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Paycheck Protection Program Flexibility Act signed into law

SBA Paycheck Protection Program icon

WASHINGTON –SBA Administrator Jovita Carranza and U.S. Treasury Secretary Steven T. Mnuchin issued the following statement today following the enactment of the Paycheck Protection Program (PPP) Flexibility Act:

“We want to thank President Trump for his leadership and commend Leader McConnell, Leader Schumer, Speaker Pelosi, and Leader McCarthy for working on a bipartisan basis to pass this legislation for small businesses participating in the Paycheck Protection Program.

“We also want to express our gratitude to Chairman Rubio, Ranking Member Cardin, Senator Collins, Congressman Roy, Congressman Phillips, and other members of Congress who have helped to create and guide our implementation of this critical program that has provided over 4.5 million small business loans totaling more than $500 billion to ensure that approximately 50 million hardworking Americans stay connected to their jobs.

“This bill will provide businesses with more time and flexibility to keep their employees on the payroll and ensure their continued operations as we safely reopen our country.

“We look forward to getting the American people back to work as quickly as possible.”

Upcoming Procedures

SBA, in consultation with Treasury, will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP.  These modifications will implement the following important changes:

Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness.  Borrowers who have already received PPP loans retain the option to use an eight-week covered period.

  • Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
  • Increase to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.
  • Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
  • In addition, the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.

Clarification of the new SBA FAQ about PPP loan forgiveness

On May 13, the Small Business Administration (SBA) issued a new 17-page Frequently Asked Question (FAQ) document about the Paycheck Protection Program (PPP). This FAQ item dealing with loan forgiveness can be found as item 46 (page 16) at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf, as follows:

Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?  

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns. 

Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

Jeffrey W. King, the legal counsel for the World Floor Covering Association, clarified the meaning in this FAQ.

He said, “The SBA issued new Frequent Asked Questions (FAQs) today, which are designed to provide guidance on the PPP loan. The new FAQs include the quoted language in the email. This does not mean a PPP  loan under $2 million will automatically be forgiven. Rather, the borrower must still meet the three requirements (75% on payroll costs, same average number of FTEs, and same pay within 25%).  

“This new FAQ (No# 46) addresses the requirement that the borrower certify that the ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,'” he said. “The SBA has previously provided (FAQ item # 31) that to satisfy this certification, a borrower had to show that it did not have the ‘ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.’ If a borrower cannot meet that requirement, it must pay back the full loan amount must be paid back with none of it forgiven. The new FAQ #46 means that for loans under $2 million the certification will be deemed to be made in good faith and these smaller borrowers will not have to show it did not have access to other funds such as a line of credit. 

“The SBA has previously announced that all PPP loans of $2 million or more will automatically be audited, including proof that it needed the loan and did not have ‘other sources of liquidity,’” he concluded. “Loans under $2 million will be subject random audits to prove how they spent the load proceeds and whether they can show they met the three standards to have the loan forgiven. Under the new FQA, they will not have to show they had access to other funds. “

How Employees Who Don’t Want to Return to Work Impact Your PPP loan.

SBA Paycheck Protection Program icon

As contractors begin to open or return to staffing at pre-pandemic levels, they may find employees are resisting coming back to work. According to a recent study, 54% of U.S. employees are worried about exposure to COVID-19 at their job. In addition, with the extra $600 that an employee can collect under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, an employee can collect $1,000 a week or more of unemployment benefits. This may be more than their regular pay, adding another disincentive to returning to the job.

Unfortunately, employees refusing to come back to work can impact the amount of a Payroll Protection Program (“PPP”) loan that is forgiven. To maximize the amount of the loan forgiven, the employer must meet three requirements:

  1. 75% of the PPP loan must be used on payroll costs;
  2. Each employee’s pay during the 8 weeks must not be reduced by more than 25% of the employee’s pay during the most recent full quarter during which the employee was employed; and
  3. The average number of full-time employee equivalents paid during the 8-week must be the same as the average number of full-time employee equivalents paid between February 15, 2019 and June 30, 2019 OR January 1, 2020 and February 29, 2020. The employer gets to choose the comparison period. If you pay fewer employees during the 8-week period, the amount forgiven will be proportionately reduced. To determine the number of full-time employee equivalents you include part timers based on the amount they worked (e.g., five part-timer employees working one 8-hour shift a day equals one full-time employee).

This week the Small Business Administration (“SBA”) issued new guidance that addressed this issue. The SBA stated that it will exclude “laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation.” To have these employees excluded, the employer must make “a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented.” To document the refusal, an employer can send an email to the employee verifying their rejection of the rehire offer. Be sure to put both the written offer and the email confirming the rejection in the employees file; they will be needed when applying to have the PPP loan forgiven.

