Covid-19

New PPP loan forgiveness applications released

Revised PPP Loan Forgiveness Application and instructions

EZ PPP Loan Forgiveness Application and instructions

EIDL Loan Application

https://www.sba.gov/page/disaster-loan-applications

Paycheck Protection Program (PPP) Loan Forgiveness

On March 27, 2020, the U.S. federal government signed the CARES Act into law—a big coronavirus relief bill aimed at supporting small businesses through the current pandemic.

One of the measures in the bill is the Paycheck Protection Program here is everything you need to know.

The Paycheck Protection Program is a loan program that originated from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This was originally a $350-billion program intended to provide American small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans. The loans are backed by the Small Business Administration (SBA)

Program highlights

  • All small businesses are eligible
  • The loan has a maturity rate of 2 years and an interest rate of 1%. Loans made after June 5 have a length of 5 years
  • No need to make loan payments until either your forgiveness application is processed, or 10 months after your covered period ends
  • No collateral or personal guarantees required
  • No fees
  • The loan covers expenses for 24 weeks starting from the loan origination date (if the obligations began before February 15, 2020)
  • The loan can be forgiven and essentially turn into a non-taxable grant

Who qualify?

Small businesses, sole proprietorships, independent contractors, and self-employed individuals can all qualify.

  • Sole proprietorships will need to submit a Schedule C from their tax return filed (or to be filed) showing the net profit from the sole proprietorship.
  • Independent contractors will need to submit Form 1099-MISC in addition to their Schedule C.
  • Self-employed individuals will need to submit payroll tax filings reported to the Internal Revenue Service.

Terms & Conditions

  1. Twenty – Four weeks of coverage (eight weeks previously)

Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020.

This is not necessarily the date on which the loan agreement was signed.

  1. The 60/40 rule

60% of the loan must be used for payroll costs.

Payments to independent contractors cannot be included in the payroll costs.

40% Non-payroll costs

  • Mortgage interest payments
  • Rent and lease payments
  • Utilities

 

All the expenses that fall under those categories are eligible if service began before February 15, 2020.

Warning: As part of your application, you will be asked to certify that you will spend the funds in the appropriate way. If you do not spend the funds in the right way, you could be charged with fraud.

  1. Staffing requirements

The business must maintain the number of employees on payroll.

A new exemption on re-hiring employees

Employees who were laid off or put on furlough may not wish to be rehired onto payroll. If the employee rejects your re-employment offer, you may be allowed to exclude this employee when calculating forgiveness.

To qualify for this exemption:

  • You must have made a written offer to rehire in good faith
  • You must have offered to rehire for the same salary/wage and number of hours as before they were laid off
  • You must have documentation of the employee’s rejection of the offer

Note that employees who reject offers for re-employment may no longer be eligible for continued unemployment benefits.

Payroll Costs

Include

  • Salaries, wages, commissions, tips or similar compensation,
  • Vacation, parental, family, medical, or sick leave and severance pay,
  • Group health care benefits, including insurance premiums (employer’s share only),
  • Retirement benefits (employer’s share only),
  • State and local tax assessed on the compensation of employees, and
  • Self-employment income paid to partners in a partnership and owner-members of a limited liability company (which is taxed as a partnership).

Do not Include

  • Salaries and wages more than $100,000 on an annualized basis for any individual prorated for the Covered Period,
  • The employer portion of FICA, Medicare and FUTA,
  • Amounts claimed for the Emergency Sick Leave Credit or the Emergency Family and Medical Leave Credit,
  • Health insurance premiums and retirement benefits for sole proprietors and independent contractors, and
  • Compensation of an employee whose principal place of residence is outside of the United States.

Non – Payroll Costs

Mortgage Interest

Payments of interest on any business mortgage obligation on real and personal property.

Principal or prepayments are excluded.

 Rent or Leases

It includes any payments under a leasing agreement on real and personal property.

This includes equipment leases, copier leases and vehicle leases used in the business.

