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Coronavirus COVID-19 CARES Act SBA 7(a) Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, and the subsequent Emergency Coronavirus Relief Act (ECRA) within the Consolidated Appropriations Act (CCA) in December of 2020 allocated hundreds of billions to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program 1 (PPP1) and Paycheck Protection Program 2 (PPP2), these relief initiatives provide 100% federally guaranteed loans at 1% interest to small businesses where all loan terms will be the same for everyone. 
Importantly, qualified portions of these loans may be forgiven if borrowers use the loans for the following purposes over the 8 or 24 week period after the loan is made, and employee and compensation levels are maintained as they were prior to the coronavirus:● Payroll costs for those whose primary residence is the United States● Most mortgage interest and rent● Utility costs● Operating costs related business software● Supplier costs for physical goods needed to run the business● Damage costs related to social disturbances during 2020● Safety costs to protect employees and customers
Payroll costs are capped at $100,000 of gross salary on an annualized basis for each employee. At least 60% of the forgiven amount must be spent on payroll costs to receive full forgiveness. Loan payments are automatically deferred until the SBA forgives the loan or 10 months after the end of the loan period if borrow doesn't apply for forgiveness.

What You Need To Know

Am I ELIGIBLE?

Since the application window for the PPP1 has passed, the following criteria will be directed toward eligibility for the new PPP2 loan available starting in 2021. Like the PPP1, all businesses are eligible for the PPP2; including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors. 

You are eligible for the PPP2 if you are:• A small business with fewer than 300 employees• A small business that otherwise meets the SBA’s size standard• A 501(c)(3) with fewer than 300 employees• A 501(c)(6) association with fewer than 150 employees• An individual who operates as a sole proprietor• An individual who operates as an independent contractor• An individual who is self-employed who regularly carries on any trade or business• A Tribal business concern that meets the SBA size standard• A 501(c)(19) Veterans Organization that meets the SBA size standard• A small business that was in operation on February 15, 2020.• Had a 25% reduction of gross receipts in any one quarter in 2020 as compared to that same quarter in 2019
In addition, some special rules may make you eligible:• If you are in the accommodation and food services sector (NAICS 72), the 300-employee rule is applied on a per physical location basis, click here to check if it applies to you. • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply, click here to check if it applies to you. • If you receive financial assistance from small business investment companies licensed by the SBA. 
REMEMBER: The employee threshold rules includes all employees: full-time, part-time, and any other status. Click here for size exception details. 
When can I apply?• The PPP1 applications started April 3, 2020 and ran through August 8, 2020, but the ERTC has extended the deadline for first time PPP borrowers under PPP1 until March 31st, 2021.• We currently expect the government to start accepting PPP2 applications starting in mid-January 2021 running through the end of Q1 2021 as well.

What will lenders be LOOKING FOR?

In evaluating eligibility for the PPP2, lenders are directed to consider whether the borrower was in operation before February 15, 2020; had employees for whom they paid salaries and payroll taxes or paid independent contractors; and had a 25% reduction of gross receipts in any one quarter in 2020 as compared to that same quarter in 2019.

Lenders will also ask you for a good faith certification that:1. The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations2. The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments3. Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here4. From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)5. The borrower had a 25% reduction of gross receipts in any one quarter in 2020 as compared to that same quarter in 2019 unless you are considered a new or seasonal business6. For new or seasonal businesses not in business for one year prior to February 15, 2020, you must have either      - not operated for more than 7 months in any calendar year; or      - had gross receipts for any 6 months of 2019 that were not more than 33.33 percent of the gross receipts of the employer for the other 6 months of 2019.
If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.

What lenders will NOT LOOK FOR:

• That the borrower sought and was unable to obtain credit elsewhere.
• A personal guarantee is not required for the loan.
• No collateral is required for the loan.

 How much can I BORROW?

PPP2 loans can be up to 2.5 x the borrower’s average monthly payroll costs from the last year, not to exceed $2 million. But may be up to 3.5 x the borrower’s average monthly payroll costs from the last year if the business fits within the NAICS 72 Accommodation and Food Services

How do I calculate my average monthly PAYROLL COSTS?

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INCLUDED Payroll Cost:1. For Employers: The sum of payments of any compensation with respect to employees that is a:• salary, wage, commission, tips, or similar compensation (capped at $100,000 on an annualized basis for each employee)• payment of cash tips and equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)• payment for vacation, parental, family, medical, or sick leave• allowance for dismissal or separation• payment required for the provisions of group health care benefits, including insurance premiums for group life; disability; vision, or dental insurance• payment of any retirement benefits, including employer SEP/SIMPLE/401k match/Profit sharing/pension contributions • payment of state or local tax assessed on the compensation of the employee
2. For Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.
EXCLUDED Payroll Cost:1. Any compensation of an employee whose principal place of residence is outside of the United States2. Compensation of an individual employee in excess of an annualized salary of $100,0003. FICA payroll taxes, railroad retirement taxes, and income taxes required to be withheld from employees4. Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act. 
Non seasonal employers:• Maximum loan = 2.5 x Average total monthly payroll costs incurred during the year prior to the loan date • If you are a NAICS 72 Accommodation and Food Services business, in which case your maximum loan is 3.5 x Average total monthly payroll costs incurred during the year prior to the loan date. • For businesses not operational in 2019 the average total monthly payroll costs still include those incurred for January and February 2020. 
New or Seasonal Employers:• Maximum loan = 2.5 x Average total monthly payments for payroll costs for the 12-week period beginning February 15, 2019 or March 1, 2019 (decided by the loan recipient) and ending June 30, 2019. • If you are a NAICS 72 Accommodation and Food Services business, in which case your maximum loan is 3.5 x Average total monthly payroll costs incurred during the year prior to the loan date.
• For businesses not operational in 2019 the average total monthly payroll costs still include those incurred for January and February 2020. 

