Update: July 7, 2020
The deadline to apply for the Paycheck Protection Program has been extended to August 8, 2020. Learn more about applying here.
Update: June 15, 2020
Several important changes have been made to the Paycheck Protection Program, following the implementation of the Paycheck Protection Program Flexibility Act (PPPFA).
- The PPP loan forgiveness timeline has been extended. PPP loan funds may now be used up to 24 weeks from the date of funding rather than the previous 8-week limit. If you borrowed before June 5, 2020, you will need to opt-in to the new 24-week period.
- At least 60% of the loan must be spent on payroll to be eligible for forgiveness. Previously, the required amount was 75%.
- The payback period has been extended from two to five years.
- The deadline to rehire workers has been pushed back from June 30, 2020 to December 31, 2020.
- The new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.
If your home service business has been negatively impacted by the COVID-19 pandemic, you’ve likely heard of the CARES Act.
Short for Coronavirus Aid, Relief, and Economic Security Act, CARES is a $2 trillion government stimulus package designed to provide financial relief to individuals and businesses across the US.
The CARES Act includes two loan programs to help small businesses specifically retain employees and cover operational costs. They are the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). Both programs offer financial relief which, under certain circumstances, does not need to be repaid.
For the thousands of home service businesses who’ve faced economic hardship in the last few weeks, and who may still in the months to come, the PPP and EIDL can provide much-needed relief. Perhaps even a means of survival.
Yet even with the favorable terms offered by the CARES Act, taking out a loan to support your business is a significant decision that should never be taken lightly.
In this guide, we’ll answer common questions about the PPP and EIDL as they apply to home service businesses, plus what to consider before and after you apply.
Disclaimer: This content is for informational purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Regulations and guidance on the PPP are evolving rapidly and the below information may be outdated. Additional information and exceptions may apply. Please refer to the latest guidance from the Small Business Administration and the U.S. Department of the Treasury to confirm current program rules, and consult with your legal or financial advisor to make the right choice for your business.
What to Know Before Applying for a Loan
Taking out a loan for your home service business should never be taken lightly.
While business loans may help cover certain costs for a period of time during a crisis, they cannot make up for lost revenue. Only some loans can be forgiven, and even with low interest, loan repayments can add to your business’ financial stress.
Before considering an emergency loan, speak to your accountant or financial advisor as soon as possible to get advice specific to your business.
Next, take the following steps to cut costs and increase cash flow:
- Review your cash flow. Make a list of every single business expense and examine each one to see if you can cut costs
- Negotiate with vendors to reduce or extend payments on your office rent, utilities, mortgage, vehicle leases or insurance, or existing loans
- Park any unused company vehicles and pause their insurance
- Collect accounts receivable
- Offer new or complimentary services
- Shift marketing efforts to retaining your existing customers
- Apply for grants and forgivable loans first, as detailed in this article
Finally, make sure you have a plan to pay back any loans you take out, even if your business does not resume before payments are due.
Applying for loans
Only you can decide what is right for your business and if you are in a position to either pay back a loan, or meet all of the requirements for forgiveness.
If you have decided to go ahead, the Paycheck Protection Program (PPP) is a historical stimulus package with favorable terms for some borrowers.
Read on for a full breakdown of the PPP and considerations before and after applying, and always consult with your legal or financial advisor to make the right choice for your business.
What is the Paycheck Protection Program (PPP)?
The Paycheck Protection Program (PPP) provides forgivable emergency loans for businesses who keep their employees on payroll. The loans of up to $10 million can be used to cover payroll, rent, and utilities.
Paycheck Protection Loans are particularly favorable because the interest rates are low and the loan is 100% forgivable if used on approved expenses. This means you should not have to pay it back.
Importantly, paycheck protection loans can only be forgiven if the amount is used for payroll costs, rent, mortgage interest, or utilities.
The government is advising that because of high participation, not more than 25% of the forgiven amount may be for non-payroll costs.
If you qualify, loans are up to 2.5x your average monthly payroll costs, to a maximum of $10 million.
The loan terms are the same for every business:
- A low, 1.00% fixed interest
- All payments deferred for six months (interest will accrue during this time)
- Loan term of five years (unless forgiven)
- No collateral and no personal guarantee required
What can I use the PPP for?
A paycheck protection loan may only be used for the following expenses:
- Payroll costs, including salaries, wages, commissions, cash tip payments, vacation/sick/parental/medical pay, retirement contributions, and costs related to group healthcare benefits, including insurance premiums
- Mortgage interest payments (but not the principal)
- Interest on other debt obligations incurred before February 15, 2020
Note that fraudulent use of a PPP loan is considered a criminal offence.
What does loan forgiveness mean?
Up to 100% of the PPP loan is forgivable, meaning you should not have to pay it back if you follow strict requirements during the eight week period beginning on the date your loan was originated. In order to be forgiven, your business will be audited.
The requirements for forgiveness were updated in June, following the implementation of the Paycheck Protection Program Flexibility Act.
In order to be forgiven, you must:
- Keep your employees for eight weeks from the time your loan is originated and maintain their full salaries
- Use at least 60% of the forgiveness amount for payroll costs*
- Rehire any employees who were laid off by December 31st, 2020 and restore their wages
- Use the remainder of the loan to cover only qualified expenses (see above)
Businesses cannot include the salaries of employees who live outside of the United States, nor can they pay any individual employee a salary over $100,000.
The Paycheck Protection Program is specifically designed to help small businesses keep their workforce employed. Small business owners may still be eligible for PPP loans, even if they’ve already laid off their workers or if their workers refuse requests to return to work. We advise you to refer to the latest guidance from the Small Business Administration and the U.S. Department of the Treasury to confirm current program rules.
