Paycheck Protection Program
PPP Resumes April 27, 2020
The SBA will resume accepting Paycheck Protection Program applications from participating lenders on Monday, April 27, 2020 at 10:30 a.m.
The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will 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. You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.
For affiliation rules applicable for the Paycheck Protection Program, click here.
The Interim Final Rule for Applicable Affiliation Rules for the Paycheck Protection Program as posted in the Federal Register.
The Paycheck Protection Program May Be Replenished by Congress This Week
The Paycheck Protection Plan (PPP) has been clouded in controversy since being adopted on March 27. Well intentioned, the plan’s $349 billion to aid small businesses derailed by the COVID-19 pandemic was depleted in two weeks. Some businesses learned the hard way that their banking relationship was not what they had hoped. A lesson learned – as their banks turned them down for these forgivable loans.
What is a Hazlet business to do if you are one of the many businesses shut out at this point? There is potentially some great news on the horizon. On Tuesday, the Senate passed a $484 Billion dollar replenishment of the CARES ACT which includes the PPP loan program. It would appear the House will approve a bill in the next day or so. So, if you missed out on the first $349 billion, now is the time to get ready for the next funding opportunity.
Businesses that have not gotten a PPP loan have either not applied, not found a bank that will provide the loan or have had their bank turn down their application. If you have not applied and the pandemic has adversely impacted your business, then you should be talking to your financial advisors to decide whether this program makes sense for you.
Do not miss again the opportunity to obtain a forgivable loan of 2.5 times your monthly payroll for those businesses who have not yet received a PPP loan. On our town website, we have placed the materials taken directly from the SBA website to enable you to put together a viable application for the PPP program. It is critical that any application respond to the criteria for these loans. The banks cannot get a partially completed application through the SBA’s E-Tran portal for approval without all the information requested by the SBA.
We have learned several what would seem unimportant items in the SBA application are frequently incomplete. For example, your business’ zip code. If you do not do a Zip+4 Code, you are assuming your bank will make that change. Review your application, make certain you have answered all the questions correctly. These details may determine whether you receive an approval or not.
For those of you who are independent contractors/sole proprietorships, make certain you have included the tax forms required to file for these loans. Also make certain your bank will make a smaller loan. Many banks have a minimum loan size and you need to know where you stand in their application process. The PPP loans are by law, “first come, first serve” yet the banks are the gate keepers.
If your business has received a PPP loan, congratulations! We are going to discuss the steps to gain forgiveness of that loan. PPP loan Forgiveness is not automatic! In the next week we will be detailing those steps needed to obtain that forgiveness.
For purposes of clarity, the Township Committee is not SBA, legal, tax or financial experts upon whom you should rely. (You should consult your own advisors in these matters.) We have taken the time to aggregate market information and will share that accumulated knowledge with you today. We cannot predict the outcome of pending legislative matters.
Don’t Delay Your Application to the Paycheck Protection Program (PPP)
The Hazlet Township Committee continues to follow this SBA loan program, designed to help small businesses keep their employees on payroll.
Friday, April 3 was the first day PPP applications could be submitted. According to White House over $11 billion of the $349 billion was approved by the SBA. Some lenders, such as Bank of America and Chase Bank, have been active in this program for their existing customers only. BOA stated it has received over 85,000 requests for $22 billion of PPP loans. Chase Bank’s portal was overwhelmed and shut down during the first day.
The message: “The early bird gets the worm.” Data from the federal government reports state quotas and NJ is reported to have $11.7 billion of PPP funds. However, that quota may or may not hold. More federal funding may or may not be approved. Updates will be posted as soon as we see them.
The program has undergone some changes. Read the “final Interim rules” (PDF).. There are three noteworthy changes:
- Loan term has been reduced from 10 years to 2 years
- The interest rate has gone from .5% to 1%
- 1099 payroll has been removed from the Loan Amount calculation.
Let’s go through the changes noted above. As the PPP loans are “forgivable” if you sustain your payroll through December 31, 2020, the term of the loan becomes relatively irrelevant. The change in the interest rate also de minimis. Where are you going to get a loan with no personal liability and no collateral for 1% ? You are not! PPP is a bargain. Lastly, the elimination of 1099 “employees” from the Loan calculation could be an issue for some businesses.
A portion of the PPP loans are “forgivable” if payroll is sustained through December 31, 2020, therefore the term of the loan and interest rate are less relevant. While the elimination of 1099 “employees” from the loan calculation could be an issue for some businesses. As explained in earlier postings, the amount of PPP loans is driven by “payroll”. When the PPP was first announced it was stated that 1099 “employees” would be counted in the calculation for the loan amount. The government has reversed that decision as 1099 employees can apply for PPP loans themselves beginning April 10.