Will the PPP2 loan be FORGIVEN?

Borrowers are eligible to have their loans forgiven.

How Much?A borrower is eligible for PPP2 loan forgiveness equal to the amount the borrower spent on the following items during the 8-week or 24-week period at the borrower's option beginning on the date of the origination of the loan (or for payroll expenses, the first payroll period after loan disbursement):• Payroll costs (generally using the same definition of payroll costs used to determine loan eligibility, but see further details here)• Interest on the mortgage obligation incurred in the ordinary course of business for property not owned by the business owner(s)• Rent on a leasing agreement signed as of February 15, 2020• Payments on utilities (electricity, gas, water, transportation, telephone, or internet)• For borrowers with tipped employees, additional wages paid to those employees• Operations costs that generally include software expenses to run the business• Property damage costs due to looting or other vandalism from public disturbances during 2020• Supplier costs for physical goods• Worker protection expenses such as for PPE
The loan forgiveness cannot exceed the principal. Very importantly, the ECRA eliminated any reduction of PPP1 or PPP2 loan forgiveness for any grants or loans made through the EIDL program. Also, a key matter is that the ECRA made clear that all forgiven expenses shall also be eligible for deduction in accordance with existing business expense deduction rules.
How can I request loan forgiveness? You should submit a request to the lender that is servicing the loan within 10 months after your 8 or 24 week covered period. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

How Could the Forgiveness be Reduced? 

The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Specifically:
Reduction based on reduction of number of employees for non-seasonal :

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Reduction based on reduction in salaries:

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What will make my loan NOT forgivable? You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 or 24 weeks (at borrower's option) after getting the loan. 
You will also owe money if you do not maintain your staff and payroll.• Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.• Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.• Re-Hiring: You have until December 31st, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

What are the PROGRAM & LOAN TERMS?

Paycheck Protection Program Loan terms will be the same for everyone:• 1% fixed interest rate• All payments are deferred until the lender receives a forgiveness amount from the SBA , or, if the borrower didn’t apply for forgiveness, then 10 months from the last day of the period in which the loan funds must be spent to be forgivable• Unforgiven balance of loans are due in 5 years for new loans; • You can only take out one loan under the PPP2 program, but the PPP2 loan may be in addition to the PPP1 loan• There are no prepayment penalties or fees• No collateral is required to secure a loan• There is no personal guarantee requirement***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***
Do I need to first look for other funds before applying to this program? No. We are waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., we are waiving the Credit Elsewhere requirement). However, businesses must certify their "need" for the funds due to the impact of the coronavirus on their businesses.
How long will this program last? At this time, we believe the PPP2 program will be open until the end of Q1 2021. We encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.
What do I need to certify? As part of your application, you need to certify in good faith that:• Current economic uncertainty makes the loan necessary to support your ongoing operations.• The funds will be used to retain workers and maintain payroll or to make mortgage, lease, utility payments, or other covered expenses.• You have not and will not receive another loan under this program.• You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.• Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities.• All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.• You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

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Emergency Relief Services

● Cash Flow Analysis● Tax Planning● Tax Extension Preparation● Tax Appeals and Tax Resolution● State and Local Tax Relief● Special Deductions and Credits● S Corps and Partnership Budgeting● C Corp Budgeting● Sales and Use Tax Relief● SBA Loan Consulting

How to Apply for an SBA 7(a) Paycheck Protection Protection Loan

We are guided by efficient work with clients. Here’s what you will need to apply for an SBA 7(a) Paycheck Protection Program loan unless the SBA or your lender decides to accept an expedited application:

  • 1

    Complete the Treasury Department Paycheck Protection Program loan application found here

    1

    Complete the Treasury Department Paycheck Protection Program loan application found here

  • 2

    Gather your Payroll Documentation

    2

    Gather your Payroll Documentation

  • 3

    Prepare Your Ownership and Affiliations Lists to make sure you meet the small business criteria

    3

    Prepare Your Ownership and Affiliations Lists to make sure you meet the small business criteria

  • 4

    Collect Your Business Certificates and Licenses showing your were in operation on February 15, 2020

    4

    Collect Your Business Certificates and Licenses showing your were in operation on February 15, 2020

  • 5

    Complete Your Loan Application History to insure there have been no duplicative loans

    5

    Complete Your Loan Application History to insure there have been no duplicative loans

How to Apply for Forgiveness of an SBA 7(a) Paycheck Protection Protection Loan

Please visit our page on PPP forgiveness considerations

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