Small Business Development Center Provides Resources to Help Small Businesses During Cornoavirus Outbreak
Tuesday, March 31st, 2020 -- 9:51 AM
The SBA has three programs going right now:1. SBA Emergency Injury Disaster Loans (EIDLs) This was the first loan program they rolled out and implemented last week.
2. SBA Express Disaster Bridge Loan ??" launched last week too.
3. CAREs Act ??" (new) Passed by Congress and signed by President on Friday.
These programs are each separate programs! Each has their own process and rules. They stand alone independent of each other. Keeping that in mind will help you navigate these programs. Here is an update on each of the three SBA Programs:
SBA Economic Disaster Injury Loan:
Last week Friday in my email we talked about the SBA streamlining the application process. Over the weekend they made further improvements to the application website. New this weekend the SBA added that if you are approved for an EIDL loan you will now automatically be awarded a $10,000 EIDL grant. Application for the grant is automatic when you apply for an EIDL loan. Don’t worry if you applied for the EIDL last week as the SBA will include you for grant award too if you get an EIDL loan. No need to apply again!
The only forms you need to complete for the SBA EIDL application are the following:
Corporations and LLC’s
-Economic Injury Disaster Loan Supporting Information (Form P-019)
-Request for Transcript of Tax Return (IRS Form 4506-T)
-Then go online and complete the Business Loan Application (Form 5) (en Español)
Sole Proprietors
-Economic Injury Disaster Loan Supporting Information (Form P-019)
-Request for Transcript of Tax Return (IRS Form 4506-T)
Then go online and complete the Home or Sole Proprietor Loan Application (SBA Form 5C) (en Español)
Download the two forms from this email. Prepare them and then save to your desktop. Then go to the SBA application site and upload these when you apply. While the SBA application process is not initially asking now for IRS Form 4506-T, we are recommending you complete it and submit it as the SBA has told us that it will probably be the form they will be requesting most so submitting it right away will keep your application moving forward.
Many of you will be able to work through the application on your own and I recommend you attempt to complete the application first. If you run into an issue however and need assistance or have questions the SBDC is here to help. To apply for the loan and/or request SBDC assistance you need to go to the link below.
https://wisconsinsbdc.org/services/covid-19/disasterloans/
SBA Express Disaster Bridge Loans:
There have been no changes to the SBA Express Bridge Loan Pilot Program which was announced last week and allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for a direct SBA EDIL. If a small business has an urgent need for cash while waiting for decision and disbursement on SBA EDIL, they may qualify for an SBA Express Disaster Bridge Loan. If you go to the link and view the PDF it has specific details on the loans. I recommend you tell clients about this option.
Terms
-Up to $25,000
-Fast turnaround
-Will be repaid in full or in part by proceeds from the EIDL loan
-These Express loans carry a higher interest rate typically set by the lender.
-Must work directly with an SBA Express Lender bank to apply.
CAREs Act --Paycheck Protection Program-- Administered By SBA- NEW
On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. This act includes a variety of programs designed to help individuals, small businesses, and large corporations. One of the CARES programs will be administered by the SBA called the Paycheck Protection Program (PPP). The SBA is now working on the final administrative guidelines and processes for this program and expects to have most of the administrative guidelines in place by the end of this week. All we can do now is talk about the key elements and parameters of the PPP so that you can consider if it fits your business.
The Paycheck Protection Program (PPP)
A significant focus of the CARES Act ??" $350 Billion ??" is on the retention of employees, with the goal of helping the economy bounce back faster after the COVID-19 crisis. The Paycheck Protection Program (PPP) is a loan program administered by the SBA. It is designed to provide small businesses with funding and incentive to keep employees on payrolls. It is retroactive to February 15, 2020 in order to help employers with workers who may have already been laid off, get these workers back onto payrolls.
How do I access one of these PPP loans?
CARES delegates authority to make PPP loans to previously approved SBA Section 7(a) lenders (banks) and allows the Treasury Department to approve additional new lenders with the necessary qualifications. Right now the specific details on applying for the loan are still pending. It appears the PPP loan will be structured similarly to the SBA’s 7(a) loan program, but will have a 100% federal government loan guarantee and will include eligibility for many businesses that where not previously eligible for an SBA 7(a) loan. SBA 7 (a) loans are made by banks to the business but are guaranteed by the SBA. They are not direct SBA loans.
How can I use the money?
