C. Richard Hopkins, MD CRPC@
As our economy navigates the COVID-19 crisis, federal stimulus programs are releasing new information regarding financial assistance programs for small businesses. There are currently two options for low-interest loans or loans that don’t need to be repaid that might help you weather the economic fallout of the COVID-19 crisis.
Both programs below are enacted through the SBA, so talk to your lender if you are interested in either of these options.
Payroll Protection Program (PPP)
The PPP is designed to assist small businesses and self-employed individuals through forgivable SBA loans for payroll as well as other fixed expenses. This money is intended to keep businesses afloat for a couple of months during the COVID-19 crisis.
If you or your business qualifies, here’s how it works. You will likely qualify for the equivalent of:
8 weeks of payroll expenses plus
8 weeks of various fixed expenses
Qualifying payroll expenses include salary, wages, and commissions; payment for vacation, sick, and parental/family/medical leave; payment of payroll retirement contributions; group health coverage premiums; and state and local payroll taxes (uncommon in Utah). The maximum total per employee of wages is $100,000. According to recent FAQ guidance, both defined contribution and defined-benefit plan employer contributions may be included as payroll expenses (question 7, page 3). However, banks generally seem to be limiting retirement amounts to the employer defined contributions, maximum $37,000.
Important note about payroll expenses: If during the eight weeks the number of your full-time employees is reduced or if your payroll costs are reduced 25 percent or more for any employee, the amount of the loan eligible for forgiveness will be reduced. If you laid off any employees, you will want to rehire or replace them before the end of the current month to avoid additional penalties. These penalties are calculated on employment numbers and salaries through June 30, 2020.
Qualifying fixed expenses include rent, interest on mortgage debts, and utilities.
You will receive loan forgiveness for the amounts you spend on the qualifying expenses (listed above) during the eight weeks after receiving the loan.
The attached PPP Calculator will help you estimate what your business may qualify for. Final amount is rounded down to the nearest $100. The bank that grants the loan will determine the loan forgiveness amount. You need to present evidence of expenses to the bank to apply for forgiveness, and the bank will have sixty days in which to approve or deny the forgiveness. The forgiven amount is not taxable, and no personal guarantee or collateral is needed for the loan.
You can also get an additional 25 percent of the amount for which you qualify, but the extra 25 percent is not forgivable. The interest rate on any unforgiven portion is only 1.0 percent.
Tell your banker that, if needed, your business CPA will serve as your verifying agent.
Write a statement to your banker, “I have never had a previous SBA loan.” or “My former SBA loan with ___ bank was paid in full.” (or “is currently active”).
Securely upload or bring 2019 employee W-2s as well as a statement showing all 401(k) additions for the year.
Securely upload or bring invoices or payment receipts for health insurance premiums paid by the business in 2019.
Securely upload or bring your driver’s license, articles of incorporation, and operating agreement unless you have a long-standing relationship with the loaning bank.
As of this writing, there remain significant bottlenecks and delays due to lender confusion regarding technical aspects of this new program. Be prepared to have to wait in line for a few days.
Economic Injury Disaster Loans (EIDL)
The federal stimulus program has also funded hundreds of billions in EIDLs. The EIDL program provides low-interest business loans with much fewer restrictions than the PPP. The EIDL program also provides an initial grant of $10k that does not need to be repaid. Businesses need not borrow additionally to qualify for the $10k grant. Make sure to ask your lender about this program as well.
Download the PPP Calculator HERE