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PAYROLL PROTECTION PROGRAM


Lee B

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The other thread is about a different SBA program called an " COVID 19 ECONOMIC INJURY DISASTER LOAN."

Copied from the Journal of Accountancy:

Applications for small business Paycheck Protection Program open April 3

By Kim Nilsen and Alistair M. Nevius, J.D.

Advocacy & Tax Relief

Management Accounting

Tax

Small businesses and sole proprietorships affected by the coronavirus pandemic can apply for loans under the federal Paycheck Protection Program (PPP) beginning Friday.

Starting April 10, independent contractors and self-employed individuals can apply.

The application can be found here on the Treasury site, along with details for borrowers and lenders. Treasury urged those in need of funding to apply quickly, noting that the program has a cap and demand is likely to be high.

The $349 billion program was enacted as part of last week’s Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. Under the program, small businesses with 500 or fewer employees including not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors are eligible for loans to pay up to eight weeks of payroll costs including benefits as well as other costs. Businesses with more than 500 employees are eligible in certain industries, Treasury said.

Loan forgiveness is based on the employer’s maintaining or quickly rehiring employees and maintaining salary levels, Treasury said in its overview documents. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease.

PPP funds can also be used to pay interest on mortgages, rent, and utilities. Treasury noted that due to likely high demand for the program, at least 75% of the forgiven loan amount must have been used for payroll.

Loan payments will be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

An employer who receives a loan under the PPP is not eligible to also claim an employee retention credit under the CARES Act. The employee retention credit gives eligible employers whose business operations are fully or partially suspended due to the COVID-19 pandemic a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.

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The rate of change is frustrating.  However, that may be a good thing.  Right now the government is trying to push immediate, temporary relief out to businesses to try and forestall some sudden business failures while they do a combination of modifying existing programs and incorporating new programs that are coming online.  Even the SBA is still reading and interpreting the rules.  

This is a rapidly changing economic environment due to a rapidly changing and deadly threat. I don't think any of us have ever seen a government agency act this swiftly in response to any problem.  Neither after 9-11 and not in 2008 were very small businesses helped to this extent. Most were left to sink or swim while the lion's share of the financial help went to "small" business having 300-499 employees.  

As accountants & tax preparers we like the rules all written, vetted and tied up into nice little packages.  This is different.  I wouldn't count on any of the existing cutoff points being set in stone.  I'm assuming the rules will continue to be rewritten and changed as the situation evolves.  The main thing for a business owner to do is to take advantage of what is available at the moment,  get in the queue for SBA assistance going forward, stay informed, and remain flexible.

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Here are summaries of the two programs:

  *  Paycheck Protection Program

The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses.

Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.

Under this program:

Eligible recipients may qualify for a loan up to $10 million determined by 8 weeks of prior average payroll plus an additional 25% of that amount.

Loan payments will be deferred for six months.

If you maintain your workforce, SBA will forgive the portion of the loan proceeds that are used to cover the first 8 weeks of payroll and certain other expenses following loan origination.

 

*  Economic Injury Disaster Loans and Loan Advance

To apply for a COVID-19 Economic Injury Disaster Loan, click here.

In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.

The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid

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I have not had employees in past but decided this year I needed help. I need to keep him on and cash flow is almost none. His wife unable to work due to shutdown. Can I qualify for either one of the SBA programs do you think. He and his wife are in the high risk age group. Thanks for any help.

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I read somewhere along the line that one of the loans required that the company had already applied and been rejected for a normal loan.  I'm glad they're specifically mentioned the re-hire part, though; I know the earlie one assumed you hadn't laid off anyone yet, but it came after many business had already been shuttered for a week or more.

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2 hours ago, TAXMAN said:

I have not had employees in past but decided this year I needed help. I need to keep him on and cash flow is almost none. His wife unable to work due to shutdown. Can I qualify for either one of the SBA programs do you think. He and his wife are in the high risk age group. Thanks for any help.

