Business Owners Should Explore Paycheck Protection Program Forgivable Loans Now

Written by: The Advisory Group SF

Business owners: Take action immediately, given that it is expected that the Paycheck Protection Program (PPP) will be flooded with applications and run out of money quickly. Do what you can to get into the queue 4/3/20, as per the information below. Almost all small businesses (500 employees or less) are eligible. Some over 500 employees are also eligible, for example those in hospitality and certain other industries, as well as certain franchises, may in some cases count the 500 by location, rather than the overall company total.

The recent CARES Act’s Payroll Protection Program creates a forgivable loan program for all small businesses, with few exceptions. You could receive up to the equivalent of 250% of your monthly “payroll costs,” (2 months plus an additional 25% for non-payroll costs), up to $10,000,000, and note that “payroll costs” for this program include certain compensation, as well as rent, health insurance and other costs (see links below for details). This is an excellent opportunity to retain jobs, help your business, and thereby stimulate the economy during this coronavirus period.

NOTE: The PPP application process begins tomorrow, 4/3/20 for small businesses, and 4/10/20 for sole proprietorships and independent contractors. Some banks will initially gather primarily or only the basic information required by the SBA application (see link below, which may be helpful as a sample application for part of the information your bank will require), and then your bank may follow up with borrowers for any additional documentation the bank requires. We encourage clients to take steps now to prepare information so that you can apply as soon as the application process is possible. Below are some resources and tips that may help. At bottom, summary information for a separate program, SBA’s Disaster Loan Assistance (DLA), is also provided ($10k grant, plus up to $2m in loans). It is allowable to apply and receive funding from both the PPP and DLA programs).

Summaries of the PPP program, with similar but different levels of clarity:

https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses

https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf

https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf

Application form (note: Your bank will likely require their own similar form or on-line input/submission, see your bank’s website or contact your bank immediately):

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf

The PPP requires that you use a SBA 7(a) approved lender. The link below shows the top-100 lenders, but NOTE that many lenders will only take applications if you are an existing business customer, so contact your company’s bank first… and soon. Application information may also vary by bank, if your bank requires more information that what is outlined in the SBA’s application form above:

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

A few hints that may help during your PPP application process:

- Contact your bank and/or bank website ASAP to find out where and when to apply.

- It isn’t clear when each bank will take applications on the dates above… midnight, 9am ET… TBD, so monitor closely. On 4/3/20, some activated their online submission at 9am PT, 6am ET.

- Be prepared to rapidly gather an array of documentation and tax forms related to compensation and the other allowable “Payroll costs.” The first set of links above (e.g. Treasury Dept. file) include details on what can be included as payroll costs, it includes rent, health insurance and more.

- In order to complete the application, you may also need to know your legal tax classification, e.g. S Corp, C Corp, partnership or Single Member Sole Proprietorship. NOTE: This may be different than your legal entity, which could be LLC or other. You should be able to find this on your business tax return.

- It isn’t known whether or not you will be able to submit the basic information now and update it later if there is government clarification and guidance in the future. That may also vary by lender.

- If the application can be updated after initial submission, it isn’t clear whether or not that will cause you to lose your place in line. This may vary by lender.

- The language of the Treasury department document above seems incorrectly imply that contractors can be counted as employees. The Commerce Department document makes it clearer that contractors are not to be counted as employees in the compensation or employee count numbers of small business applications. Additional government guidance may or may not be provided later.

- The 25% on top of “payroll costs” is embedded in the “Multiply by 2.5” application form calculation, apparently as an extra cost buffer, and does not require that you gather specific documentation of such costs. Banks, however, may or may not require additional information.

- Based on information gathered from an accounting firm, we’re told that compensation numbers can/should be based on “W2 Box 5 Medicare Wages and Tips,” which implies that bonuses also $100k per person annual cap). Non-W2 owners would use income numbers from tax returns, and tax return form requirements may vary by lender.

- Loans will be forgiven if the requirements are followed, see the first set of links above for details. Requirements primarily involve spending the loan on the same costs outlined in what are allowable “payroll costs” referenced above.

The information above expands on an email sent to clients 3/31/20.

Disaster Loan Assistance program: This is a new program, separate from the Payroll Protection Program, but the DLA and PPP can be simultaneously accessed.

- $10,000 grant (not a loan) within approximately 5 days to qualified entities impacted by the coronavirus.

- Then, within 2-3 weeks, an officer will contact you to determine your need for up to $2,000,000 as a loan that would have to be paid back.

- There are apparently no requirements for the grant other than your business being in operation before 2/1/20.

- We called the SBA line below (they answered late at night!) and they said “yes, it seems too good to be true, but it is.”

The DLA is administered directly by the SBA (800-659-2955 or [email protected] for questions).

The DLA online application form is here: https://covid19relief.sba.gov/#/