It is unclear how this exclusion will be applied. It appears that the calculations in item 2 (maintaining each employee’s pay level) and item 3 (comparing the number of employees) will not be applied in determining the amount of the loan to be forgiven for employees that refuse to return to work. It is not clear, however, if and how it will apply the 75% rule in item 1. Based on the primary purpose of the PPP loans—to maintain payroll—it is likely that 75% of the loan will still have to be used on payroll costs, whether or not there are the same number of employees.

With the rapid pace at which laws, rules and orders are being issued, NTCA is working to keep members informed and updated regarding their opportunities and obligations during the COVID-19 crisis. The Association will also continue to provide important information that may impact members.

Notice: The information contained in this update is abridged from legislation, court decisions, and administrative rulings, and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

SBA, Treasury Department Warns Businesses to Carefully Consider Whether PPP Loan is Necessary

SBA Paycheck Protection Program icon
On April 23, 2020, the Treasury Department, in collaboration with the Small Business Administration (the “SBA”), released guidance in the form of Frequently Asked Questions (FAQ).  The potentially most significant aspect of the FAQ’s is the warning that businesses applying for, or receiving, Paycheck Protection Program (“PPP”) loans should carefully analyze whether their “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations” of the business, as required under the CARES Act.

The new guidance states that: “In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere … borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by the SBA to have made the required certification in good faith.

On April 24, 2020, President Trump signed legislation that pumped an additional $310 billion into the PPP after the $349 billion originally allocated to the program was exhausted within two weeks of the start of the PPP.  The program has received heavy criticism after many eligible small businesses were unable to receive loans before the initial PPP funds were drained, particularly after news circulated that many publicly-traded companies and other non-traditional small businesses successfully received PPP loans.  In some instances, businesses have returned their PPP loans after receiving criticism and pressure from the public.

Consequently, in this most recent guidance, the Treasury Department and SBA are advising all PPP loan applicants to carefully consider the certifications being made on their PPP loan applications, particularly whether “current economic uncertainty makes this loan request necessary to support the ongoing operations” of the business.Companies that have either already submitted applications or received PPP loans have until May 7, 2020, to determine whether they indeed meet the certifications made on their PPP applications.  If any such business determines that it does not meet all of the certifications set forth on its PPP application, it may return its PPP loan by May 7, 2020, and avoid liability for not meeting such certifications.

The FAQ’s also reiterate prior guidance that payments to independent contractors and sole proprietors are not to be included in the calculation of payroll.Please see the FAQ’s, which can be found HERE, as well as our WEBSITE for further detail on these and other issues.

This situation is continuing to evolve.  Fox Swibel will continue to monitor developments and stands ready to advise clients in connection with financing available to businesses and non-profits.  If you have questions about qualifying for or applying for emergency funding, please contact Rick MellerDavid MorrisSean SniderXiang Siow or the Fox Swibel attorney with whom you regularly work.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances.  Under applicable rules of professional conduct, this content may be regarded as attorney advertising.
About Fox Swibel Levin & Carroll LLPFounded in 2000, the lawyers at Fox Swibel Levin & Carroll LLP are comprised of partners and associates recruited from nationally-known, highly-respected large firms. Fox Swibel provides streamlined “Big Law Boutique” client services to a wide range of leading businesses and business owners, from entrepreneurs to global institutions in the banking, investment funds, hotel, manufacturing, private equity, construction, real estate, retail, and restaurant industries. The Firm’s practice is principally focused in areas related to commercial transactions and litigation such as banking and corporate finance, bankruptcy and restructuring, business litigation, corporate and securities transactions, construction law, employment law, intellectual property, real estate, and tax-related matters. For more information about Fox Swibel, click here.

Joint Statement by SBA Administrator Jovita Carranza and Treasury Secretary Steven T. Mnuchin on the Resumption of the Paycheck Protection Program

WASHINGTON – Administrator of the U.S. Small Business Administration Jovita Carranza and U.S. Treasury Secretary Steven T. Mnuchin issued the following statement today on the resumption of the Paycheck Protection Program (PPP):

“We are pleased that President Trump has signed into law the Paycheck Protection Program and Health Care Enhancement Act, which provides critical additional funding for American workers and small businesses affected by the coronavirus pandemic.  We want to thank Leader McConnell, Leader Schumer, Speaker Pelosi, and Leader McCarthy for working with us on a bipartisan basis to ensure that the Paycheck Protection Program is funded so that small businesses can keep hardworking Americans on the payroll.

