Published Date: 04/07/20
Childcare providers have been hit especially hard by financial losses caused by the coronavirus (COVID-19) pandemic. With no way to supplement income during voluntary and mandated closures, many are in trouble of shutting their doors permanently.
The CARES Act provides some financial relief but understanding what loans and grants are available can be challenging. Childcare business coach Evelyn Knight spoke with Jay Whitney of Childcare Brokers on her podcast. Jay was able to provide insight into the Paycheck Protection Program available to childcare providers aiding in financial recovery from the COVID-19 outbreak.
The following information is garnered from the podcast. UPDATE: This was updated on 4/9 with additional information and clarifications from the New York Times.
Is the childcare center’s owner’s salary included?
It’s treated differently based on the type of corporation the business is registered as. For an S-Corp or C-Corp only the owner’s W-2 wages are included. For a sole proprietorship or LLC the entire profits of the business are included and considered payroll because the owner pays the self-employment tax.
How much can I borrow from the Paycheck Protection Program?
The limit for the PPP is $100,000 per person for wages. Retirement contributions are not deducted they are considered in excess to wages. The maximum a childcare center can receive is $10 million. UPDATE: Companies can borrow their payroll costs plus an additional 25%.
What does the state tax question refer to?
The state tax question refers to the state unemployment tax. It doesn’t not include the federal unemployment tax.
How do I calculate the total loan amount my childcare center can get?
Total wages (not to exceed $100,000 per employee) plus group insurance plus state unemployment tax for the year. However, some lenders want the information from 2019 and others want March 1, 2019-February 29, 2020. Divide the total by 12 and multiply by 2.5. UPDATE: The program generally uses February 15, 2020 for calculating your pre-pandemic payroll.
How can the funds be used?
The loan is for two months of operational costs for the period after the loan is dispersed. It can be used for rent, utilities, payroll, and interest on the mortgage. Home childcare centers cannot use the funds for interest on their mortgages.
What if I’ve laid off staff?
If you’ve laid off staff and rehire them once the loan is received, the PPP can be used to pay those staff members for two months. If you do not rehire staff or they choose not to return, that portion of the PPP will not be forgiven. For example, if you had 20 full time employees and 16 return, 80% of the PPP loan will be forgiven but 20% will have to be repaid. UPDATE: According to the New York Times, you must rehire staff before the money hits your account.
When does the unforgiven loan balance need to be repaid?
The loan comes with a six-month deferment and you can request a 12-month deferment. It must be paid back by the end of the second year of the loan.
Do all childcare centers & family child cares qualify?
Both nonprofit and for-profits qualify, as well as childcare centers and family child cares. Providers who were not in business in 2019 may not qualify for the Paycheck Protection Program but may qualify for the SBA Disaster Relief Loan (EIDL). Check with your specific lender.
Can I get the PPP and the SBA Disaster Relief Loan (EIDL)?
No, childcare providers can only access one of the loans. If you access the $10,000 emergency small business grant it is absorbed into either the PPP or the SBA Disaster Relief Loan (EIDL) if you obtain one of them.
Are collateral or a personal guarantee required for the Paycheck Protection Program or SBA Disaster Relief Loan (EIDL)?
For childcare providers, no collateral or personal guarantee is required to access the Paycheck Protection Program. The standard collateral requirement applies to all SBA loans.
Are credit checks require to access the Paycheck Protection Program?
No credit checks are required for childcare providers to access the PPP.
Are all lenders issuing the PPP loan?
No. About one-third of lenders said they would not participate because the 1% interest rate is too low. If you already applied for a PPP loan through your bank and they’re not participating, you can apply through another one who is.
Who will receive the Paycheck Protection Program loans?
The program does not have unlimited funds and is first come first served.
What documents should a childcare center or family child care have ready to apply for the PPP?
Prepare by having your 940 and 941 tax forms, a copy of your drivers license, information stating when your business was incorporated. Additional documentation may be required.
Should childcare providers wait until the Paycheck Protection Program is available before applying for the $10,000 small business grant?
No. If you need funds immediately apply for the emergency $10,000 grant. UPDATE: Many sources are reporting that $10,000 is not guaranteed and that businesses will be receiving $1,000 per employee up to $10,000.
How many payroll hours must be maintained to access the PPP?
A childcare provider must demonstrate that 75% of total staff hours are being maintained, not 75% of hours for each individual staff member. Substitutes count toward these hours as a full-time equivalent, as do two or more part-time employees doing the work of one full-time staff member.
Can part-time workers be included in payroll calculations?
Yes, but independent contractors and gig workers are not covered in the calculations. They can apply for their own paycheck protection program loans.
When will the loans be dispersed?
Details are unclear, but several lenders have said applicants can choose a date between approval and June 30, 2020 to receive the funds.
What is the application deadline?
June 30, 2020, although funds may run out sooner.
How do I apply?
To apply, you must contact a bank or other lender. If you already have a relationship with one, that is where you should start. The SBA has a search tool to help you find lenders in your area, however they may not be taking new customers. Lenders who have specifically said they are taking new customers include Kabbage, NorthOne, and Ready Capital.
This information does not serve as legal advice and you should consult with your lender before making decisions about financing.
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