Live Notes from 4/7 SBA Webinar on PPP and EIDL

Please forgive the unpolished nature of what follows, but I was furiously taking notes during a webinar with Joseph Amato, Director of the Nevada District of the SBA. Some things have changed since our last articles which we will go back and update. I’ve bolded particular items that are probably of interest to many of our clients.

Good luck and stay safe.

  • PPP is federally guaranteed loan to employers who MAINTAIN their payroll through the pandemic crisis.
  • If number of employees is maintained for 8 weeks following the closing of the loan, and funding is used for payroll expenses, can be forgiven.
  • Permits some of the funding to be used for rent and mortgage, up to the limit of the loan.
  • Updates to CFR INCLUDES federal taxes, so if you ran reports prior to 4/6/2020, RUN THEM AGAIN SO THEY ARE ACCURATE
  • If you end up with a loan (if you don’t use the funds for payroll), the terms are as follows:
    • 1% interest rate
    • 2 year term
    • Loan is 250% of average monthly payroll, with a max of $10m
    • Payments are deferred for 6 months but interest continues to accrue
    • No collateral or personal guarantees
  • Business Forms Needed by Borrower (updates still coming)
    • SBA Form 2483 (PPP Application of 2 pages)
    • Payroll documentation to support the average monthly payroll with 2019 as base year
    • Forms for lender
    • Filed electronically
  • Who’s Eligible?
    • Small business with fewer than 500 employees
    • 501(c)6s are still ineligible at this moment; 501(c)3s are eligible provided they have fewer than 500 employees
    • Sole proprietors and independent contractors
    • Anyone who’s self-employed
    • YOU CAN ONLY FILE ONE PPP PER BUSINESS OPERATION YOU HAVE
      • The only multiple location eligible are hotels and food service operators
    • If you’re a franchise the normal affiliation rules do not apply
  • As or 4/3 PPP applications are accepted for all BUT sole proprietors and independent contractors who can submit 4/10
  • Who’s INELIGIBLE?
    • Anyone engaged in illegal activity (cannabis, this means you)
    • Household employers of nannies, staff, etc.
    • Anyone who’s defaulted on a federal loan in the last 7 years.
    • If more than 33% of your revenue comes from gaming
  • What do Lenders Need?
    • Good faith certification that:
      • The loan is necessary to support ongoing operations; and
      • You will use the proceeds to retain workers and maintain payroll or make mortgage (interest, not principal payments), lease, and utility payments
    • Borrower from Feb 15, 2020 through Dec 31, 2020 does not have a loan application duplicative of the purpose
  • If you applied for an EIDL and are completing PPP, you do not have to say you have an EIDL loan bc the EIDL approvals might come after PPP.
    • If you are approved for both, you may choose or roll one into another depending on the purpose for which you are applying.
  • If you’re an independent contractor you can apply with payroll records or 1099MISC form
  • Determining the loan amount
    • Aggregate gross payroll costs or employees for the last 12 months, based on 2019
    • Subtract any compensation paid to an employee in excess of $100k and/or amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year
    • 5 steps to determine loan amount
      • Take average monthly payroll costs and multiply by 2.5
      • Add the outstanding amount of an EIDL loan made between 1/31/2020 and 4/3/2020 less the amount of any “advance” under an EIDL COVID-19 loan bc the advance does not have to be repaid
  • Determining Payroll
    • Gross salary, wages, commissions, plus tips or equivalent,
    • Vacation, parental, family, medical, or sick leave
    • Severance for dismissal or separation
    • Health care benefits including insurance premiums
    • Retirement benefits
    • State and local taxes
    • Basically leave your gross payroll intact and add health insurance and retirement if they aren’t bundled with your payroll
  • Excluded Payroll Costs – use 2019 for the base year!
    • Compensation in excess of $100k prorated for the period 2/15-6/30/2020
    • Payroll taxes
    • Any employee whose principal place of business is outside the US
    • Qualified sick leave wage under Families First Coronavirus Response Act (Sections 7001 or 7003)
    • DO NOT COUNT INDEPENDENT CONTRACTORS; they will be able to apply on their own
  • Use of Proceeds
    • Payroll costs, continuation of health care
    • Mortgage INTEREST payments, not principal payments
    • Rent utilities
    • Interest payments on debt obligations incurred before 2/15/2020
  • If you received an EIDL loan between 1/1/2020 and 4/3/2020 you MAY apply for an PPP loan!  NEW INFORMATION
    • If your EIDL loan was NOT used for payroll costs, you can apply for a PPP loan
    • Any advance on the EIDL will be deducted from the loan forgiveness of the PPP loan
  • 75% rule
    • At least 75% of the PPP loan proceeds must be used for payroll costs. KEEP YOUR RECORDS as to how you’re using the PPP funds so you can qualify for forgiveness!
  • Loan Forgiveness
    • The amount of forgiveness CAN be up to the full principal amount of the loan and any accrued interest, PROVIDED that you spend at least 75% of the funds on payroll expenses.  Remember, the goal is to keep people employed or put them back to work.
    • Average loan size as of right now is $175,000
    • NO MORE THAN 25% OF THE LOAN FORGIVENESS AMOUNT MAY BE ATTRIBUTABLE TO NON-PAYROLL COSTS.
  • What banks are participating?
  • Timing of application approval and disbursement of funds?
    • Depends on lenders and SBA’s ability to process. They’re trying to make application-closing to happen within 7-14 days
    • A LOT depends on the accuracy and reliability of the information you supply to your lender! Help them help you!
  • Startups! Are you eligible?
    • If you didn’t exist before 2/15/2020, you are not eligible
    • If you did, then you can apply even if you only had one month of business
  • Wrapping an EIDL into PPP
    • If you have applied for both, but not approved, you don’t have to disclose your EIDL on the PPP application
    • If your EIDL loan is <25% of what you receive under PPP, you can wrap it in so it might be fully forgiven.