We are not lawyers, CPAs, tax or SBA experts. The Town Committee is providing information on this program within in the CARES Act as this program is fast moving and has been changing. Businesses should seek advice from professional or speak to their lenders.
Hazlet Business Update – Paycheck Protection Program
The Paycheck Protection Program (PPP) is a part of the CARES Act, the Federal relief and stimulus spending package that was signed into law as a response to the COVI-19 Epidemic. This program has the potential for help businesses and protect jobs in our community.
Please understand the members of the Hazlet Township Committee are not lawyers, tax advisors or SBA experts. Our data is based upon the text of the executed law and the content the information the SBA and Treasury has released. The objective is to raise awareness of this unique program and most importantly its short life span and the limited funding under the program.
What is the Paycheck Protection Program?
It is part of the stimulus program designed to keep our economy strong while the COVID-19 issue remains. The Program is funded at $349 Billion through the end of 2020. The program is intended to provide working capital to businesses, non-profits [501 (c) (3)], as well as sole proprietorships, independent contractors, and self-employed people.
Who Is Eligible?
Businesses and 501 (c) (3) non-profits with fewer than 500 employees are eligible. For businesses in accommodation and food service sectors, the 500-employee rule applies per physical location. For franchises, the SBA affiliation rule does not apply.
Eligible business types include corporations, partnerships, sole proprietors, independent contractors and the self-employed who have a regular trade or business.
How Much Can I Borrow?
Loans can be up to 2.5 times the borrower’s average monthly payroll costs, not to exceed $10 million.
Average monthly payroll costs are based on: “Included Payroll Costs” less “Excluded Payroll Costs.” Included payroll costs include:
- Salaries, wages, commissions, and tips
- Group health care benefits and insurance premiums
- Payments for vacation and other leaves, such as parental, medical, and sick leaves
- Retirement benefits and allowances for dismissal or separation
- State and local taxes on employee compensation
- Excluded Payroll Costs include:
- Compensation for an individual employee in excess of an annual salary above $100,000.
- Payroll taxes, railroad retirement taxes, and income taxes
- Compensation for employees residing outside the United States
- For non-seasonal employers, the average is calculated using the 12 months prior to the loan date. For seasonal employers, the average is the 12-week period ending June 30, 2019. Businesses not operational in 2019 use the average payroll costs for January & February 2020.
How Can the Loan Proceeds Be Used?
The borrowers will use the loan proceeds for Qualified Expenses that are to retain workers, maintain payroll, and for mortgage, lease, and utility payments.
What Are The Loan Conditions?
Good faith certification that the loan is necessary to support ongoing operations due to the uncertainty of the current economic conditions
The borrower does not have an application pending for a similar loan purpose.
Maximum Loan: 2.5 times the borrower’s average monthly payroll costs, not to exceed $10 million
Loan Rate: 4%
Loan Fees: No borrower program participation fees or prepayment fees
Loan Term: Up to 10 years
Payments: Loan payment deferral for 6 months up to one year
Personal Guarantee: None
Will The Loan Be Forgiven?
The loan will be forgiven for total Qualified Expenses during the 8-week period after the loan is made, up to the principal borrowed.
The amount forgiven can be reduced if there is a reduction in the number of employees or wages are cut by more than 25%. However, if the employees or wages are restored by June 30, 2020, then the reduction will be eliminated.
Every applicant business will need to complete the SBA application. The Treasury has announced that lending under this program will begin on April 3. Remember, funding under this program is limited: it goes until all the money has been used. Many small businesses will be seeking these potentially forgivable loans across the country. First come, first served.
How to best prepare to request a Paycheck Protection Loan
Businesses will not be asked to prove they can repay the loan. These loans are being made to re-start the economy and aid small businesses to do so. Business owners will be asked to certify in “good faith” that this loan is needed as a result of the COVID-19 crisis (note the application). Funds are to be used to pay employees, insurance costs, utility payments, lease payments and/or mortgages. No other uses of funds are acceptable if you are going to seek forgiveness of the debt.
Be very aware that any lender will be requiring proof of the costs incurred during the prescribed period for which you seek a loan under this program and the SBA will require this certification.
Again, the township committee is not Loan agents or Advisors. This information has been solicited from members of finance industry. Different banks may have different information requirements. Here are some of the information that may be requested by banks and the SBA.
- How long have you been in business?
- What type of business do you have?
- Prior year(s) revenues and financial statement
- (while there is no “credit test” for these loans, banks may ask)
- Provide independent proof of payrolls for at least 12 months before Feb. 15, 2020. This data will determine the amount of the loan.
