I am sure you are hearing all kinds of information out there on the CARES Act, the Payroll Protection Program and the SBA Economic Injury Disaster Loan.
I am going to break down this information to get you started, however, please note there are a lot more details coming out. As always, please call us to discuss your specific situation. We are available to provide this service for you if you so choose.
INFORMATION and DISCUSSION POINTS:
• The language of the Act says SBA is subsidizing the loan payments. Meaning no repayment.
• Banks may not be aware and may ask for Hardship letters. Please contact me for more information about what you must include in your SBA hardship letter.
Economic Injury Disaster Loan (EIDL) – (This is a “loan”, not a grant)
This is the fastest way to get cash. If you need and/or want funds to get you through the next few months, please apply for this.
If you apply whether you are accepted or denied you will have the option to receive $10,000 immediately to help you get through this time. You must check the box in the EIDL application to receive these funds.
Some advisors are reading the law where this may delay Paycheck Protection Program loan approval. It is very unclear at this time.
- You can apply regardless of whether you have any other SBA Loan.
- You can apply even if you later apply for the Paycheck Protection Plan.
- You can apply and get some funds and then go back in a few months and get more if it is necessary.
- Payments will not be due for 6-12 months
- Terms are 3.75% from 10 to 30 years.
Paycheck Protection Program (PPP) the newest part. The CARES Act.
It is NOT necessarily a loan.
You can receive 2.5x times your average monthly payroll expenses. On payroll amounts up to $100,000 per employee.
If you keep all your payroll staff this “loan” will be forgiven.
If you get the $10,000 from the EIDL (above), that is still fine, but may be considered an advance on the PPP amount.
If you don’t qualify for forgiveness, the funds will be repaid in 10 years at no more than 4% interest. At this time, the information, being passed down through the local chambers and business associations, does not clearly show how the full-time equivalents will be calculated, I will provide more information on this as it is available.
If you need funds asap, apply for EIDL to get the $10,000.
Please understand that this advice could change tomorrow, as more clarification becomes available.
HOW ESTESS CPA’s CAN HELP YOU
Like you, we are also a small business. We are navigating our way during this unprecedented epidemic and are trying to keep our employees safe, but at the same time, being present to make sure our clients have our support. If you choose to apply for either of these SBA options on your own, we will provide you any documents that we have at our disposal for you to apply for these applications. The forms that we are aware of at this time are listed below.
We know that this process is daunting. If you so choose, my team and I will prepare these documents for your signature and submittal on your behalf; however, additional fees will apply. The application for funds is one part of it. However, the “forgiveness” of the PPP loan is another part of the process that could take hours and a substantial amount of work. This would allow you to maintain the freedom to work with your clients, and on your business and not worry about the bureaucracy of government applications.
Additionally, we are actively and diligently coordinating with our local banking relationships to make sure we are getting you through the process as quickly as possible.
Economic Injury Disaster Loan (EIDL)
We are providing support, and informational copies, to our accounting family at no additional charge. If you are not a member of our accounting family, please give us a call. This is very similar to a loan application. This form of assistance is not a grant and must be repaid. It does require the preparation of a personal financial statement. Please ask your accounting manager for help with this document. If you would like us to complete these forms and assemble the required support, please give us a call.
- Form 5 – Business Loan Application
- Form P-019 – EIDL Supporting Information
- Form 159D – Fee Disclosure Form and Compensation Agreement
- SBA Form 413D – Personal Financial Statement
- IRS Form 4506-T Request for Transcript of Tax Return
- SBA Form 220 – Schedule of Liabilities
- SBA Form 1368 – Additional Filing Requirements
- Three years of detailed monthly sales information
- 3 years Most Recent Federal Income Tax Returns
- 3 years of Individual Income Tax Returns, owners >20%
Paycheck Protection Program (PPP), Title I Section 1102 CARES Act
This is basically the free money act. Although the application process initially isn’t as daunting, providing payroll reports, income tax returns, and financial statements, proper reporting to achieve loan forgiveness will be very cumbersome and complex.
Amount of loan request is 2.5 times average monthly payroll as determined below:
- Payroll includes wages, tips, paid leave, group health insurance, retirement benefits, unemployment taxes,
- Payments to independent contractor and/or self-employed individual that is earnings from self-employment.
- No compensation shall be included in the calculation in excess of $100,000 per year annual salary.
- Self-employed may apply and must provide records of income and expenses from the sole proprietorship.
- Based on average monthly payroll costs incurred during the 1-year period before the date on which the loan was made.
- Seasonal employers have a choice of using the 12-week period beginning Feb 15, 2019, or March 1, 2019, through June 30, 2019.
The loan proceeds may be used for:
• Payroll costs as defined above
• Payment of interest only on a mortgage or a debt incurred before a covered period.
• Rent under a lease agreement
What you must provide to the lender:
- Proof you were in operation February 15, 2020
- Proof you had employees or paid independent contractors.
- Your employer ID number and the business name and address associated with that ID number.
In addition, you will need to certify to the lender that:
- The uncertainty of the current economic conditions makes necessary the loan request to support the ongoing operations of the recipient.
- Acknowledge the funds will be used for the items listed above as acceptable uses of loan proceeds.
- Acknowledge you do not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for.
- Acknowledge you did not receive amounts under this law for duplicate amounts during the period Feb 15, 2020, through December 31, 2020.
I apologize for the length of this article, however, it is a massive amount of information to summarize. We are all in this together and I absolutely want to help you in any way that I can. Stay Safe and Healthy!