The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on Friday March 27, 2020. It is the largest economic bill in US history. Funds have been authorized to assist businesses and individuals cope with the economic disaster that has accompanied COVID-19. Let’s talk about how you can get a FREE, NO REPAYMENT loan, through the Paycheck Protection Program (PPP).
Move fast but not too fast. New information and guidance is being released at a rapid pace. Before applying for PPP or any form of relief you should meet with your CPA or business advisor to determine which program provides the best benefit for your unique needs and circumstances.
Update 04/02/2020 Interim Final Rule for PPP released by Treasury Department.
What types of businesses and entities are eligible for a PPP loan?
- Businesses and entities must have been in operation before February 15, 2020.
- Small businesses and nonprofits that have fewer than 500 employees
- Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
- Businesses in the food or hospitality industry that have fewer than 500 employees per location
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 last year 2019: Your max loan is equal to 250 percent of your average monthly payroll costs during that time period.
- If you were not in business last year 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
What are allowable uses of loan proceeds?
- Payroll costs including commissions (not to exceed $100,000 per employee/owner)
- Cost for group health care benefits
- Carrying costs for real estate — rent, utilities, mortgage interest
- Interest on other debt incurred before February 15, 2020
What are the loan term, interest rate, and fees?
For any amounts not forgiven, the maximum term is 2 years, the maximum interest rate is 1%. All payments are deferred for 6 months; however, interest will continue to accrue over this period. Updated 04/02/2020: interest rate changed from 0.5% to 1%. Updated 04/01/2020: previously reported at max term of 10 years and 4% interest rate.
Zero loan fees, no personal guarantees and non-recourse as long as spent on allowable uses, no collateral required. Updated 04/01/2020: no fees will be charged to borrowers by banks or agents.
How is the forgiveness amount calculated?
The amount of the loan that is forgivable is the sum of the payroll costs, mortgage interest payment, rent, and utilities incurred or paid by the borrower during the 8-week period beginning on the loan origination date. Any portion of the loan that is forgiven is excluded from taxable income.
To provide incentive to keep employees on payroll the forgiveness is reduced by any reduction in employees retained or significant reductions in their payroll compared to historical levels.
How do I get forgiveness on my PPP loan?
Time will tell how this works out administratively. As of now it looks like 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.
- Note: If you received a $10,000 advance from an Emergency Economic Injury Grant (EEIG) then forgiveness of your PPP loan will be reduced by the $10,000 EEIG advance. The EEIG is therefore only a timing difference if you will otherwise qualify for and receive a PPP loan.
Where should I go to get a PPP loan from?
The short answer is you should go to your bank. We bank with Chase and as of today, March 31, 2020 they are not yet accepting applications for PPP loans and encourage customers to check back regularly here.
Updated 4/01/2020:
- Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
All SBA 7(a) lenders are eligible lenders for PPP and we anticipate they will start disbursing funds as soon as they are able to get systems in place to handle the very high application load.
Related assistance
Emergency Economic Injury Grant and Economic Injury Disaster Loan (EIDL) recipients and those who receive loan payment relief through the Small Business Debt Relief Program may apply for and take out a PPP loan as long as there is no duplication in the uses of funds. Click here to access the $10,000 advance from EIDL which does not need to be repaid under any circumstance.
CARES Act also made significant changes to tax law to allow net operating loss carrybacks, relaxed 163(j) interest expense limitations, fixed the glitch to allow bonus depreciation for tenant improvements and other qualified improvement property (QIP) retroactively, created a deferral for employers share of payroll taxes, and more.
At Proseer we guide entrepreneurs and high net worth families through the intricacies of taxes and accounting. If you have questions about how COVID-19 has impacted your business or tax position contact us.
Interested in free 15 minute consultation to discuss your unique needs and available SBA loan options? Click here to schedule a time.
