While our physical location is closed, our Arkovich Law team are hard at work at home filing motions to abate Chapter 13 Plans, Modifying Confirmed Plans, helping with our clients’ real estate needs, settling all sorts of debt, and assisting with estate planning needs. This blog is addressed toward our small businesses in the Tampa Bay area:
If you are a small business owner, make sure to apply for the Paycheck Protection Program through your local bank in order to maintain your workforce and to receive full forgiveness after the 8 week period. Make sure you are able to return to work in 8 weeks with your business fully intact and awesome!
Also, if you experience additional business hardship, you can apply for a SBA Bridge Loan.
The two are not mutually exclusive.
While the new regs passed on Saturday are 900 pages long, we, our accountant and our banker are sifting through it now to determine the finer points (especially as it relates to the forgiveness portion):
- The Loan is virtually available to any small business in the U.S. if the business has less than 500 employees.
- The loan proceeds can be used for any allowable uses under the 7(a) program as well as:
- Group Health Insurance
- Mortgage interest payments
- Interest on any other debt obligations that were incurred before 2/15/20
- The maximum amount of the loan is a formula of 2 ½ times average monthly payroll costs for the one-year period prior to the loan disbursal or $10,000,000, whichever is less.
- The payroll measurement may vary for seasonal employers.
- For new employers not in business between 2/15/19 and 7/30/19, the average monthly payroll costs are calculated on the period 1/1/20 to 2/29/20.
- Payroll costs include employee salary, wages and commissions, tips, vacation pay, paid leave, payments for group health retirement benefits, state and local taxes on employee compensation, and sole-proprietor income or independent contractor compensation not in excess of $100,000.
- Payroll costs exclude compensation of an individual in excess of $100,000 (so, you can only count up to the first $100,000 for any employee).
- There are approximately 31,000,000 small businesses in America. The loan program is funded with $349,000,000,000.
- That means, if each business applied, there would only be about $11,000 available for every business.
- It appears the loan will be processed by SBA authorized banks and lenders.
- If you believe you will need to apply for this loan…CALL YOUR BANKER IMMEDIATELY TO DETERMINE IF THEY CAN PROCESS SBA 7(a) LOANS.
- START GATHERING THE INFORMATION THE BANK/SBA WILL NEED NOW.
- Allowable uses for the loan proceeds include – Payroll costs, group health insurance, rent, utilities, interest payments on mortgages and any other debt obligations that were incurred before 2/15/20.
- A portion of the loan may be forgiven if the business continues to pay payroll costs during the 8 weeks after the loan was disbursed.
- The loan forgiveness will be limited to amounts paid for:
- Payroll costs
- Payment for mortgage interest
- There are limits to the amount forgiven based on the number of full-time employee equivalents (FTEs) the business had in the 8 weeks after the disbursement of the loan compared to FTEs during the periods 2/15/19 to 6/30/19 OR 1/1/20 to 2/29/20 – use the number that gives you the best ratio.
- There is an additional reduction to the amount forgiven for payroll reductions that exceed 25% for any employee in the 8 week period after the loan disbursement date compared to the most recent full calendar quarter – we believe this was added to make it prohibitive to reduce employees’ pay or to re-employ someone at a lower rate greater than a 25% reduction.
- We do not know how or when a business will apply for the loan forgiveness, but given that the forgiveness calculation uses amounts paid through 6/30/20, we would expect the forgiveness process to begin in the fall.
- The amount of the loan forgiven will not be taxable income to the business.
- We do not know if the expenses paid with the loan proceeds will be deductible. If they are, it’s possible that the business will receive a double-benefit – tax free debt forgiveness AND a tax deduction.
- It’s possible that 100% of the loan could be forgiven – it depends on how much you borrow and how much you spend on the items that qualify during the 8-week period after the loan disbursement.
- It’s also possible that a good portion of the loan will not be forgiven because the amount you borrow is based on historical amounts and the amount forgiven is based on prospective amounts.
- If your business has no payroll or no independent contractors, we believe you likely do not qualify for this loan program.
If you have a small business and are uncertain about the viability of your business, please reach out for help!