“The Small Business Administration will resume accepting PPP loan applications on Monday, April 27 at 10:30AM EDT from approved lenders on behalf of any eligible borrower.  This will ensure that SBA has properly coded the system to account for changes made by the legislation.

“The PPP has supported more than 1.66 million small businesses and protected over 30 million jobs for hardworking Americans.  With the additional funds appropriated by Congress, tens of millions of additional workers will benefit from this critical relief.

“We encourage all approved lenders to process loan applications previously submitted by eligible borrowers and disburse funds expeditiously.  All eligible borrowers who need these funds should work with an approved lender to apply.  Borrowers should carefully review PPP regulations and guidance and the certifications required to obtain a loan.

“The Trump Administration is fully committed to ensuring that America’s workers and small businesses continue to get the resources they need to get through this challenging time.”

For more information on the Paycheck Protection Program, visit: sba.gov/paycheckprotection.

Other options besides PPP for small businesses

Whether or not a tile or flooring retailer, contractor, or installer was able to secure a Payroll Protection Plan (PPP) loan, they are likely to need additional financial support. Even a PPP loan covers only 8 weeks of payroll and part of a business’s other expenses. There are a variety of other options including Small Business Act (SBA) Economic Injury Disaster Loans (EIDL), SBA Emergency EIDL grants, and the SBA Express Bridge Loan Pilot Program. In addition, states and local cities and counties are offering a variety of loan and grant programs. To check out whether there are programs in you location, go to https://www.zenefits.com/workest/the-big-list-of-covid-19-financial-assistance-programs-for-small-businesses-by-state/.

The Federal Reserve recently announced another option for businesses; its highly anticipated Main Street Lending Program (Program). This Program is designed to facilitate credit to small and mid-sized businesses that were in good financial standing before the COVID-19 crisis. The Program offers 4-year loans to companies employing up to 10,000 workers or with revenues of less than $2.5 billion. Principal and interest payments on these loans will be deferred for one year. Firms that have taken advantage of the PPP are also eligible to take out Main Street loans.

Businesses seeking loans under either facility must commit to, among other things:

  • Make reasonable efforts to maintain payroll and retain workers.
  • Follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act.
  • Not seek to cancel or reduce any of its outstanding lines of credit with the lender, or any lender.

Eligible banks may originate new Main Street loans or use Main Street loans to increase the size of existing loans to businesses.

With the rapid pace at which laws, rules and orders are being issued, NTCA is working with other associations to keep members informed and updated regarding their opportunities and obligations during the COVID-19 crisis. The association will also continue to provide important information that may impact members.  Go to the website at www.tile-assn.com for the most up to date information on the COVID-19 crisis. 

Notice: The information contained in this article is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion,and is not a substitute for the advice of counsel. 

SBA disaster relief for small businesses: at a glance

By now, you’ve surely heard about the CARES Act and the multitude of programs designed to help small businesses head off economic crisis as a result of the Coronavirus pandemic.

Though new legislation and relief packages have been signed into law, the aid they provide is not instantaneous. Like anything else in life, there is a process. And because this is new ground for many businesses – and lenders (not to mention the government armature that has to be put in place to support all these changes), there can be delays and confusion.

This story is derived mainly from the Small Business Administration resource at www.sba.gov, with some insight from tile contractors and law firms. It’s a simplification of the more detailed information you can find at the website to give you an idea of what these loans are, who they are meant for, how they help, and how to access them.

The URL that will take you to the SBA comprehensive site for all option is https://www.sba.gov/funding-programs/loans/coronavirus-relief-options. From there, we give you an overview of what is offered.

Economic Injury Disaster Loan Emergency Advance

Where can I find it? https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance

What does it do? Provides up to $10,000 of economic relief for businesses experiencing temporary difficulties

Who’s eligible? Small business owners in all U.S. states, Washington D.C., and territories. This includes:

  • small business with fewer than 500 employees (including sole proprietorships, independent contractors and self-employed persons),
  • private non-profit organization or 501(c)(19) veterans organizations affected by COVID-19.
  • Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries. Visit https://www.sba.gov/document/support–table-size-standards for tables and tools to determine business size.
  • A cooperative with not more than 500 employees.
  • An Employee Stock Ownership Plan (ESOP), as defined in 15 U.S.C. 632, with not more than 500 employees.
  • A tribal small business concern, as described in 15 U.S.C. 657a(b)(2)(C), with not more than 500 employees.
  • A business, including an agricultural cooperative, aquaculture enterprise, nursery, or producer cooperative, that is small under SBA Size Standards found at https://www.sba.gov/size-standards
  • A business with more than 500 employees that is small under SBA Size Standards found at https://www.sba.gov/size-standards
  • A private non-profit organization that is a non-governmental agency or entity that currently has an effective ruling letter from the IRS granting tax exemption under sections 501(c),(d), or (e) of the Internal Revenue Code of 1954, or satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law, or a faith-based organization.
  • Be aware that this loan is capped at $1,000 per employee.

