5 things to know about business Paycheck Protection Program loans

Many restaurants in Anchorage continue to offer take-out, following the suspension of dine-in service on March 16. (Abbey Collins/Alaska Public Media)

Many Alaska businesses on the edge of survival are looking to the Small Business Administration’s Paycheck Protection Program for a lifeline. The PPP is a major element of the $2 trillion coronavirus relief bill Congress passed last month, offering government-backed loans can turn into grants if certain conditions are met.

A lot of details aren’t fixed yet. New guidelines emerge almost daily. But Alaskans have been pummeling their bankers for answers, so here are five things you should know.

  • Apply at a bank or credit union. Preferably, your own.

“There’s so many inquiries right now, there’s so many people coming in, that we’re really encouraging those Alaskans that are here, that they really look at their existing banks and their financial institutions, because that’s where they’re going to get the fastest service,” said Chad Steadman, corporate lending director at First National Bank of Alaska.

Demand for the PPP is so high that a lot of banks, including First National and Northrim, are prioritizing applications from customers they already do business with.

RELATED: Business bruised by COVID-19? SBA may have a $10,000 grant for you

The loans require no collateral, but banks still have to check out the applicant. Steadman said if you already have a business loan or even just a checking account through a bank, the bank already has information on you, so that’s the place to start.

You don’t have to pay the bank any administrative fees for this loan. The government pays the bank 5% of the loan amount (or less, if the loan is over $350,000).

  • Yes, your loan could become a grant. But there are conditions.

If you keep the same number of employees (or rehire those you’ve furloughed), and if you spend the money on payroll, insurance, mortgage interest and a few other qualifying expenses, you could have the full amount of the loan forgiven.

At least 75% of the loan amount must be spent on payroll to get full forgiveness, and you’ll have eight weeks to spend it, from the date the loan is made

  • The maximum loan amount you’ll get is equal to two and a half times your average monthly payroll.

Steadman said it’s a point of confusion: You can spend PPP money on a range of expenses, but the amount you will get is based on your payroll.

What if you’re a sole proprietor and you have no payroll, no employees and take no salary for yourself? If so, Steadman said, the PPP is probably not for you. 

“Actually, I had this conversation with a customer just the other night,” Steadman said. The customer told him “‘I own a bed and breakfast, and I don’t pay myself wages. I have been impacted by COVID-19. What can I do?’ Well, from our understanding of the rule at this point, not much because it is based off that payroll information.”

A business owner without payroll might be better suited for an Economic Injury Disaster Loan, which offers a $10,000 “loan advance” that’s really a grant.

But …

  • Maybe PPP can help a business that doesn’t pay wages or salary.

It is not entirely clear what counts as a “payroll” expense to determine the loan amount. The SBA rules say “net earnings from self-employment” will count.

Steadman was pretty sure the Paycheck Protection Program wouldn’t suit that customer who owns a B&B. But later he spoke to an SBA representative who told him that rental property owners and the like can use net earnings in place of regular payroll.

And yet, Steadman wasn’t sure that’s the SBA’s final answer.

Which brings us to …

  • The rules are in flux.

This is especially true of guidelines for how self-employed and independent contractors can use the Paycheck Protection Program. The application period for them opens April 10. Steadman says he hopes to have clearer guidance by then.