There has been a big buzz about the SBA loans that are part of the CARES Act. The two most popular, at least from all the talk online are the Paycheck Protection Plan (PPP) and Economic Injury Disaster Loan (EIDL).
The PPP loan is based on your monthly average qualified payroll costs multiplied by 2.5. You apply through an SBA lender and then wait for weeks with no information. Suddenly, you get some paperwork to sign and the money just shows up in your account, with no instructions.
How does the loan turn into a grant? A grant you don’t have to pay back?
There are a few rules.
#1:You have 8 weeks from the day you get the money to spend the money in accordance with the rules. The amount you spend in accordance with the rules will be forgiven. Any other funds will be converted into a loan.
#2:You must spend 75% of more of the money in qualified payroll expenses.
#3:You must have the same number of FTE. (full time employee equivalents)
#4:If any employee is paid over $100,000 per year, the amount over $100,000 is not allowed.
Those are the rules and now we have the form to complete to use to verify the amount for the grant. The SBA form is Form 3508. https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf
When it’s completed in accordance with the directions, you must submit the document to your lender. This can be done via mail, electronically or in accordance with other methods specified by your lender.
The form includes instructions for completion. There are a few items to note:
A recent change is reflected on the from. Page 8 reads:
“FTE Reduction Exceptions: Indicate the FTE of (1) any positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee, and (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned or (c) voluntarily requested and received a reduction of their hours. In all of these cases, include these FTEs on this line only if the position was not filled by a new employee.”
In other words, although we were originally told that you had to have the same number of FTEs, there is an exception if the employer didn’t come back to work, quit, was fired for cause or voluntarily requested less hours.
The other item to note is on page 10, Schedule A. You are asked to provide documentation that proves the amount of payroll you paid. On the list you are required to provide proof via cancelled check or bank records that show the payment plus, you must provide copies of the federal payroll reports that shows the payroll amount.
Unfortunately, a Sole Proprietorship or Partnership do not report the payments to the owners on federal payroll reports. So, that will not be possible to provide.
Otherwise, there shouldn’t be any big surprises on this form. Just make sure you have your records in place and submit all that’s required to your lender at the end of the 8 weeks.
Although the EIDL applications have been closed by the SBA, there are still funds available for the PPP, the Emergency Bridge Loan, 7a, 504 and microloans. There is strategy in determining which one is best.
The following excerpt is from CoronaTax: https://www.ustaxaid.com/shop/coronatax/
“Which Loan is Best?
The first time I talked to Henry was in my Facebook group, Diane Kennedy’s US Tax Group. That’s pretty common actually. People like to know who I am, who my company is and more importantly can I be trusted to know what I’m doing and to protect the interests of my client.
For a lot of people, me included, I learn a lot about a person when I see how they act when they don’t think I’m watching. If Henry had started with a paid consultation, he would have undoubtedly gotten a sense of whether I knew enough about what he wanted to do but might not know who I was.
His question to the group was simple, “How do I know which loan is right for my business?”
And my answer was simple, too, “Well, what do you want?”
There are two things you need to know in order to come up with a strategy. Where are you now? And, where do you want to go?
Henry had been self-employed and then his business just stopped cold when Coronavirus hit.
Some people told him to file for unemployment. Others told him to get a PPP (Paycheck Protection Plan) loan and still others said an EIDL (Economic Injury Disaster Loan). And then he read about the bridge loan.
Which is best for him?
We could easily get one out of the way – the EBL (Emergency Bridge Loan). The bridge loan is available for businesses that already have or have had a relationship with SBA. It’s an express loan to get quick access to cash.
At least now we just had three choices, unemployment, PPP and/or EIDL, to consider for Henry. Next step was to do an assessment of his business, starting with what used to be by reviewing his prior tax returns and financial statements.”
If you have a PPP loan, make sure you take a look at the form so you can pull all the details you need together. The only thing better than a low cost loan is a loan you don’t have to pay back.