Where do I apply? https://covid19relief.sba.gov/#/

How long will it take me to fill out an application? 2 hours 10 minutes

How soon can I obtain funds? Claims are 3 days, but it is so new, very little information is available as to how long it actually takes to obtain funds.

How long do I have to apply? September 30, 2020

Is this loan forgivable? This loan advance will not need to be repaid.

Paycheck Protection Program

Where can I find it? https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp

What does it do? This SBA loan helps businesses keep their workforce employed for eight weeks during the Coronavirus crisis.

Who’s eligible:

  • Any small business with fewer  than 500 employees (including sole proprietorships, independent contractors and self-employed persons), 501(c)(3) non-profit organizations, 501(c)(19) veterans organizations, or Tribal businesses (see sec. 31(b)(2)(C) of the Small Business Act) affected by Coronavirus/COVID-19.
  • Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.
  • Small businesses in the hospitality and food industry with more than one location could also be eligible if their individual locations employ fewer than 500 workers.

Where do I apply?

  • For best results, check with your local lender first. Any SBA 7(a) lender, or any federally-insured depository institution, federally-insured credit union, and Farm Credit System institution that is participating can service this loan. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.
  • You can start preparing the application you will submit to your lender by using the application form at https://www.sba.gov/document/sba-form–paycheck-protection-program-borrower-application-form.

How long do I have to apply? Lenders may begin processing loan applications as soon as April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020, but due to finite funds, it’s best to apply as soon as possible. Independent contractors and self-employed individuals can apply starting April 10.

How soon can I obtain funds? Anywhere from 10 – 30 days.

Is this loan forgivable? SBA will fully forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. At least 75% of the loan must be used for payroll. Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

What is the maturity and interest rate of the loan? This loan has a maturity of 2 years and an interest rate of 1%.

Additional loans you may want to consider include:

 SBA Express Bridge Loan

What does it do? It enables small businesses that currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly.

Why might I need it? It can help overcome temporary loss of revenue small businesses are experiencing or it can satisfy the need for urgent cash while applying for a direct SBA Economic Injury Disaster Loan.

Is it forgivable? It will be repaid in full or in part by proceeds from the EIDL.

SBA Debt Relief

What is it? A financial reprieve to small businesses during the COVID-19 crisis

What does it do?

  • The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months.
  • The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.

Automatic payment deferment

What is it? SBA is providing automatic payment deferments through December 31, 2020 for current SBA Serviced Disaster (Home and Business) Loans if they were in regular servicing status on March 1, 2020.

How do automatic deferments benefit me? Though interest will continue to accrue on the loan, monthly payment notices will reflect the loan is deferred and no payment is due.

What about automatic debit payments on the loan? The deferment will not cancel any established Preauthorized Debit (PAD) or recurring payments on the loan.  Borrowers that have established a PAD through Pay.Gov or an OnLine Bill Pay Service must cancel these recurring payments.  Borrowers that had SBA establish a PAD through Pay.gov must contact their SBA servicing office to cancel the PAD.

What if I want to keep paying on the loan? If you wish to continue making payments during the deferment period, you may and they will be applied normally. Once the automatic deferment period ends, borrowers will need to resume their regular payment schedule, and those who cancelled recurring payments will need to reestablish them.

Where do I go for questions? Please contact your Loan Servicing Office directly using the following information:

Stay tuned for ongoing information about programs that can benefit small businesses and workers as we move through this pandemic together. And visit www.tile-assn.com for regularly updated resources to help businesses and workers affected by COVID-19.

10 steps to understanding the Paycheck Protection Program

An NTCA perspective on the CARES Act for companies with fewer than 500 employees

NTCA has been reviewing details as relates to new legislation enacted as a response to the COVID-19 crisis, and how it impacts our members and the tile industry at large.

This piece is an NTCA perspective on the Paycheck Protection Program aspect of the CARES Act and how members and small businesses can best take advantage of what is currently being offered by the government. Keep in mind that even though legislation has been passed, some details continue to change, and lenders are struggling to meet all the demand suddenly flooding in for loans. Your experience in applying for loans and the amount of time it takes you to receive funds may vary.

The CARES Act is over 830 pages long and has 16 laws attached to it.  The main item we want to focus on involves the Paycheck Protection Program (PPP), which helps businesses keep their workforce employed for eight weeks during the Coronavirus outbreak.

