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Paycheck Protection Program (PPP Loans) – Urgent Action Recommended

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The CARES Act was signed into law on March 27, 2020, and while there are several programs under the law, the provision currently requiring the most urgent action is the Paycheck Protection Program loans.

The PPP loans are available to small businesses (less than 500 employees). These loans are designed to provide up to 2.5 times the average monthly payroll to businesses in order to keep employees on the payroll, rehire laid off or furloughed employees and/or pay benefits to employees.

These loans may be forgiven if conditions are met – generally spending the funds received on payroll costs.

This process has moved exceptionally quickly, and the Berntson Porter CPA team has been working around the clock to understand the programs to help our clients, while the banks have put programs into place to accept applications and deploy funds as quickly as possible within this program. The Small Business Administration (SBA) had originally intended for banks to start receiving applications on Friday, April 3rd, but many banks were awaiting final guidance from the government and SBA on how to administer these programs, and some will not start accepting applications until Monday, April 6th, or early next week.

Under the interim final rules, released late on 4/2, BP notes the following:

  • Banks have the ability to rely on certifications of the borrower to determine eligibility, and to rely on documents provided by the borrower for loan forgiveness.
  • Independent contractors should not be included in the payroll calculation, as they have the ability to apply on their own.
  • This program is generally available to businesses with less than 500 employees. Additional guidance is pending related to affiliation rules (commonly controlled/owned businesses that may have greater than 500 employees).
  • Only one loan will be allowed under this program.  Consider applying for the maximum amount.
  • It is confirmed to be first-come, first-served.  Nobody knows how long these funds will last, but speculation is that they will go fast. There is also speculation that additional funds could be made available in the future, but that is uncertain.
  • SBA will be issuing additional guidance on loan forgiveness. Currently, as long as 75% of funds received are spent on payroll, with the remaining 25% on mortgage, rents or utilities, the loan will generally be forgiven, subject to other calculations.
  • On any non-forgiven portions of the loan, the amount will be repaid over two years at a 1% interest rate.
  • Lenders do not need to apply the usual “credit elsewhere test” as is usually a prerequisite for SBA loan eligibility.

Action items:

  • Contact your current bank to determine their process.
  • Gather and organize your payroll documents, including 941’s for all of 2019, and Q1 of 2020.
  • Read and complete the application that can be found on the SBA website. While your bank may have a slightly different application to complete, it will likely be similar to this one. This will help prepare you for the bank specific application.
  • Perform a preliminary calculation of the maximum loan amount.
  • Aggregate payroll costs for employees for the last 12 months. (We recommend being prepared with documents from January 2019 to March 2020).
    • Payroll is generally defined as follows:
      • Compensation to employees – salary/wages/commissions/tips. (Note that 1099 contractors should not be included in the compensation calculation, as 1099 independent contractors can apply for a PPP loan on their own, per the updated SBA guidance issued 4/2).
      • Payment for vacation, sick, family medical leave
      • Payment for group health care coverage
      • Retirement plan payments
      • State and local taxes assessed on employee compensation
    • Subtract any single employee’s compensation greater than $100,000.
    • Divide by 12 to determine the average monthly payroll.
    • Multiply by 2.5 for the maximum loan amount.

Your Berntson Porter representative is here to help. The guidance under these programs is changing rapidly, and the information in this BP Blast is current as of 11:30am PST on 4/2/2020. At BP, we have a team working constantly, and utilizing our relationships with bankers to understand how the different banks are administering the program. Currently, some banks are accepting applications today, others expect to start accepting on Monday or early next week.

Stay tuned to BP for further guidance on the PPP loans. We also anticipate future BP Blasts on other provisions requiring attention within the CARES act. Right now, we believe that the PPP loans are the most urgent item.