Absolutely, Payroll Protection Program.  No requirement to have laid anyone off, or had sales drop by application date.  Affirmation is vague enough anyone can affirm.  Just sign up after me 😁

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Copied from the Journal of Accountancy:

"The U.S. Small Business Administration on Thursday issued an interim final rule for the Paycheck Protection Program (PPP), which is offering $349 billion in forgivable loans that small businesses impacted by the coronavirus pandemic can use to cover costs including payroll and rent.  

The interim final rule lays out additional implementation guidelines and requirements for the PPP, which Congress created as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The new rule provides greater clarity on several issues and changes the interest rate on loans made under the program from 0.5% to 1%, a change the American Bankers Association said would encourage banks of all sizes to participate in the program.

The CARES Act established the PPP as a new 7(a) loan option overseen by the Treasury Department and backed by the SBA, which is authorized to provide a 100% guarantee to lenders on loans issued under the program. The full principal amount of the loans may qualify for loan forgiveness if the borrower maintains or rehires staff and maintains compensation levels. However, not more than 25% of the loan forgiveness amount may be attributable to nonpayroll costs.

Loan payments will be deferred for six months; however, interest will continue to accrue during the six-month deferment. No collateral or personal guarantees are required.

The program is available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans, according to the SBA and Treasury.

Small businesses and sole proprietorships can apply for PPP loans beginning today. Independent contractors and self-employed individuals can apply beginning April 10.

Under the PPP, the maximum loan amount is the lesser of $10 million or an amount calculated using a payroll-based formula specified in the CARES Act. Note: You can access free loan calculators on the AICPA’s PPP resource page.  

PPP loans will be available through June 30 or until the funds run out. Due to expected high demand, Treasury recommends that applications be submitted as soon as possible. The application can be found here on the Treasury site, along with details for borrowers and lenders.

The CARES Act permits the PPP’s forgivable loans to pay for up to eight weeks of payroll costs, including benefits and other costs. In addition to payroll, recipients also can use PPP funds to pay interest on mortgages, rent, and utilities.

Small businesses applying for PPP loans must submit documentation, such as but not limited to payroll processor records or payroll tax filings, that establishes their eligibility for the loans. The interim final rule issued Thursday clarified that the SBA will allow lenders to rely on the borrower’s documentation to determine if the borrower is eligible for the loans. Lenders can accept e-signatures and e-consents. Lenders who comply with the obligations laid out in the interim final rule will not be held responsible if the borrower submits fraudulent or inaccurate information."

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An interesting aspect, saw one source suggesting it is acceptable to add employees from the application count compared to the forgiveness count.

I have seen no prohibition from having your forgiveness payroll being higher than the loan calculation monthly amount.  It does make sense to be wary of doing so in a plain attempt to pad the forgiveness.  But, such as might be the case for me, I need temporary help now (after the Feb 15 :count" date), to allow me time to do more programming to handle the FFRCA implications in payroll.  Some might even have a higher payroll for the same employees, if they are doing extra work, such as cleaning after their usual hours.

Once the forgiveness application documents come out, then more will be known.

Someone did list things to not do, such as fictitious hiring of all types.  Even if able, I would not suggest shifting income into those 8 weeks either.  A nice pattern of regular pay per employee at a stable number of hours will likely prevent any unneeded questioning / audit during forgiveness application.

Not all employers will be able to "use" all of the possible forgiveness (roughly, the extra .5 in the multiplier) in allowable expenses, especially home based folks who likely pay no rent.  So for those who cannot project enough expenses to use the extra loan amount, they should keep good records and be ready to pay back or carry the amount of their loan which is not eligible for forgiveness.

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15 hours ago, Lion EA said:

I love the title Interim Final. Is that an oxymoron

Putting that aside,  since this document  is destined for the FEDERAL REGISTER, it is the closest we have seen to an authoritative source.

There have been a lot of articles published with conflicting information.  This answered a lot of my questions.

 

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