- Cost of employee healthcare and other insurance as this amount may be included in the loan calculation
- Company must be in good standing. Certificates, Licenses, Formational and Organizational Documentation may be requested
- Debt Schedule for the business.
- (while payments for this loan can be deferred for at least 6 months and then the loan potentially forgiven, banks may ask)
Businesses interested in obtaining a PPP loan should contact banks and lender directly.
The Paycheck Protection Program: Unlike Any Previous SBA Program in the Past
President Donald Trump signed the CARES Act into law which includes the Paycheck Protection Program. It has become the law of the land. The Township Committee has been following Stimulus Program developments throughout the approval process. We have outlined some of the more salient provisions of this law which should benefit not only our town’s businesses but their employees also. All in all, we believe this law has the potential to save many businesses and jobs in our community, but it is not without some difficulty… common to any new government program. As there have been several versions of the bill prior to approval, confusion as to what is law and what was in earlier versions is common.
We have tried to unravel some of the features of this approved program. As clarity around the program grows, we will update this information provided. Please understand we are not lawyers, tax advisors or SBA experts by any measure. Our data is based upon the text of the executed law. Again, we are not lawyers, tax or SBA experts and the regulations surrounding this program are yet to be written. Our objective is to bring awareness to this unique program and its short life span.
First…what is the Paycheck Protection Program? It is part of the stimulus program designed to keep our economy strong while the COVID-19 issue remains. The program is funded at $349 billion through the end of 2020. The program is intended to provide working capital to businesses, non-profits [501 (c)(3)], as well as sole proprietorships, independent contractors, and self-employed people.
Second…how does a business get a loan from this program and how much money will it qualify to borrow? Who is eligible? To qualify for a loan under this program a business must have had a payroll on February 15, 2020. That is the first qualifier for a loan. The intent of the program is to provide 2.5 times the monthly payroll costs for businesses that are eligible. The loans may be up to $10 million; most loans will be much smaller amounts. Unlike a typical bank loan, the amount of the loan is NOT driven by the businesses’ ability to repay the loan. Here is where this program begins its uniqueness. A business may borrow up to 2.5 times its monthly payroll including its insurance premium costs and or medical leave or sick pay tendered to its employees. It even covers the lost tips from tipped employees for advances. The loan will also cover all utility payments for a prescribed period, interest on a mortgage for a business facility for that period and/or rent. The prescribed period is generally February 15,2020 until June 30, 2020. Be very aware that any lender will be requiring proof of the costs incurred during this period for which you seek a loan under this program. The SBA will require this certification.
Third…what to expect while requesting a Paycheck Protection Loan…You will not be asked to prove you can repay the loan …you are reading this information correctly. These loans are being made to re-start the economy and aid small businesses to do so. As a business owner you will be asked to “good faith” certify that this loan is needed as a result of the COVID-19 crisis. You may only use the funds to pay employees, their insurance costs, utility payments, lease payments and or your mortgage. No other uses of funds are acceptable.
Fourth…this is not an SBA 7(a) loan. All borrower fees have been waived under this program…so do not agree to pay any banking fees for placement of this loan. In the SBA 7(a) program, businesses are asked for collateral to support the loan amount. In this program, that is not the case. Read above as to the basis for loan amounts, no collateral is being requested. Personal guarantees are not required under this program. All “credit tests” are waived.
Fifth…loan terms…the maximum interest rate in the bill states 4%. However, the language is ambiguous regarding the maximum rate being 4% or the maximum allowed on an SBA 7(a) loan. Price should not deter a business from seeking this loan. The longest term of the loan is 10 years.
Last and without question the most unique aspect of this loan…these loans will be forgiven on 12/31/20 for those businesses who request Forgiveness from the Lender/Treasury! Okay…we are not kidding ….Yes… you can borrow money to re-start your business and not pay it back if you execute the re-start of your business… To have your loan forgiven in December, you will need to sustain your payroll and stay in business. Of course, you will need to be able to certify and prove you did exactly that…. sustained your payroll at the level you borrowed money. Keep your records…promises will not work for forgiveness!
And yet it gets even better! As you know, “forgiven debt” is taxable income. The law specifically says these forgiven loans will NOT be taxable income in 2021. So, it is essentially free money to sustain payrolls to employ our citizens.
Lastly, what is the next step? Who is offering these loans? The law specifically mentions all SBA 7(a) lenders will offer these loans…your local banks. To be fair, the actual guidelines for this program are not yet written and there is no legal document for these loans as of yesterday. So, the banks will need to await guidance from Treasury and the SBA. Further, to incent competition to make these loans, the Treasury will authorize “other lenders” to join the program.
The Township Committee is reviewing this and other programs and will post updates as soon as they are available.
For more on the program, you can read an article on Forbes.com.