The PPP provides loans of up to $10 million per small business company (up to eight weeks of payroll) for:
-Paid vacation, sick, medical or family leave;
-Costs related to continuation of group healthcare benefits during periods of leave;
-Employee salaries, wages, commission, or similar compensation;
-Payments of interest on a mortgage (not prepayment of or payment on principal) or on rent;
-Utilities payments
-Payment of retirement benefits;
-Payment of state or local tax assessed on the compensation of employees; and
-Any other debt obligations.
Note: Payroll costs exclude compensation paid to individuals above $100,000 a year.
Who is eligible?
To be eligible, businesses must:
-Be a small business, as defined by the SBA and have been in business on February 15, 2020.
-This program also supports non-profits with a 501 (c)(3) and fewer than 500 employees, sole proprietors, the self-employed, and independent contractors
Program Administration & What You Can Do Now
Again, the CARES Act just passed on Friday. The SBA is still working on identifying the details of program administration.
You can do the following to prepare:
-If you do not currently have a banking relationship with a bank that is an SBA 7 (a) lender, identify the SBA lender(s) near you ??" the list for Wisconsin begins on page 26 (click the link) of this guide. The Department of the Treasury will also be able to authorize new lenders moving forward.
-Gather and review last year’s payroll cost records to determine the maximum PPP Loan eligibility.
-Prepare an eight-week budget for payroll costs, mortgage and rent payments, and utility expenses. When establishing this budget, potential borrowers should plan modifications to headcount and paid wages and salaries taking into account the potential reduction factors noted above, and should be aware of payment deferrals offered by lenders or landlords, or utility providers, in order to maximize the potential forgiveness amount of the PPP Loan.
-Compile documentation and records to support your application and determinations related to PPP Loan and forgiveness amounts.
-Prepare a summary statement demonstrating why the PPP Loan request is necessary to support the business operations as a result of current economic conditions.
If you apply for a PPP, can you still apply for other SBA loans?
Yes. Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs). However, you cannot use your PPP loan for the same purpose as your other SBA loan(s). For example, if you use your PPP to cover payroll for the 8-week covered period, you cannot use a different SBA loan product for payroll for those same costs in that period.
Will the PPP loans be forgiven?
Again, the SBA is still developing the administrative details to address loan forgiveness and the CARES Act gives the SBA until April 26, 2020 to issue guidance and final regulations regarding loan forgiveness. However, Section 1106 of the CARES Act specifically prescribes the following:
Borrowers are eligible for forgiveness of up to 100% of a covered loan under the PPP for the costs incurred and payments made by the borrower during an eight-week covered period after the loan origination date for:
(a) payroll costs (as defined and limited by Section 1102) and additional wages to tipped employees,
(b) interest on any real or personal property mortgage incurred prior to February 15, 2020,
(c) rent on any lease in force prior to February 15, 2020, and
(d) utility payments for electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020.
Amounts forgiven are considered canceled indebtedness under Section 7(a) of the Small Business Act and are not includible in gross taxable income of the borrower. The SBA will remit the forgiven amount plus accrued interest to the lender within 90 days of the date of forgiveness.
To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, the amount of loan forgiveness will be determined without regard to a reduction in the number of FTEs or a reduction in employee salaries from February 15 through April 26, 2020 if the reduction in number of FTEs or reduction in salaries has been eliminated by June 30, 2020.
A borrower seeking loan forgiveness must submit an application to the lender including documentation of:
the number of FTEs and pay rates during the relevant periods; amounts paid for eligible payroll, interest, rent and utilities during the eight-week covered period; and a borrower certification of the accuracy of the documentation provided and that the amount to be forgiven was used for an eligible purpose.
No forgiveness will be made without documentation. The lender must provide a decision on the application for forgiveness within 60 days of the submission date. The lenders will be held harmless from enforcement actions or penalties related to loan forgiveness.
Any covered loans not forgiven remain outstanding under their existing terms under Section 1102. By April 26, 2020, the SBA must issue guidance and regulations to implement this section. Once again, the SBA is working on the details of the PPP.
Other Items In CARES to Consider
One part of the CARES Act that is not part of PPP and is not administered by the SBA is the Small Business Tax Provisions of the CARES Act. These provisions are tax credits but the use of the PPP does affect the credit a business can take. The two Small Business Tax Provisions are as follows:
Employee Retention Credit for Employers Subject to Closure or Experiencing Economic Hardship.
This provision provides a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis.
Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit. For employers with 100 or fewer fulltime employees, all employee wages are eligible, regardless of whether an employee is furloughed. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave (IRC sec. 45S).
The credit is not available to employers receiving assistance through the Paycheck Protection Program (PPP).
The credit is provided through December 31, 2020.
Delay of Payment of Employer Payroll Taxes.
This provision allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.
Feel free to contact us with questions and/or comments.