
- If you are a sole proprietor make sure to submit a Schedule C from their tax return that has been filed (or is about to be filed) that explains the gross profit from the sole proprietorship.
- In addition to their Schedule C, independent contractors would be expected to submit Form 1099-MISC (now 1099-NEC in 2020).
- If you are Self-employed entities, then you will be required to file payroll tax returns with the Internal Revenue Service.
How Do I Apply For a Paycheck Protection Program?
The small business association doesn’t grant you financial protection rather they “back” the loan provided by the lender. However, you can anytime find the eligibility related to SBA 7(a) lender through the SBA’s Lender Match tool. Whenever you are trying to apply for the Paycheck Protection Program they will verify you on the basis of the below points:
- As you are aware of the existing financial turmoil, the loan is required to support your ongoing operations.
- Whatever the finances, it would be used to keep employees and reimburse salaries and benefits, along with making the mortgage, lease, and other moving expenses. (utilities)
- There should be a piece of documentary evidence that proves the number of full-time employees on the payroll as well as the cash amounts of operating costs, covered mortgage interest payments, rent bills, along with covered utilities for the 24 weeks following the loan’s approval
- Make sure to agree on the basis of the borrower that they will use the tax records that you have provided to evaluate the qualified amount of the loan. You need to confirm that the tax filings you have forwarded to the IRS are the same.
Once you are verified on the basis of the above points, here come the financial documents that you need in proceeding with the Paycheck Protection Program. Make sure that you have bookkeeping or payroll records to showcase the payroll expenses These expenses must include payroll tax filings, processor records, tax forms from 2019 or 2020 that include forms 941, 940, and W-3. It is also important to include form 1099- MISC records along with schedule C for a sole proprietorship. On the other hand, online payroll services are also helping HR personnel to automate their workflow.
What Are The Uses Of Paycheck Protection Program?
As said, paycheck Protection Program covers 60% of payroll and employee benefits rest 40 percent is used in the following
- Utility Bills
- Payment for rent and lease properties
- Interest payment on a mortgage
- Operations expenditures
- Property damage costs
Vital Highlights Paycheck Protection Program
We are sharing some quick highlights that will help you in understanding the Paycheck Protection Program, make sure you are reading till the end.
- All small businesses are eligible for the paycheck protection program.
- The loan gives you a maturity rate of complete two years with a one percent interest rate.
- Until the forgiveness application is not processed or the protected period of 24 weeks expires, (typically of 10 months), borrowers are free from making any loan payments.
- Apart from this, the loan shall also be forgiven and can transform into a non-taxable grant.
- There is no fee and you don’t need any personal guarantee or collateral.
- If any loan is made after June 5, 2020, it will have an elongated five-year length.
- On the other hand, this loan also helps in covering the expenses for almost 24 weeks but it should start from the date of the loan disbursement date.