This is also a potentially forgivable loan if you follow the guidelines. The SBA stipulates that at least 75% of the PPP loan must be used for payroll. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

The following steps can help you know what to expect as you navigate through the labyrinth of applying for a loan, obtain funds, and qualify for the forgivable loan status. This latter point is doubly important since loans that are forgiven – or portions of loans that are forgiven — are not counted as taxable income. 

  1. Call Your Bank
    • Ensure your bank is FDIC-insured and is approved to handle SBA loans and is able to handle PPP application.
    • There is only $350 billion available in the PPP coffers so get your application in as quickly as possible.
    • This is a fluid situation.  The banks are on the front lines and are trying to navigate uncharted waters.
    • Most banks are only working with customers they currently do business with.  This is because there is a limited amount of money and they want to take care of their customers first.
    • Once applications are submitted, they are assembled into a queue for the banks to sort out. This could take up to 10 days. Once submitted for approval, it could take up to 30 days for the funds to be deposited into your account.
  2. Go To Treasury Department for Information
    • http://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
    • You can access a fact sheet on PPP loan application form and get a downloadable form that may or may not be accepted by your lender. The advantage of accessing this form is that it will help you compile the information you need whether you use the SBA or lender form.
    • The program application process is open to June 30. Due to limited funds, it is to your benefit to start this process as soon as possible.
    • April 3rd was the date that many banks opened application process for small businesses. 
    • April 10th is the date that independent contractors and self-employed individuals can apply.
    • Go to www.sba.gov for more information
  3. Check your company governance requirements and other lending commitments to ensure there is not a problem in applying for this loan
    • The SBA form requires all owners with 20% stake or more in the company to answer questions on the loan (examples include bankruptcy, have they ever been barred or declared ineligible by any federal department or agency, have they been convicted of a felony, etc.)
  4. Calculate your payroll expenses
    • To qualify for forgivable loan status, the amount you can borrow is 2.5 times your average monthly payroll from the previous year (2019).
    • Payroll costs include salaries, wages, commission, tips, vacation, PTO, health care benefits, retirement benefits, state and local taxes. Payroll costs in the loan calculation do not include federal taxes.
    • There is a cap on payroll for an employee making over $100,000 in 2019.  You can only claim $100,000.  That is salary; benefits are not counted. For example, an employee made $140,000, but you would only claim $100,000 when you calculate your payroll for the loan. 
  5. How much are you eligible for? Add average total monthly payroll and divide by 12. Then multiply by 2.5. 
    • If you already applied for or were awarded an SBA Disaster Loan, you can add that amount to the PPP application. Note that the PPP loan has restrictions on how you spend the money. 
    • SBA Disaster Loans allow more freedom with how you use the loan money, but may not be forgivable, are subject to underwriting, and require personal guarantees attached to it. Visit sba.gov for details.
  6. Document and keep excellent records of paperwork used in your application
    • Print and electronically store your records and have them available for submission if the bank requires these material or if the federal government later checks for fraud or misuse.
  7. Sign a certificate
    • All owners with 20% stake will be asked to sign a statement certifying the funds are necessary and will be used for what the loan stipulates: to maintain or to hire staff back that was let go after February 15th, 2020.  
    • No collateral or personal guarantees will be required for these funds.
    • This loan has a maturity of 2 years and an interest rate of 1% should it need to be paid back. However, funds should be forgivable if you document your paperwork, keep honest and thorough records, and use the money for what the PPP is designed for within the 8-week time frame.
  8. Make sure you use the funds for authorized purposes
    • 75% needs to be used for payroll which includes costs related to group health care benefits and insurance
    • Payments of interest but not principal on any mortgage obligation
    • Rent (including rend or lease agreements)
    • Utilities
    • Interest on any other debt like equipment, vehicles, etc.
    • Keep funds segregated into a designated account and use the funds to document a paper trail for the authorized uses listed above.
  9. Understand the impact of your past and possible future firings or layoffs of employees, or reduction or furloughs in their salaries.
    • The PPP is designed to encourage employee retention and discourage layoffs and wage cuts. If you need to do massive amounts of layoffs or cuts, reconsider applying for PPP and investigate a different loan option at sba.gov.
    • Talk to your accountant and lawyer about other tax credits or employee retention credits that may be available apart from the PPP loan.
  10. Keep up to date on changes or interpretations to the law. 
    • This is a very fluid situation, and things can change.
    • Get legal and accounting advice and establish communication with your banker. 

We will continue to post salient articles on legislation topics here. Also be sure to visit the Coronavirus Resource Page at tile-assn.com for links and ongoing information, designed to support you and your business.