Ask Your Neighbor

You down with PPP or EID?

April 4, 2020

There are several federally sponsored opportunities that are now available to small business owners and sole proprietors to help combat the business effects of the COVID-19 pandemic.  I will review the two main areas that might affect you, your small business or potentially someone you can share this article with.  The first are SBA loans that have forgivable aspects, the second are payroll credits for sick and family care leave.

The law has been enacted, the implementation process is being formulated, and there is beginning to be a rush to put in applications for this relief.   We understand that each business presents their unique facts, circumstances and opportunities; and that you may have already composed many questions not answered in this memo. Please contact your accountant, banker or financial advisor to address specific questions.

LOANS

Paycheck Protection Program (PPP)

These loans will be provided by the Small Business Administration (SBA) and are meant to help small businesses (fewer than 500 employees) impacted by the pandemic and economic downturn make payroll and certain other expenses.  You can read the entire fact sheet about PPP loans here.  If you are a sole proprietor, you should also apply.

*          The covered period for receiving a loan is February 15 to June 30, 2020.

*          The maximum loan amount will be 2.5 times an average monthly payroll and payroll related expenses (trailing 12-month average); limited to a maximum of $100,000 of employee and owner compensation per individual.

*          PPP loans have a forgiveness features: beginning on the loan origination date, if the proceeds are used within 8 weeks for qualified expenses, then the loan will be forgiven. Qualified expenses include payroll, interest payments on mortgages, rent, utilities and interest on other business debt obligations. Interest is only allowed if the loan was in place prior to Feb. 15, 2020. Forgiveness of the loan is still possible even if you have laid-off employees after Feb. 15, 2020, so long as you re-hire to the same number of full-time employees, at their full rate, by June 30, 2020. If you have not re-hired to the same number of full-time employees, a portion of the qualified expenses would not be forgiven based on a formula in the reduction of employees and their salary levels.

Even though your business has not ceased operating, everyone needs assistance during these trying times. You are encouraged to promptly apply for programs as many others are already applying. If the pandemic has caused your operations to cease or you have had to eliminate a good amount of your payroll, you should discuss the timing on when to accept the proceeds (and therefore start the clock on the 8-week expenditure period) with your financial professional.

Economic Injury Disaster Loans (EIDL)

The Small Business Administration (SBA) has also issued disaster declarations for every state, allowing small businesses to access additional emergency funding under its existing EIDL program with more lenient requirements. Read more about EIDL program here. This program provides loans to cover costs that would have been payable by the applicant had the disaster not occurred. This program includes:

*          Loans up to $2 million

*          3.75% fixed interest rate

*          Repayment over 30 years with principal and interest deferment for up to four years

*          Elimination of personal guarantees for loans under $200K

*          New SBA Economic Injury Emergency Grant Program has been created to provide an emergency advance of up to $10,000 within three days of applying for an EIDL

One can apply to both loan programs, but the expenses used to request additional funding can’t be the same.

Several points to consider:

*          If you receive both loans, please make sure to not comingle the funds and cause possible issues with the forgivable aspect.

*          It is predicted that these loans will take longer than the PPP requests, so it may work out timing wise to use the PPP proceeds and then have access to EIDL to cover the long-term consequences of the current events.

 

Applications:

The following information may be required in order to begin the application process:

1.         Letter stating how relief is necessary and how COVID-19 has impacted your business.

2.         Calculation of the amount of the loan request (2.5X the average payroll and related costs).

3.         Contact information, including email and mailing address.

4.         Copy of Driver’s license for verification of your identity to quickly process the loan.

5.         Bank account information (routing and account number for funds disbursement).

The following might be necessary:

6.         2019 Financials and 2020 Year-to-date financials.

7.         Tax Returns (if necessary – we have on hand)

You can fill out an application here or contact your banking professional for assistance.

 

PAYROLL CREDITS

EMERGENCY PAID SICK LEAVE

The Families First Coronavirus Response Act (“Act”) was signed into law on March 18, 2020, takes effect on April 1, 2020 and expires on December 31, 2020. This act applies to 3 types of individuals, not to all your employees:

*          Employee with COVID19 or quarantined while awaiting results

*          Employee caring for a quarantined family member

*          Employee required to stay home due to school or child-care center closures

1.         Full-time employees receive two weeks (up to a maximum of 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.

2.         An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay.

3.         An employee who is unable to work due to a need to care for a child whose school is closed may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave at 2/3 the employee’s pay.

Sick Pay Tax Credit Offset

Employers would receive an offset to their payroll taxes as follows for the three cases above:

1.         Employee that is ill (case 1 above) – Employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

2.         Employer caring for someone (case 2 above) – two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days.

3.         Employee unable to work due to school closure (case 3 above) – two-thirds of the employee’s regular pay capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the childcare leave credit.

Eligible employers are entitled to an additional tax credit based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Note: money credited under the Sick Pay Tax Credit Offset, for wages or health insurance, cannot be used as qualified expenses for PPP loans.

 

Examples from the IRS:

If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

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