As a response to the COVID -19 crisis a federal government of the United States passed laws enabling small businesses to access loan funding to stay in business and keep employees employed. This loan was so popular that by April 16th, 2020 the entire allocation of $300 million had been exhausted and requests for being made for an additional 250 million to be made available. As of right now, the writing of this has not yet been passed by Congress.
The big opportunity now for small businesses is to maximize the opportunity to have this loan forgiven. Even though the loan is as inexpensive as 1%, it pays to get the loan completely forgiven if that is possible. We have a deep understanding of the legislation and requirements for forgiveness and invite any interested business owners to contact us for an evaluation.
First some background about the Loan:
Starting April 3rd, 2020 businesses with less than 500 employees were eligible to apply for the paycheck protection program loan backed by the SBA. The loan is applied for VA by your bank and is designed to be a quick turnaround loan facility to enable business owners to get back to business and retain their employees. In brief the requirements to apply for the PPP are as follows:
- Businesses with less than 500 employees
- Can apply for a loan $10 million or less
- Equal to 2.5 times their average monthly payroll in the period March 1, 2019 through February 29, 2020
- With no collateral or personal guarantee required and no income whole credit verification
If granted, the loan is a 1% interest loan repayable in 24 months with no payments for the first 6 months (interest will accrue during the 6 months).
The amount of the Paycheck Protection loan that can be forgiven is the total of payroll, rent, mortgage or business loan interest, utilities that the business spends in the 8-week period following receipt of the funds. The following are important details in the statement:
- The eight-week period begins from the date that you receive funding from the PPP program. Not the date you sign the loan agreement or the date you make application.
- Payroll costs include salaries and wages other than two individual employees earn more than $100,000 per year. The Payroll Protection Program includes employer payroll costs such as payroll taxes unemployment taxes group health benefits and usual retirement funding costs (such as an employee match). It is our belief that health insurance premiums paid for the owner of the business and retirement fund contributions made for the owner of the business may not qualify for forgiveness.
- Rent is what it says, rent on a building that the business occupies. Note that PPP will only cover the rent on a lease that was in existence prior to February 15, 2020 and cannot be prepaid. Rent paid to a property owned by the owner of the business is acceptable provided it is market-related and paid based on a lease that was in existence prior to February 15, 2020. Business owners should have copies of rental payments and invoices to support this claim.
- Mortgage or business loan interest will qualify as an eligible expense or forgiveness. The Paycheck Protection Program will cover the interest of your mortgage or business loan but not the principle. It is therefore recommended that interest and principal payments be made separately during the 8-week period post funding. Interest on any loan is eligible provided it secures assets owned by the business and results from a loan that was in existence prior to February 15, 2020. Many business owners will own their own business property in a separately entity. For this reason, the mortgage interest would not be an eligible expense for forgiveness, but the rent paid should cover this expense.
- Utilities are defined by the Small Business Administration are as follows: phone, internet, gas, water, electricity, etc. It is our belief that in addition to gas water and electricity your telephone and internet bulb would be covered as an eligible expense for forgiveness. As to what the etc. may refer to we await further guidance from the SBA.
- Note that 75% of the Paycheck Protection loan amount must be spent on employee related expenses in order to qualify for forgiveness. In other words, rent, business loan interest, and utilities may not amount to more than 25% of the loan to qualify.
- Furthermore, payroll tracking requires that they be the same number of employees as well as no more than a 25% drop in salary per person over the 8-week evaluation period. Business owners have until June the 30th 2020 to restore employee numbers to the pre-February 15, 2020 staffing compliment.
The good news is that the paycheck protection loan forgiveness is not taxable and does not affect credit scores. This is a great opportunity for small businesses to get back up and running and we welcome the opportunity to advise and assist small businesses in maximizing their recovery from the corona virus pandemic.
It goes without saying that careful tracking and monitoring of the above expenses, particularly during the 8 weeks post funding, is important. Some commentators have recommended a separate bank account you maintained for this purpose. Certainly, that would do no harm, but we believe that proper tracking and documentation, as should be standard operating procedure, would suffice for the Paycheck Protection Program. The act makes it very clear that no forgiveness of all loans will be granted without appropriate documentation. As an experienced business owner and entrepreneurial advisor for over 30 years we understand what it takes to make the payroll each pay period. Our creative thinking and knowledgeable team can provide a range of services from bookkeeping and payroll to business valuations and planning that will add value to your business. Having your evaluator, accountant and bookkeeper all a part of the same firm, not only makes it easier for us and for YOU. It will save you from having to transfer all the documents between multiple firms, the costs are all together and we know your books even better. You can be sure that whatever the fees are you will recover more than that in positive cash flow and peace of mind.