The
Paycheck Protection Act the cornerstone of the CARE act is finally
online. I strongly encourage your to take advantage of it.
Below is a discussion from the Intuit folks about the Paycheck Protection Act that they provided me to forward to you.
This link should have everything you need to start the process.
The
Paycheck Protection Program (PPP) is a cornerstone of the $2 trillion
Corona virus Aid, Relief, and Economic Security (CARES) Act. The program
provides $349 billion in
Small Business Administration
(SBA) loans for small businesses with 500 or fewer employees. The goal
of this loan program is to encourage businesses to keep workers employed
during the corona virus pandemic.
Typically,
SBA loans are for businesses that cannot find credit through other
lenders, but the CARES Act waives that requirement. And while SBA loans
require borrowers to post collateral and sign a personal guarantee that
they’ll repay the loan, PPP loans require neither. Instead, the federal
government is providing loan guarantees to lenders.
All
businesses—including nonprofits, veterans’ organizations, Tribal
business concerns, sole proprietorships, self-employed individuals, and
independent contractors—with 500 or fewer employees can apply.
Businesses in certain industries with more than 500 employees that meet
applicable SBA
employee-based size standards can also apply.
Determining Paycheck Protection Program loan eligibility
Lenders
must determine if a business was operating as of February 14, 2020, and
if it was paying employees on that date. Proof of your payroll costs is
the biggest factor in determining the size of your loan. “Employees”
includes full- and part-time workers. Independent contractors paid
through 1099s are also included in the payroll calculation. Criteria for
loan eligibility include:
- The business has 500 or fewer employees.
- The
owner certifies that the uncertainty of economic conditions makes the
loan necessary to continue operations during the pandemic.
- The loan proceeds must be used to fund payroll, rent or mortgage payments, interest on debt, and utility payments.
How much can an eligible small business borrow?
Eligible
small businesses can borrow up to $10 million. The maximum loan amount
is based on the business’s average total monthly payroll costs for the
prior 12 months, multiplied by 2.5.
Loans
will cover annual payroll, up to $100,000 per worker, but cannot exceed
$10 million. If your business has operated for less than a year, your
loan will be based on employee payroll between January and February
2020. The SBA is paying origination fees to lenders, so borrowers don’t
receive additional fees.
What are the taxes and loan terms?
After
eight weeks, borrowers must submit to lenders detailed reports on how
they used funds. But to streamline the process and keep small businesses
running, all PPP loans have identical terms:
- Interest rates of 0.5%
- Maturity of two years
- First payment deferred for six months after approval
- 100% guarantee by the SBA
- No collateral or personal guarantees from borrowers
- No borrower or lender fees payable to the SBA
What can I pay for using Paycheck Protection Program funds?
Since
the program is designed to help businesses keep employees on the
payroll, the primary use of Paycheck Protection Program funds should be
used to cover payroll-related expenses. Eligible expenses include:
- Salaries
- Wages
- Commissions
- Expenses
- Vacation, sick, parental/family/medical pay
- Retirement contributions
- Group health coverage premiums
- State and local taxes
Federal
taxes are not included, nor are payroll costs for employees making over
$100,000 a year. However, the program covers the first $100,000.
Paycheck Protection Program funds may also be applied to administrative costs like:
- Utilities (electricity, gas, water)
- Communication (phone or internet access)
- Insurance premiums or other healthcare costs
- Rent, provided borrowers signed their lease before February 15, 2020
If
small business owners use the PPP funds to cover qualified expenses
over eight weeks, they may be eligible for loan forgiveness.
How is a Paycheck Protection Program loan forgiven?
Loans may qualify for forgiveness under some circumstances:
- The loan is only used to cover qualified expenses.
- You pay 100% of payroll dollars to employees during the eight weeks after the loan is approved.
The amount of the loan eligible for forgiveness will be reduced if:
- You reduce the number of full-time workers you employ over eight weeks.
- You reduce payroll costs by 25% or more.
Forgiveness
is determined by the banks that grant the loans. Banks will have 60
days to approve or deny a business’s loan forgiveness request.
Normally,
when a bank approves loan forgiveness, the borrower is taxed on the
dollar amount of the loan, as if the loan was business income. The CARES
Act does not tax the borrower when the loan is forgiven.
What if the loan is not forgiven?
If
a portion of the loan is not forgiven because at least 75% of the loan
did not cover payroll costs, the remaining loan must have a maturity
date of 10 years or fewer. And the interest rate will be no more than
4%. There will be no penalty for loan prepayment, and the federal
government will continue to guarantee the loan.
Does the Paycheck Protection Program cover sole proprietors and independent contractors?
Yes!
Sole proprietors and independent contractors meet the definition of a
small business under SBA size standards. Professionals in this category
must also document their income and expenses.
You
can document your income using bank statements and 1099s received from
clients. Contractors may not receive 1099s for smaller payments.
Expenses can be supported using bank statements and credit card
documentation. Much of this information should be filed with your 2019
tax return.
How to apply for the Paycheck Protection Program
On
April 3, 2020, small businesses and sole proprietorships can apply for
these loans. On April 10, 2020, independent contractors and
self-employed individuals can apply.
Complete the SBA’s Paycheck Protection Program
sample application,
and submit the document to any existing SBA-approved lender. Federally
insured depository institutions, federally insured credit unions, and
Farm Credit System institutions may also be participating as SBA
lenders. Check with your bank to find out if they’re participating in
the program.
When
you apply for the loan, your lender will consider both your personal
credit score and your FICO score. The SBA uses the FICO business score
for all business loans. Both credit scores evaluate your use of credit
and if you make debt payments on time. To maintain a good business
score, you must pay vendors and suppliers on time.
You will need to have the following documentation to apply:
- Articles of incorporation for each borrowing entity
- By-laws or operating agreement for each borrowing entity
- Copies of each owner’s driver’s license
- Payroll expense verification
- Certification that all employees live in the United States
- A detailed list of employees who do not live in the U.S., with corresponding salaries
- A trailing 12-month profit and loss statement
- Proof of expenses like rent or mortgage payments, interest payments on debts, and utility payments.
Potential borrowers must also provide
payroll details
to the lender to obtain loan approval. You’ll also need to provide
payroll data during the eight weeks after the loan is finalized. If you
use accounting software or a payroll processor, the payroll data will be
easy to access. Otherwise, you’ll need to provide documentation for:
- Gross pay. This includes gross wages as well as paid time off, vacation pay, and family medical leave pay for the last 12 months.
- Tax withholdings. This includes the last 12 months of federal, state, and local income taxes withheld.
- 2019 FUTA taxes. This includes IRS forms 940 and 941 for federal unemployment taxes.
- 1099s. This includes 2019 payments to independent contractors.
- Health insurance premiums. This includes company-paid premiums for group health insurance for the last 12 months.
- Retirement plan funding. This includes business contributions to employee retirement plans over the last 12 months.
Your
business will still have to withhold federal and state income taxes,
Medicare, and Social Security. Check with a CPA to determine the dates
to file payroll tax reports and submit withheld payments.
Where to go from here
Contact
your bank and find out if they’re participating in the SBA lending
program. If they don’t, ask for a referral for another institution. Then
gather your records, complete the application, and submit the data to
an SBA lender as soon as possible. A CARES Act loan can serve as a
lifeline for your business. Explain the application process to your
workforce, so they understand the direction you’re headed. Finally, give
yourself some credit for taking action.
One
additional note, we are reading that some banks may not be set up yet
to start the loan application process. Chase is not up yet, but Bank of
America is for example. Anything put together in a week in government
inefficiency world has got to have a few bumps in the road.
