The Small Business Administration put a draft of the application for these loans on their website that can be accessed here. This is a draft which might be finalized now or very soon but it is not the version most banks are intending to use as most of the large banks are developing their own application that interfaces better with their internal, paperless systems. In all cases the form will look similar so you can use this application to start getting your information together. It might be best to print the application and fill it out manually, knowing you will probably need to input it in your bank's form when it becomes available.

The Paycheck Protection Program ("PPP") is intended to keep your employees employed for an eight week period that starts on the date your loan is funded. We have heard varying timelines for the expected funding of these loans ranging from three weeks to three months. One of the largest SBA approved banks in the Northeast told me they normally process 8,500 commercial loans a year and are expecting that they might receive 100,000 of these applications in the next few weeks. They are anticipating a backlog of processing.

The U.S. Treasury's discussion of these loans can be accessed here, but as a brief summary

  • The program is administered by the Small Business Administration and loans will be accessed through member banks. If your primary bank is an approved SBA lender you would contact them to submit an application; a phone call today would be in order.
  • Loans will be calculated based on an established monthly payroll base times 250% (2 1/2 months) not greater the $10 million. Payroll rates in excess of $100,000/year are limited to $100,000 in calculating the base and the use of proceeds reporting.
  • Any portion of the loan not forgiven will be at a 0.5% interest rate and payable monthly over a 24 month amortization
  • From the date of the loan and for the following eight weeks the employer needs to maintain employment at the rate of the monthly payroll base
  • Any shortfall in maintaining the proper payroll will reduce the amount of the loan that will be forgiven
  • The calculations in this area are complex and you might need assistance
  • Loan proceeds can be used for the above referenced payroll, rents under qualifying leases, mortgage interest in the business if applicable, and certain utility payments.
  • After the eight week period has expired there will be a self-reporting requirement and possibly an audit to verify the loan proceeds were used entirely for these purposes and not other working capital needs.
  • The loan forgiveness will not be subject to Federal Income Tax
  • Any amount of the loan that is not forgiven will need to be repaid. That portion will have the same characteristics of any typical loan the owner would normally be guaranteeing to the bank.

CAUTION

Since the inception of the COVID-19 crisis the Federal Government has passed significant legislation -
Families First Coronavirus Response Act ( FFCRA)
Coronavirus Aid, Relief and Economic Stimulus Act (CARES)

These two laws include many initiatives designed to assist both employees and their employers, but they don't all work together and accessing one could preclude another. As an example, the CARES Act includes a feature where employers can defer remitting the Employer portion of payroll taxes through the end of the year starting as early as next week. But a feature of the Payroll Protection Program does not allow this deferral if you are availing yourself the PPP Loan.

An additional complication is these laws were passed very quickly and before anyone had an opportunity to develop methods of implementation. We spoke with the three major payroll processing companies that have not yet developed a means for the employer to defer the Employer Payroll Taxes if they want to do so. Hopefully when they develop the methods they will understand this is an option you may not want to take because you have other plans.

OUR RECOMMENDATION

All of our clients are going through unusual times right now and these new laws are complicated and can interact in unusual ways. Using the opportunities to your advantage could be significant and highly personal to your individual situation. We encourage you to ask questions - please direct them to Todd Luft at TLuft@LuftCPA.com. We will do our best to answer the questions and assist where we can.