Since small and medium businesses are the backbone of the American economy, the government ensured its adequate protection through the CARES Act 2020 so that the sector could effectively combat the severe blow of the coronavirus pandemic. By extending sufficient financial support to businesses, both small and large, in the form of loans and grants, the government wanted to ensure that the sector would remain ready to bounce back at the opportune moment, believes William D King.
The step aimed to support small businesses in retaining their employees with regular but partial payments and even meeting some of their overhead expenses. In contrast, businesses remained inoperative for an indefinite period. The step would help small businesses stay afloat and make a turnaround when the situation improves, which would help foster economic recovery.
The Paycheck Protection program, explained by William D King
The government’s endeavor to support businesses is reflected in the CARES Act that offered the Paycheck Protection Program exclusively for small businesses according to the standard of the Small Business Administration. The program covered not only businesses but also veterans’ organizations, tribal businesses, non-profit organizations, accommodation businesses, and food services that had less than 500 employees for each physical location. All eligible businesses could receive a loan termed as Small Business Interruption Loan amounting to 2.5 times their average payroll subject to a maximum of $10 million.
The purpose of the loan was to help businesses cover payroll, salaries, and benefits, and payment of rent, interests, and utilities. These were unsecured loans that did not require any personal guarantee or collateral, and they did not entail any fees. The loans payment ranged between six months and one year that allowed deferment to suit the needs of businesses, and in the case of prepayment, there were no penalties.
The evolution of the PPP
The transformation of the stimulus package that initially started with a $350 billion package for assisting American businesses with cash flow up to eight weeks by offering fully guaranteed federal loans backed by the SBA or Small Business Organization.
As the coronavirus pandemic turned graver, by April 2020, the government stepped up its assistance for businesses by putting in additional funds of $310 billion to introduce the Paycheck Protection Program and even introduced the Healthcare Enhancement Act.
The PPP allowed businesses more time for spending the funds going ahead, and it became easy to seek a fully forgiven loan.
Highlights of PPP
All small businesses were eligible for the Paycheck Protection Program that offered a loan with payback over two years and attracted the interest of only 1%. Later in June 2020, after reviewing the existing economic situation and with no hints of early recovery, the government extended the loan tenure to 5 years. The loan amount covers expenses for 24 weeks from the disbursement date, and businesses need not make full payments until 10 months or after covering 24 weeks treated as a cover period.
Businesses availing of the program must use at least 60% of the funds for employee benefits and payroll costs.