We have had many inquiries regarding the SBA Payroll Protection Program Loan (“PPP Loan”), which was part of the CARES Act (the “Act”) signed into law on Friday. As we have learned more information, we wanted to take a moment to share this update on a broader basis. The goal of the program is to help businesses maintain their payroll during the COVID-19 crisis. Under the Act, the SBA has fifteen (15) days to issue regulations for the PPP Loan. Thus, the information that follows is based solely on the Act, the interpretation of which is subject to change following issuance of the SBA guidance.
In general terms, the PPP Loans are available to businesses with 500 or fewer employees who can provide a good-faith certification the funds are needed to continue operations during the COVID-19 crisis. The loan amount is limited to the lesser of: (a) 2.5 times the average monthly payroll or (b) $10,000,000, and the rate of the loan shall not exceed four percent (4%). The eligible payroll amount is limited to $100,000 per employee on an annualized basis ($8,333 per month).
The Act also contains a provision for the PPP Loans to be forgiven. The forgiveness is based on company expenditures for the trailing eight (8) week period. If the eligible expenses paid during this time meet or exceed the PPP Loan amount, then the loan is eligible for forgiveness. Eligible expenses include payroll costs (including payroll, paid leave, severance, group health benefits, company-paid retirement benefits, and state and local payroll taxes), payments of interest on mortgage obligations, rent and lease payments, and utility payments. There is a reduction in the forgiveness amount if the company makes employee cuts or reduces wages. The SBA has thirty (30) days from the enactment date to issue forgiveness regulations.
The PPP Loans will be administered by third party banks, and not the SBA. Thus, it is important to work closely with your banking representative on this package. For those businesses without a strong banking relationship or whose bank is not participating in the program, please let us know and we can work to find an alternative lending solution.
The SBA has created a webpage related to the programs specific to the COVID-19 crisis (https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources#section-header-0). Currently, there is limited information on the PPP Loans, but it will be updated as guidelines are released.
This is only the tip of the iceberg for this program. Please know that we are keeping close tabs on the developments and will provide updates as they become available. Given the volume of applications expected, if you are interested in applying for the PPP Loan when it becomes available, we would encourage you to begin gathering the following information:
- Payroll Costs – Calculate company payroll for calendar year 2019 and 2020 year-to-date (YTD) on a monthly basis. Remember, there is a limit of $100,000 for highly compensated employees, so be sure to reduce your monthly total accordingly. It appears that sole proprietors are eligible (but the details are limited), so we would encourage you to pull details on partner/LLC member compensation (subject to self-employment taxes), limited to the $100,000 cap. We suggest incorporating this as a separate line item, given the ambiguity of the treatment. We also recommend pulling the related backup from your payroll system for the amounts and time period outlined above.
- Healthcare and Retirement Benefit Costs – Compile the monthly costs for group healthcare premiums and company retirement contributions made for calendar year 2019 and 2020 YTD. We recommend pulling invoices or copies of remittances to support the amounts outlined above.
- Loan and Mortgage Payments – Compile the monthly debt service payments, breaking out between mortgage and other loans as well as between principal and interest, made for calendar year 2019 and 2020 YTD. Copies of loan remittances and mortgage statements should be pulled for additional support.
- Lease Payments – Compile the monthly rent and lease payments for calendar year 2019 and 2020 YTD. We also recommend pulling the lease agreements and ensuring they are current and up-to-date.
- Utility Payments – Compile the monthly utility payments for calendar year 2019 and 2020 YTD.
Finally, while this program appears to operate more like a grant program than a traditional loan, the banks must underwrite as if it is a loan (albeit, on a stream-lined basis). With that in mind, copies of tax returns and internal financial statements should be available at the time of application.
We are continuing to stay in close contact with several bankers throughout the state, as well as other advisors operating in this space. As you read and digest this information, please do not hesitate to reach out to us. We would also be happy to work with your banker during this process to help streamline the process.
In closing, this is just one of many programs available during this time. As you navigate these uncertain times, please know that we are available to be a resource (or even just a sounding board) to assist in determining the best course of action.
Additional guidance was released from SBA last night and our team will be scheduling a webinar to provide a summary of the PPP Loans and discuss these latest developments. Information on the call will be posted to our COVID-19 webpage (https://draffin-tucker.com/covid-19-resources-updates/).
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- FREE WEBINAR: SBA Payroll Protection Loan Program: What You Need to Know and Do
This session will provide an overview of the SBA Payroll Protection Program Loan (“PPP Loan”) which was part of the CARES Act signed into law on Friday. The goal of the PPP Loan is to help businesses maintain their payroll during the COVID-19 crisis. We will provide information on what you need to consider and the data to gather to evaluate whether the PPP Loan is an option for your business.
Presenter: Jeremy Wilson and Wes Sternenberg
Date: Thursday, April 2, 2020
Time: 11:00am EST
Please use the link below to register for the event.
After registering, you will receive a confirmation email containing information about joining the webinar.