2021 Paycheck Protection Program Guide for Childcare Providers

In these uncertain and demanding times, any financial support that childcare providers are eligible for can make the difference between being able to remain open or closing their doors. Read on to see if your business may qualify for relief!

What is the Paycheck Protection Program?

The Paycheck Protection Program was first established in the United States in 2020 by the United States Federal Government Coronavirus Aid, Relief and Economic Security Act (CARES Act) and implemented by the U.S. Small Business Association.  The purpose of the Paycheck Protection Program is to provide economic relief of up to $100,000.00 annualized per employee to small businesses such as childcare facilities that have been negatively affected by the COVID-19 Pandemic.  

The Paycheck Protection Program takes the form of private loans to aid childcare facility operators in paying their employees and meeting the day-to-day operational expenses of running a facility.  These low-interest loans are offered at 1% interest and may be used to pay educators, cover COVID-19 related expenses, and even be used to pay suppliers, rent and utilities.  

The Paycheck Protection Program loan amount averages about 2.5 times the average monthly operating costs of a childcare facility.  

On January 8, 2021, the program was re-opened for new and existing borrowers and other certain applicants may now be eligible to apply for more funds.

The Paycheck Protection Program is designed and intended to provide temporary economic relief to small businesses, families and childcare facilities that have been negatively affected by layoffs and closures as a result of smaller enrollments due to the COVID-19 pandemic.

What is New in the 2021 Update to the Program vs. 2020?

Since the launch of the Paycheck Protection Program in 2020, there have been some new updates and there is now a much broader range of expenses that will be covered. The new criteria are more flexible and include the following:

• Additional expenses such as facility operations, computer software, property damage, covered suppliers and worker protection have been added.  Worker protection includes enhancing educator’s safety by allowing for the purchase of items such as personal protective equipment, physical barriers, ventilation, air purification systems, and health screening tools.
• The Paycheck Protection Program loan period may be approved for a term anywhere from 8-24 weeks and is determined by the operator of the childcare facility.
•  As of January 13, 2021, existing child care operators who participated in the first round of loans are now eligible to apply for a second loan.
• The United States Internal Revenue Service has recently issued guidance that the Paycheck Protection Program loans are non-taxable.  This means childcare facilities are not permitted to take deductions for business expenses that have been paid for through the Paycheck Protection Program loan.

Who is Eligible?

Most childcare programs are eligible, including family childcares.  Childcare operators who operate profit or non-profit facilities under the umbrella of a sole proprietorship, as an independent contractor or as an individual who is self-employed are eligible for the Paycheck Protection Program as long as they have had been consistently paying their employees and have been in operation since February 15^th of 2020.  

Applicants and Educators must be residents of the United States and the childcare facility must be deemed to be making a significant contribution to the economy of the United States.

Childcare facility operators must be able to demonstrate that at least 75% of the Educator’s hours are being maintained in order to qualify.  Unfortunately, casual employees are not eligible at this time.

Of importance, it should be noted that childcare operators who wish to apply do not have to prove that they are unable to obtain credit through another source.  Please be aware that there is a requirement to confirm that the current economic conditions caused by the COVID-19 pandemic make the loan necessary for continued operations.

Applicants can apply for a second loan if the first loan has been or is expected to be exhausted.  When applying for a second loan, applicants should be aware that the childcare business revenue must have declined by 25% in any quarter of 2020 as compared to the same quarter in 2019.

Publicly traded companies are not eligible.

The deadline to apply is March 31, 2021.

What Does the Program Cover? What is Being Offered?

The Paycheck Protection Program covers payroll expenses, business expenses such as computer software, the educator’s personal protection, property damage, and operational costs such as rent, interest and utilities at a rate of 1% interest.

Credit checks are not required and the loan amount that may be up granted may be up to 2.5 times the childcare facility’s average monthly costs.

How to Apply

Childcare facility operators who are interested in applying for the Paycheck Protection Program would do so through an existing Small Business Administration (SBA 7(a) private lender like a federally insured bank or credit union.  Applicants are encouraged to check in with their current lenders to see if they are offering the Paycheck Protection Program.  Currently there are no application fees and a lender is not permitted to charge to process an application.

Loan Forgiveness

Previous Paycheck Protection borrowers qualify for full loan forgiveness during the 8-24 week period provided the Educators are paid the same amount and in the same manner as indicated on the first loan application. At least 60% of the loan must be spent on payroll expenses.

40% of the proceeds of the loan are allowed for utilities, rent, mortgage interest, operating expenditures like computer software and supplies, Educator’s personal protection equipment and capital expenses required to meet Center for Disease Control Guidelines.

Applications for loan forgiveness will only be considered if the funds have all been completely distributed.  The option for loan forgiveness is available right up until the maturity date of the loan. 

If a borrower chooses not to apply for loan forgiveness within the first 10 months after the last day of the initially covered period, then payments on the Paycheck Protection Program loan will commence.

Please visit www.sba.gov for more information about the Paycheck Protection Program.

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