Utilities

  • Gas
  • Water
  • Telephone
  • Internet
  • Transportation (Means expenses for business vehicles)

Recordkeeping and required documents for forgiveness

These are the required documents you will need to collect to provide with your PPP forgiveness application. Your lender may have additional requirements.

  • Documents verifying the number of full-time equivalent employees on payroll and their pay rates, for the periods used to verify you met the staffing and pay requirements:
    • Payroll reports from your payroll provider
    • Payroll tax filings (Form 941)
    • Income, payroll, and unemployment insurance filings from your state
    • Documents verifying any retirement and health insurance contributions
  • Documents verifying that your eligible interest, rent, and utility payments were active in February 2020
  • Documents verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements)

Good record-keeping and bookkeeping will be critical for getting your loan forgiven you will need to keep track of eligible expenses and their accompanying documentation over the twenty-four weeks.

Your lender will likely require these documents in digital format, so take the time to scan any paper documents and keep backups of your digital records.

Economic Injury Disaster Loans (EIDL)

The economic injury disaster loan is a loan from the SBA to offset financial hardships due to the recent pandemic. This loan is divided in two:

EIDL Grant or Emergency Advance

This loan advance will provide up to $10,000 of economic relief to businesses that are currently experiencing temporary difficulties. The EIDL advance or EIDL grant is free money from the government

The advance is deposited first. An ACH deposit from the name of “SBAD TREAS 310” is the advance from the SBA. This advance does NOT have to be repaid.

EIDL Loan

The EIDL deposit comes afterwards this one the business need to pay back with interest. Interest rates are fixed at 3.75% or 2.75% for nonprofits. This loan has a payment time frame of 30 years.

The business needs to apply for the loan in order to get the advance. 

Terms and Conditions

SBA Form 1391 is the loan agreement for an Economic Injury Disaster Loan and spells out the terms and conditions of the loan.

SBA will require collateral of any loan of over $25,000. The SBA will secure their loan position with a general lien against all the business’ assets or personal assets. This collateral for the loan is secured by use of a UCC-1, which will be filed in the county in which the business is located.

The SBA deducts a $100 fee from the loan proceeds in order to cover the preparation and filing of the UCC-1. It operates very similarly to a federal tax lien, and covers all property, rights to property, and property that may be acquired in the future. It even includes intangible intellectual property that the business may create in the future.

Personal Guarantees required for loans more than $200,000 by owners of greater than 20% of ownership.

This may make it difficult to obtain access to other credit facilities in the future. The borrower will need to obtain SBA permission to sell assets (except for inventory turned in the normal course of business).

Restrictions on Use of EIDL Proceeds

EIDL is a working capital loan. That is the basic guiding principle for use of the loan funds. Working capital is money used to fund day-to-day operations.

Eligible and Ineligible Uses of Proceeds

Eligible Uses

  • Any type of working capital
  • Pay expenses:  Rent, utility
  • Pay fixed debt payments including SBA loans
  • Pay bridge loans (short term!)
  • Pay entire amount of short-term debt due
  • Pay off credit cards and other financing if original purpose was related to COVID-19
  • Payments on IRS Obligations (SBA prefers you request a deferral of the monthly payment from IRS)

Ineligible Uses

  • Paying Bonuses
  • Distributions/payments to owner (except typical in lieu of salary type)
  • Cannot repay stockholder loans
  • Purchase Fixed Assets
  • Expand business
  • Make repairs
  • Debt Refinance of long-term debts
  • May not pay off debts with EIDL financing
  • May not pay any part of a direct federal debt

Record keeping

SBA can access to books, records, and financial statements. All businesses should maintain proper books. The loan terms require the borrower to furnish audited financial statements at the SBA’s request, the SBA will require that the review-level audit be conducted at the expense of the business by a CPA.

At a minimum, the SBA requires that the business provide un-reviewed financial statements within three months of the close of the borrower’s fiscal year.