SBA Loan 7(a) Q&A
Most Popular Loan Application Questions!
We have been staying up way past our bedtimes to bring you the most current information, but our membership in the ADCPA has paid off over and over this last three weeks. We cannot thank them enough – and you, our clients, for being so patient.
Here are your questions and answers to the PPP loans
. Please remember that you should NOT accept any funding until the final regulations are in place.
UPDATE
: 7 PM on Thursday night the Treasury Department issued additional guidance on the
Paychecks Protection Program (PPP) loans.
The number one question everyone is asking – when do I apply?
There are two factors to consider:
1)
When do you need the money?
2)
When will the funds run out?
Ideally, you want to get the PPP loan when you reopen your practice, but no later than 6/30/20. This would allow for you to fund the first 8 weeks of payroll costs (defined below), rent, and utility costs while revenue is less than 100%. This would allow you to be fully staffed and operational once it is recommended for you to reopen. Unfortunately, we don’t know right now if the funds will be available at that time or how long the loan process will take. The Treasury Secretary said he will work to replenish the funds if they run out, subject to Congress approval.
We don’t believe the funds will run out immediately, but we also don’t believe a business should wait until May to get a loan.
Don’t panic
– even if your bank gave you a large list of items yesterday, the list might be significantly shorter today. Contact your lender, gather your information, and work with your bank to figure out when financing will be available. Nothing official, but we have heard from some banks that they will be able to allow for the loan to be processed, funds reserved, and become available upon request (prior to 6/30).
The PPP loan calculation simplified. How much can you borrow is as follows:
Step #1:
Gross wages/salary (reported on 2019 W3) + Group Health Benefits + Retirement Benefits + SUTA = Total Compensation
*Subtract any compensation paid to an employee in excess of annual salary of
$100,000
Step #2:
Monthly Average Payroll Costs =Total Compensation (calculated in step #1) divide by 12 months
Step: #3:
Monthly Average Payroll Costs (step #2) multiply by 2.5
This is the maximum loan you can receive and report this on your application.
*See below in FAQ additional details on Payroll Costs & Excluded Payroll Costs
Below is a summary of the Interim Final Rules (SBA 020-0015 – 13 CFR Part 120) issued Thursday evening. Please note the application process appears to have been simplified compared to previous guidance you may have received. Contact your lender and read below to understand the details.
Q: Am I eligible?
A: Most businesses are eligible for a PPP loan if you have 500 or fewer employees
in the US and were in operation on 2/15/20. Affiliation rules apply.
Q: I’m an independent contractor – am I eligible?
A: Yes and you must be able to submit documentation such as 1099-MISC
received.
Q: What are my payroll costs?
A: Compensation to employees, employer portion of payments for group health
insurance, retirement, state taxes on compensation (State unemployment and
PFML, if applicable), and your net income from being self-employed (does not
include 1120S K-1 income)
Q: What is excluded from payroll costs?
A: i) Compensation in excess of annual salary of $100,000
ii) The employee portion of federal employment taxes withheld between 2/15/20
and 6/30/20
Q: Can I include payments to independent contractors as compensation?
A: No, independent contractors have the ability to apply for a PPP loan on their
own.
Q: What is the interest rate on a PPP loan?
A: 1% (previously reported as 0.5%, this has changed!)
Q: What is the maturity date?
A: Two years (previously reported as 10 years, this has changed!)
Q: Can I apply for more than one PPP loan?
A: No
Q: Can I use e-signatures?
A: Yes
Q: Is the PPP loan first come, first served?
A: Yes
Q: When do I start making payments on a PPP loan?
A: Interest accrued when funds are disbursed, but payment is not due for 6 months.
Q: Can my PPP be forgiven?
A: Yes, if the loan is used on eligible costs and employee and compensation levels
are maintained. At least 75% of the costs must be for payroll costs to obtain
forgiveness. The SBA will issue additional guidance on forgiveness. Although not
stated in the final rule, the Act states the funds must be used within 8 weeks of
receiving the loan to be forgiven.
Q: What are eligible costs?
A: i) Payroll costs (defined above)
ii) Group health care benefits
iii) mortgage interest payments (not prepayments or principal)
iv) rent, on a lease dated before 2/15/20
v) Utility payments, under service agreements dated before 2/15/20
vi) Interest payments on debt obligations incurred before 2/15/20
Q: I incurred eligible costs before receiving the loan, can I reimburse myself?
A: The SBA will issue additional guidance but under the Act the funds must be used within the 8 weeks following receiving the loan and prior expenses would not be eligible.
Q: What forms do I need and how do I submit an application?
A: i) SBA Form 2483- Paycheck Protection Program application form
ii) Payroll documentation
Q: What if the PPP funds are misused?
A: If misused, you will be subject to additional liability such as charges for fraud
Q: What certifications must be made? (summary below)
A: i) The applicate was in operation on 2/15/20 and had employees
ii) Current economic uncertainty makes this loan request necessary to support
the ongoing operations of the applicant (Due to COVID-19 this is a near certainty
for any practice)
iii) the funds will be used to retain workers and maintain payroll or make
mortgage interest payments, lease payments, and utility payments. Failure to do
so could result in fraud charges.
iv) Documentation verify the number of employees as well as the eligible costs
incurred for the 8 week period following the loan will be provided to the lender.
v) Loan forgiveness will be provided for the sum of documented costs. Not more
than 25% of the forgiven amount may be for non-payroll costs.
vi) The applicant has not and will not receive another loan under this program.
vii) The information is true and accurate.
viii) The tax documents provided are identical to ones filed with the IRS.
Q: What payroll costs do I use?
A: The lenders are required to confirm the average monthly payroll costs for the
preceding calendar year (2019)
Q: What other information do I need to provide?
A: Lenders may need to include a customer identification program
Items noted in the guidance:
Q: How do I track my costs?
A: We recommend you create a new bank account to track the deposit and use of
the funds. Documentation is required.
Q: How does this impact my pending EIDL grant?
A: We don’t know – the EIDL grant was supposed to come out as emergency funds
and then the PPP provide later working capital to cover payroll and overhead for
two months. However, the administration rushed the PPP loan and is making the
application available before anyone has received the EIDL grant. We believe this
means the EIDL loan may not be able to refinanced into the PPP loan.
Q: My partnership is owned by two S corps, do the S corps need to apply for
their own loan?
A: If the S corporation owners receive a W-2 through their own PC then those
wages can’t be included in the partnership application. The S corporation owner
can file its own PPP application or an EIDL application with similar results.
Q: My partnership is owned by two individuals, do I include their K-1 income in
payroll costs?
A: We don’t know. However, it is reasonable to assume that since a business
includes the income of the sole proprietor, that the partnership should also
include the K-1 income (limited to $100k per partner)
Q: When can I apply?
A: Starting April 3, 2020, small businesses and sole proprietorship 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.
Q: What information do I need?
A: According to the final rules:
The PPP application
Q: Where can I learn more?
COLEMAN, UREDA, ALFORD & KAUCHER, PA
