This article is part of a series on how handmade businesses can access services to keep their operations running during the COVID-19 crisis.
In these uncertain and scary times, it's important as a small handmade business to understand where you can access help to keep your business afloat.
In the US, Congress has passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. This is designed to provide assistance to small businesses that are affected by the COVID-19 pandemic.
One of the cornerstones of the act is the The Paycheck Protection Program.
This program provides up to $350 billion in government backed loans to help small businesses keep staff on until June 2020 - the important thing to note for small handmade business is that this also includes self-employed situations. Using this program, you can borrow up to 2 and a half times your average monthly payroll costs at a low interest rate (it's guaranteed that this will not exceed 4%).
To figure out your payroll costs, you'll want to divide your annual payroll by 12 to get your average monthly payroll. You can include part time employees in this calculation, and if you are self-employed your payroll costs would be your salary. From here, you can then multiply the amount by 2.5 to arrive at the total amount you can borrow.
As as example, if Kate's Soap and Beauty business paid a total of $75,000 in payroll costs, then her monthly payroll would be $6250 and the total amount she can borrow would be $15,625.
You defer the loan for 6 to 12 months, and if you maintain your payroll for at least 8 weeks at your usual salary levels then the loan may be completely or partially forgiven.
These loans will be provided by banks and credit unions, and people who are self-employed and sole proprietors can also apply as long as you have been operational on Feb. 15, 2020.
No guarantee is required for the loans and no credit check will be required.
How to apply for the Payroll Protection Program
For small business and sole proprietors, you can apply for this loan from to April 3, 2020. For self-employed your application date is April 10.
You'll want to apply quickly as the later you apply the longer it may take to have your funding approved.
You'll then want to confirm you are eligible:
- Established before February 15, 2020
- Fewer than 500 employees
- All owners with at least a 20% stake in the business are all US citizens
- Clean criminal record for the past 5 years
Some additional criteria may apply, however these are the main ones to be aware of.
Ensure you have proof on hand of how long you have been in business and where you are located. Also, documentation showing your previous payroll expenses and revenue will be required.
If you don't already use an SBA lender, you'll want to research and compare providers and then apply using their process.
Once you have been approved, your lender will then transfer your funds to your nominated bank account via ACH transfer, which can take between 1-3 days. If you already have a relationship with your lender, this can possibly be as speedy as the same day.
How to apply for Paycheck Protection Program forgiveness
Eight weeks after you receive your funds, you can then apply for forgiveness. To do this, you'll want to ensure that you:
- Rehire your staff by using the loan to bring them back on. Ensure that you document this process as you'll need to use this as part of your application.
- Ensure that you keep updated with any changes to this program via your lender. As this is a new program, exact rules may change.