The small business loan component of the $2.2 trillion federal emergency aid bill signed into law last week by President Trump is an option that many virus-hit fashion firms should consider.
The coronavirus public health crisis has effectively closed down many businesses, including those in fashion. Known as the Paycheck Protection Program within the CARES Act, companies with less than 500 employees can now apply for a low-interest loan that’s set at 1 percent. The loan will be forgiven if the money is spent on payroll costs, rent, mortgage interest or utilities over an eight-week period. The caveat is that at least 75 percent of the forgiven amount must have been used for payroll, and companies are required to maintain or rehire their employees. The forgiveness will be reduced if full-time headcount declines, or if salaries and wages shrink.
Loans that do not qualify for forgiveness will need to be paid back, but payment can be deferred for six months. The loans have a maturity date of two years, with the maximum loan amount set at 2.5 times the average monthly payroll costs. In addition, payroll costs are capped at $100,000 on an annualized basis for each employee. Payroll taxes for FICA and Medicare are not included. And companies need to provide proof of payroll, mortgage payments, rent and utility payments for the eight weeks after the application is made.
Companies can apply starting now through June 30, 2020. Existing SBA Lenders will begin processing applications on April 3.