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Seeing our downtown streets empty and stores shuttered and boarded up can feel apocalyptic. Will businesses survive Covid-19? The chances are better now that the government has passed H.R. 748, the CARES Act. We are breaking down what you can do now to grab hold of this unprecedented opportunity for these unprecedented times.
What We'll Cover
We'll cover the highlights, and as always, do your due diligence and talk to your CPA, Tax professional, and/or Banker. This is not exhaustive, each step may not be for every business. Links are provided.
1. Section 1110 Emergency EIDL Grants
2. Section 1102 Paycheck Protection Program (PPP)
3. Loan Forgiveness
Section 1110 Emergency EIDL Grants
This is a new section added to the existing Section 7(b)(2) of the Small Business Act - a GRANT. You need to apply through the SBA.
*To get the grant, you have to apply for the EIDL (loan)
*Eligibility includes private nonprofits, Sole Proprietors, Independent Contractors, ESOP, regular businesses - it is sweeping coverage.
*You may receive up to a $10,000 advance/grant (there's a box to check in the application!) IF the loan application was submitted. Without a loan submission, there is no grant
*The grant does NOT need to be repaid even if you do not qualify for the loan
* There is no personal guarantee required up to $200,000; no 1 year in business requirement; no tax return submission required, but you may be approved based on credit score alone
*The grant must be deposited into your account within 3 days of submission
*The grant MUST BE USED FOR: expenses related to payroll, increased costs of business due to the virus, business rent/mortgage, repaying obligations....this is broad coverage.
*If you qualify for the loan, it can be refinanced into the PPP and the amount of the grant will be deducted from the PPP amount.
RECOMMENDED ACTION STEPS FOR RIGHT NOW
Apply for the EIDL and request the grant
Start working on re-financing the EIDL under the PPP
Be in contact with your bank/SBA lender to get in line to apply for the PPP
Be prepared to substantiate use of these funds:
- Set up a separate bank account for all related transactions
-Set up bookkeeping to track and report on use of funds if audited
Section 1102 Paycheck Protection Program (PPP)
Application will be made through an SBA lender. Check with your local bank to see if they are processing these loans, or find one here. You want to get on their list ASAP and start the process. The loan requirements are fairly lenient, and good news, "eligible self-employed individuals" can potentially qualify as well as other business entities. Note: there is not yet definition as to what "eligible self-employed individuals" means. Many of the details are still being worked out.
While loans are for a maximum of $10 million, for the rest of us it will be calculated by a formula of 2.5 times the average monthly payroll costs for the prior year + any EIDL received. This is, as always, where great bookkeeping comes to play - get your books in order and be able to substantiate your numbers.
The recommended action steps above apply here as well!
Who qualifies for the PPP? If you have employee wages and tax expenses, or independent contractor expenses, you can apply with your bank or SBA lender. Check all eligibility requirements.
This is non-recourse loan - it benefits YOU. No fees, personal guarantees, collateral required, and interest rate is 4% over 10 years for the amount that is not forgiven.
The PPP expires 6/30/20 if the funds hold out, so get on this as soon as it goes live, which should be soon.
Loan Forgiveness
Loan forgiveness applies to the PPP only, not the EIDL. The principal of the loan can be forgiven when used for:
*payroll costs for employees and independent contractors
*Payments of interest on covered mortgage obligations
*Rents and leases
*Utilities
And this is NON-TAXABLE, you will NOT pay taxes on the amount forgiven!
CAUTION: Loan forgiveness is reduced or eliminated for borrowers who REDUCE their workforce during the covered period (8 weeks from date of loan origination). This is designed to keep people EMPLOYED. Again, be able to document everything related to the loan!
Remember, the government has enacted the bill, and now all the agencies are putting the details and definitions together, so pay attention. We'll share what we learn - we are inthis together.
In Summary Don't give up - seize the opportunity to push through this crisis and be positioned to gain ground once we come through it. Invest in a bookkeeper who knows what they're doing and who can hep you navigate these processes successfully, and take those action steps!