Seeking to help small businesses survive the shutdown of commerce due to the Covid-19 pandemic, the federal government on Friday launched a $349 billion loan program that business owners can use to cover two months of payroll costs, including benefits, plus utilities, rent, and interest on mortgages.
Known as the Paycheck Protection Program, the loans are available to all businesses with fewer than 500 employees, including nonprofits and sole proprietors. Starting tomorrow, independent contractors and the self-employed can also apply. The loans are fully forgivable as long as business owners retain their existing staff. “Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels,” according to Treasury Department guidelines.
“A 20-person business is huge around here, so it’s hard to imagine anyone in town who wouldn’t qualify,” said Carl Irace, an East Hampton attorney who serves on the executive board of the East Hampton Chamber of Commerce.
The pandemic has impacted his firm, Mr. Irace said, citing a dearth of real estate transactions and of traffic and criminal cases. He has applied for a loan through the Paycheck Protection Program as well as through the Small Business Administration’s Economic Injury Disaster Loan Program. The latter loan is not forgivable, though it does offer an advance of up to $10,000 that does not need to be repaid.
“What lit the fire for me is that this is first come first served,” said Mr. Irace. The paycheck program loans will be available through June 30, but given the extent of economic disruption in the country, the Treasury Department initially said it expected the funds to be fully depleted. On Tuesday, however, Treasury Secretary Steven Mnuchin asked Congress to allocate an additional $250 billion for the program.
After applying for the loans, Mr. Irace wrote about his experience in a letter he shared with his Chamber of Commerce colleagues. He applied for both loans online, he said; the application for the disaster relief loan took him only 10 minutes or so to complete. “The P.P.P. is a bigger loan and the application will take a little more time.”
The application for that loan asks employers to “certify in good faith” that their business was in operation and had employees on payroll on Feb. 15, 2020, that “current economic uncertainty makes this loan request necessary to support the ongoing operations,” and that 75 percent of the loan will be used to cover payroll costs and 25 percent for non-payroll expenditures. Documentation of the latter expenses needs to be submitted.
The loans are provided by Small Business Administration-approved lenders and other federally insured banks and credit unions. “Not every bank will be authorized to fund these loans, so if your preferred bank does not, you might consider using . . . an intermediary,” Mr. Irace advised in his letter. He used an accountant to find a participating lender.
“If everyone takes advantage of this, it will bring a lot of dollars to our community,” said Mr. Irace. “I want the people I know and like to get in on this.”
Joe Gaviola, an investment adviser, the keeper of the Montauk Lighthouse, and the director of finance for the Montauk Historical Society’s Lighthouse committee, also applied for a P.P.P. loan on behalf of the committee, a nonprofit organization.
The Lighthouse, a national historic landmark that charges for admission, has been closed during the pandemic. The committee intends to use the loan to keep its six full-time staffers on board, and to maintain the property, Mr. Gaviola said. “Nobody knows how long this is going to last, so this was the first step to stop the bleeding, and then we’ll figure out how we’re going to pay for things going forward.”
Mr. Gaviola applied for the loan through People’s United Bank on the first day that applications were available. “I applied on Friday, and I got word on Monday that it was approved,” he said.
When the organization will have the funds in hand, however, is an open question. In an email confirming the loan approval, the bank wrote that “we are awaiting further instructions regarding when the funding will be available,” Mr. Gaviola said.
Nevertheless, he said, he is optimistic that the Lighthouse will receive the money soon, and that no staffers will have to be laid off. The employees were excited to hear the organization had been approved for a loan, he said, “but they were even more surprised that the government acted so quickly.”