As of Friday, April 10, all California-based Contractors of any employment classification can apply for a Government-funded Forgivable loan.

The $2 trillion Coronavirus Aid package (CARES ACT) was passed to provide financial aid and stimulus on an expansive scale. The package includes many opportunities to apply for assistance, specifically for small businesses, as the government recognizes the economic importance of keeping them afloat.

One aid provision that California contractors can take advantage of as stricter shelter-in-place orders are issued and essential worker guidelines are modified is the Paycheck Protection Program. 

With a mandated stipulation that the U.S.Treasury Department disburse all of the funds ($349 billion) under the program by June 30, 2020, CCIS’ estimates that every eligible small business will take advantage of this unique loan opportunity. This means the available money will go fast, so applying with all the required items as soon as the application process opens is important. We have prepared this easy-to-use guide to provide contractors in California the necessary information to receive this needed money and get back to moving California forward.

Where and How Do I Apply for the Paycheck Protection Program Loan?
The Paycheck Protection Program Loan is administered through SBA-approved FDIC lenders. The recommendation is to first reach out to the bank you have an established business relationship with to see if they are participating in the Loan program. If your bank is not an SBA-approved FDIC lender, you can contact any SBA-approved bank to initiate the process. Be prepared to provide the lender with payroll documentation, as the loan’s intention is to assist in keeping your employees employed.

How Much Can My Business Borrow?
The short answer is 2.5 times your business's monthly average payroll costs. Payroll costs include salary, wages, commissions, tips, employee benefits, and state and locally assessed payroll taxes. If your calculated monthly average payroll cost is $100,000, then 2.5 times that would be a loan for $250,000. When collecting the payroll cost average for the lender, you will want to use an average calculated over the last 12 months through February 15, 2020. 

When Can I Apply?
All applicable small businesses, including sole proprietors, in the country can begin applying for the loan on Friday, April 3, 2020, and independent contractors or self-employed individuals can apply beginning on April 10, 2020. All funds will be distributed by June 30, 2020.

Now that we know the who, what, when and where, here are some additional questions your construction business might have regarding the loan, qualifications, and requirements. 

Are Self-Employed Contractors Eligible? Can Contractors Include Owner Payroll?
The answer to both these questions is yes. These loans are available for sole-proprietors with no additional payroll costs, independent contractors, and other self-employed individuals. The same 2.5x loan calculation applies, however, the stipulation is that the owner payroll or independent contractor’s payroll costs cannot exceed more than an annualized $100,000 per year.

Employee Classification Definitions:

  • Sole Proprietorship (application process opened April 3): A sole proprietorship is an unincorporated business owned and run by one individual. The owner is entitled to all profits and is responsible for the business’s debts, losses and liabilities. Sole proprietors file taxes with a Schedule C and standard 1040 form, and that is the main difference between a sole proprietor and a self-employed individual.
     
  • Self-Employed Individual: A self-employed individual has to file annual taxes and pay estimated quarterly tax as well as pay a self-employment tax.
     
  • Independent Contractor: The general rule of thumb is that you are an independent contractor if the payer has the right to control or direct only the result of work and not what will be done and how it will be accomplished. Earnings of independent contractors are also subject to self-employment tax. 

In addition, if you are a seasonal worker during the period of March 1 to June 30, 2020, the 2.5x loan calculation will apply to your average monthly payroll expenses for that shortened time period. 

It’s important to act quickly as some banks have announced that they have exhausted their capacity. Make sure you have all the necessary documentation ready and explore your lender options through the SBA’s local assistance finder.

Do I Need to Prove Hardship to Qualify for the Program?
No, hardship is not a required factor. As part of the application process, contractors simply need to make a good faith certification that the loan is necessary due to the economic uncertainty caused by COVID-19. Contractors must also demonstrate that the loan will be applied to maintain payroll, employee health benefit costs, insurance payments, mortgage interest and utility costs. The lender will also require certification that the contractor is not receiving this assistance and duplicate funds for the same uses from a separate SBA program.

How Much of My Loan Can Be Forgiven?
Up to 100%! The amount of the loan forgiveness will be calculated by adding how much of the total loan was spent on salaries and wages, benefits, rent, utilities and interest on mortgages over the eight weeks following receipt of the loan funds. However, the loan requirements do specify that at least 75% of the total amount forgiven must have been spent on payroll costs. Remember, the government's ultimate goal is to keep your employees employed! 

The first disbursement of the PPP loan to the contractor will signal the start of the eight-week period. The lender has ten days from the date of the loan approval to make the first disbursement.

What if I Just Laid Workers Off? How will that Affect my Loan Forgiveness? 
If any employees were laid off between February 15 and April 27, 2020, and not rehired by June 30, 2020, you may still be eligible for loan forgiveness, but the amount will be reduced by the proportion of your current number of employees/payroll costs to your previous number of employees/payroll costs. 

How Long Until My Business Loan is Forgiven?
Once the borrowed funds are spent per the terms listed in the loan forgiveness section, you can apply for loan forgiveness with the lending bank. This is why it is critical you maintain accurate, detailed records of your expenditures and apply with the lender in a timely manner. Once the documents have been submitted the lender has sixty (60) days to issue a decision for the loan forgiveness. 

What if My Loan is Not Forgiven?
If the lender denies the total forgiveness, the worst-case is your business has inexpensive, long-term unsecured financing that does not require personal guarantees. If your loan is not forgiven within a year after receiving the loan payment you will need to start making payments with an estimated .5% interest rate. All payments plus applicable interest will be due within 2 years of when the loan proceeds were received. 

Here is a sample application form for the program. For assistance determining what loan amount to apply for, visit Nav.com’s CARES Act SBA Loan Calculator.

COVID-19 and the social distancing measures enacted to mitigate it are sending shockwaves of anxiety throughout the United States and the world. While the rhetoric has been one of caution and unease, there are steps you can take to protect your small business and your employees. If your business is dealing with financial hardships resulting from COVID-19 regulations and orders, don’t panic. Help may be just an application away!

FAQs from the Department of Treasury