If your business is not operating normally, consider asking employees to take part in training programs, or to take on new roles in improving operations, creating manuals, or setting up systems.
Forgiveness will be reduced if:
- Your full-time headcount is reduced over the eight-week period
- You reduce payroll costs by 25% or more
Forgiveness is determined by the banks that grant the loans. If your loan is forgiven, you will not be taxed on the dollar amount of the loan.
Businesses that borrow money through the federal Paycheck Protection Program (PPP) will be audited before the loans are forgiven. This means you must keep complete records of all business expenses between February 15 and June 30, 2020 (the term of the PPP).
According to some sources, the SBA has said that borrowers must retain their PPP documentation for six years after the loan is forgiven or paid in full, indicating that a review could come at any point over that time.
One suggestion is to establish a separate bank account to hold and administer all PPP loan proceeds. This way, you can clearly track and document which approved expenses the loan was used for, both for your own records and for the SBA.
Who is eligible for paycheck protection loans?
You are eligible if you fall into one of the following categories:
- A business with fewer than 500 employees (or businesses that otherwise meet the SBA’s size standard)
- A sole proprietor or independent contractor
- An individual who is self-employed who regularly carries on any trade or business
- A 501(c)(19) Veterans Organization that meets the SBA size standard
In addition, your business must have been in operation as of February 15, 2020.
For full eligibility requirements, see the US Chamber of Commerce guidelines.
How do I apply for a paycheck protection loan?
The deadline to apply for the PPP has been extended to August 8, 2020. To receive it, you must apply through an SBA lender. The government is advising borrowers to apply as soon as possible.
Access the Paycheck Protection Program Loan application through Kabbage
Jobber has partnered with Kabbage to connect you with an online route to access the Paycheck Protection Program (PPP). Kabbage is offering PPP loans on behalf of approved SBA lenders.Apply Here
Applications may be made through any SBA-approved lender. You can apply through your own bank or credit union, if they are offering PPP loans and you meet your bank or credit union’s specific PPP criteria.
Note that some SBA lenders may have additional criteria, so it is advised that you contact them as soon as possible.
You will need to complete an application form and provide payroll documentation. Refer to this list of required documents for the Paycheck Protection Program loan application.
Can I get a PPP loan if I have other loans?
Yes, you can qualify for a Paycheck Protection Loan even if you already have other loans, including other SBA loans. However, you cannot use the funds from a PPP loan and other loans for the same purpose.
Businesses cannot receive both the PPP and the Employee Retention Payroll Tax Credit.
What is the Economic Injury Disaster Loan (EIDL)?
Economic Injury Disaster Loans of up to $2 million are available to small businesses in the United States that have suffered an economic injury due to COVID-19. Unlike PPPs, EIDLs must be repaid in full, unless you’ve obtained an EIDL grant (see below).
According to the US Chamber of Commerce:
- The loans may be used to pay fixed debts, payroll, accounts payable and additional bills that can’t be paid because of COVID-19’s impact.
- The interest rate is 3.75% for small businesses without other available means of credit. Businesses with credit available elsewhere may not be eligible. Check with your financial advisor before applying.
- Repayment terms of up to 30 years
- No prepayment penalties
- No personal guarantee required on loans under $200,000
What is the EIDL grant?
In addition to loans, the SBA is offering EIDL advances of up to $10,000. These advances do not have to be repaid if you spend it on approved expenses.
You can receive the EIDL grant by applying for the EIDL Loan. Importantly, you are not guaranteed a full $10,000 advance on your EIDL.
According to the SBA:
“To ensure that the greatest number of applicants can receive assistance during this challenging time, the amount of your Advance will be determined by the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee up to a maximum of $10,000.”
Approved expenses include paid leave, payroll, increased costs due to supply chain disruption, mortgage or lease payments, or debt obligations you’d otherwise struggle to meet due to revenue losses.
The application process for an EIDL grant is the same as for an EIDL loan (here). You do not need to apply separately.
Who is eligible?
Businesses in the United States that have fewer than 500 employees and that can prove that they have suffered substantial economic losses as a result of the COVID-19 pandemic
Previously, only businesses located in certain regions were eligible, however given the breadth and scope of COVID-19’s impact on the American economy, the SBA has opened its eligibility to the entire nation.
How do I prove economic injury?
A key difference between the PPP and EIDL is that for the EIDL, you must be able to prove significant economic injury due to the impact of COVID-19. We will update this resource when more information on how to prove this is available.
How do I apply?
You can apply for an EIDL here. Note that it can take two hours or more to complete the application.
Per the Chamber of Commerce: “the average for SBA to issue a Disaster Loan decision is 21 days. Within that time frame, a loan specialist will be in contact with you to figure out the amount and parameters of the SBA disaster loan. Once the loan documents are signed, funds are deposited via ACH within 3 to 5 business days.”
Can I apply for the PPP loan and an EIDL?
Yes, you are allowed to apply for both the paycheck protection loan and the disaster loan. However, you can’t ‘double dip’ and use both loans for the same purpose.
The US Chamber of Commerce strongly advises businesses to speak with their financial advisor or lender before taking on both types of loans.
We will continue to update this guide as more information becomes available.
Community is Everything
At Jobber, we are committed to helping home service business owners stay informed throughout the crisis. We will continue to provide resources and information to help your communities, customers, and employees.
For additional resources and support, we invite you to join the Jobber Entrepreneurship Group, where service business owners are sharing how they’re communicating with customers and adjusting their processes. For those industries not directly affected, there is advice around planning ahead and keeping customers informed.