SBA Paycheck Protection Program

Many of our small businesses and non-profit organizations have been inquiring about loan programsand other assistance.  The CARES Act has expanded the Small Business Administration (SBA) loan program with the PaycheckProtection Program (PPP).  The purpose ofthe program is to help small business cover their near-term operating expenses during the pandemic and provide a strong incentive for employers to retain employees.  In practice it allows many severely impacted small businesses to obtain additional revenue in a period when their business is hibernating without severe interruption of their business.  Loans may be obtained from SBA approved lenders through June 30, 2020.

Who Qualifies

·        Small Businesses, 501(c)(3) organizations that employ 500 or fewer employees or do not employ more than the size standard established by the SBA for their industry.

·        Entrepreneurs and independent contractors and self-employed individuals.  To establish eligibility these individuals must be able to furnish certain documentation such as financial statements and Forms 1099-MISC.

·        Food and accommodation businesses that have more than one physical location as long as each location employs 500 or less employees.

Provisions of the Loan

·        Maximum interest rate of 4 percent and waiver of SBA fees.

·        Proceeds may be used for operational expenses including payroll and benefits, interest on debt, rent and utilities during the covered period.

·        Payroll costs are capped at $100,000 per employee on yearly basis.

·        Loans are limited to lesser of $100,000 or 2.5 times the average monthly payroll costs during the one year prior to the loan.

·        No collateral or personal guarantees are required for the covered period.

·        Loans are nonrecourse to the borrower as long as used for authorized purposes.

·        Deferment is available for six to 12months.

·        Cancelled indebtedness is excluded from income for tax purposes.

Loan Forgiveness

The purpose of the loan forgiveness program is for employers to maintain their pre-crises level of fulltime equivalent employees or face a reduction. However, because many severely damaged businesses may have already reduced their employees, there is a provision that businesses that re-hire back to pre-crises levels by June 30, 2020 will not be subject to the reduction in loan forgiveness.  

·        Certain operational expenses incurred by the borrower for the first eight weeks after loan origination may be eligible for loan forgiveness.  Operational expenses eligible for the loan forgiveness are the same as the allowable costs for the PPP loans (payroll and benefits, interest on debt, rent and utilities).

·        The amount of loan forgiveness may be reduced if the number of full time equivalents or salaried employees is reduced.  However, there is an exception to the reduction if the full time equivalent and salaried employees are reinstated by June 30, 2020.

·        In order to receive loan forgiveness, the borrow must submit an application and provide certain documentation that verifies certain payroll and employee requirements.

Loans

Link to SBA Loans: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

Link to interest free loans for Florida businesses: https://floridadisasterloan.org/

If you have any questions regarding this bill, prior bills or any other aspects of how the coronavirus affects your tax, do not hesitate to contact us.

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