CARES Act: PPP for Barbers and Barbershops

COVID-19 has brought all but essential businesses to a halt. Although, many would argue against this, barbershops have not been deemed essential. Congress passed the CARES Act intended to assist independent contractors, such as Barbers and Stylists, respond to the economic conditions caused by the novel coronavirus.  These programs include a loan and grant program under the Small Business Administration and expanded unemployment provisions.

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SBA Paycheck Protection Program

The CARES Act creates a new loan program, the Paycheck Protection Program (PPP) within the Small Business Act (SBA) to encourage businesses to retain their employees and to help pay for certain other operating expenses. This program provides loans, with significant loan forgiveness (effectively a grant), intended to keep employees on the payroll, and businesses in operation, for eight weeks. It now allows independent contractors to remain in business (barbers, stylists, esthetician, etc). Applications open Friday, 4/10/2020.

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Who Qualifies, How Much Can be Borrowed, and how the Can Loan be Used:  

Barbers are eligible to obtain the PPP forgivable loans to cover their lost income.  The loan amount would be for lost income or payroll costs up to $100,000 for an individual prorated during the covered period.  Mortgage interest, utilities, and rent can also be funded under this loan.  An independent contractor can also use this loan to continue to employ his or her employees.  The amount of the loan is 2.5 times the average monthly payroll costs calculated over the prior year.

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How is the loan size determined?

Depending on your business’s situation, the loan size will be calculated in different ways (see below). The maximum loan size is always $10 million.

• If you were in business February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date. Ex. $1,500 monthly income * 2.5 = $3,750 max loan.
• If you were not in business between February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020. Email support@thecut.co to request current YTD income report.‍
• If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.

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What costs are eligible for payroll?

• Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
• Payment required for the provisions of group health care benefits, including insurance premiums
• Payment of any retirement benefit
• Payment of State or local tax assessed on the compensation of employees

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What are allowable uses of loan proceeds?

• Payroll costs (as noted above)
• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
• Employee salaries, commissions, or similar compensations (see exclusions above)
• Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
• Rent (including rent under a lease agreement and/or booth rent)
• Utilities
• Interest on any other debt obligations that were incurred before the covered period

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What are the loan term, interest rate, and fees?

The maximum term is 2 years with a maximum interest rate of 1 percent. First payment is deferred for 6 months, 100% guarantee by SBA, no collateral, no personal guarantees. No borrower or lender fees payable to SBA.  

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Loan Forgiveness:

Once a loan is obtained, if the proceeds are spent on payroll, mortgage interest, rent(booth rent), or utilities over the next eight weeks, up until June 30, 2020, the amount expended for these purposes will be forgiven, effectively turning that portion of the loan into a grant. Basically, FREE MONEY.

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How do I get forgiveness on my PPP loan?

You must apply through your lender for forgiveness on your loan. In this application, you must include:

• Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings
• Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
• Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use.

What happens after the forgiveness period?

Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with max terms of 2 years, at 1% max interest. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan. The clock does not start again.

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Apply:

Applications may be made directly to the SBA or to an approved local bank.  The network of banks eligible to process loans is being greatly expanded and you should check with your local bank to see if it is participating. Applications for independent contractors will be accepted beginning April 10, 2020. All loans are on a first come first serve basis.

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SBA Approved Lenders

https://www.sba.gov/article/2020/mar/02/100-most-active-sba-7a-lenders

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Other Resources Available to Barbers

Gusto compiled all the various grant and loan programs available in each state.

https://covidresources.gusto.com/resource-category/state-relief-resources/