Updated Info on PPP Forgiveness, EIDL & Main Street Lending Loan Programs
April 28, 2020 | BY Joseph Hoffman
On Friday, April 24th, President Trump signed a new bill providing a much-needed, additional $370 billion into the PPP and EIDL lending programs. Of the $370 billion, $60 billion is to replenish the Economic Injury Disaster Loan program, and $250 billion for the Paycheck Protection Program loans, with $60 billion set aside for community banks and community development financial institutions (CDFIs). While the initial round of funding under the CARES Act of $349 billion lasted for about a week before it dried up, this round is projected to last for just four to six days. Here’s what you need to know for a chance to receive these benefits:
PAYCHECK PROTECTION PROGRAM LOAN FORGIVENESS
We covered the Paycheck Protection Loan Program in detail in this article . Below is important additional information.
Hopefully, you have either made it through the mad-dash for the funds and had your loan approved or will get funded in this next round. With that in mind, here are our recommendations, based on currently known information, that gives you best the chance for maximum PPP loan forgiveness.
KEEP CLEAR RECORDS
We recommend using a separate bank account for the PPP funds to create an easy accounting trail. Maintain documents verifying the number of full-time equivalent employees on payroll as well as their salaries/wages for the period during which the loan was used to pay them. This could include payroll reports from a payroll provider, payroll tax filings, income/payroll/unemployment insurance filings from your state and paperwork that verifies retirement and health insurance contributions. In addition, have documents available that show payments of mortgage interest, rent and utilities.
MAKE NOTE OF THE TIMELINE
Funds must be spent within 8 weeks of receiving them. At the end of this 8-week period, you can apply for forgiveness through your bank.
ALLOCATE THE FUNDS CORRECTLY
At least 75% of the funds need to be used for payroll costs, with the maximum annual salary of $100k per employee. Forgiveness appears to be calculated on a cash-basis, which means accrued payroll due after the 8-week period will not qualify. This does not include the employer’s share of social security taxes. The IRS has agreed to defer the 6.2% employer share owed as of March 27, 2020, though the date on which the lender issues a decision on loan forgiveness.
The remaining 25% of the funds can be used for rent, mortgage interest (but not prepayments or payments towards the principal), utilities, continuation of healthcare benefits for those on leave, and interest payments on any debt obligation incurred before February 15th, 2020.
LOAN FORGIVENESS REDUCTION
To maintain 100% forgiveness, you will need to either keep your payroll as it was before February 15th, 2020 or during the same period in 2019, or hire back all laid-off employees, and undo wage reductions by the end of the PPP “covered period” on June 30th. The total amount forgiven will be reduced in proportion to the reduction in head-count, or wages decreased by more than 25%.
ECONOMIC INJURY DISASTER LOAN PROGRAM
The SBA will directly provide loans up to $2 million to small businesses and non-profits that have been severely impacted by COVID-19. An additional $60B has been made available in this last round. This is a good option for businesses with high non-payroll expenses. Here is how it works:
- Interest rates are 2.75% for nonprofits and 3.75% for businesses, with a maximum term of 30 years.
- Loans over $200,000 must be guaranteed by an owner with at least 20% interest in the company. We expect this requirement to be waived for schools.
- Eligible businesses can request an advanced grant up to $10,000, calculated at $1,000 per employee. This grant does not need to be paid back, even if your organization is denied the EIDL loan. Note that if you get an EIDL advance, and later apply for a PPP loan, the EIDL will be subtracted from the amount that gets forgiven.
- You can apply for this loan directly from SBA.gov
Note: At this moment the SBA is not accepting new applications and are only processing applications that were already submitted.
MAIN STREET LENDING PROGRAM
The Main Street Lending Program, an additional program created by the Federal Reserve, is a great alternative to the SBA programs which are running low in funds. This $600B program is designed to help banks give money more freely to businesses in need of a loan by purchasing a large portion of the loan from the bank, freeing the banks of most of the risk. The Federal Reserve will buy up to 95% of the loan from the bank, leaving just 5% with the bank that originated the loan. Here is how it works:
- The program is available to all businesses with fewer than 10,000 employees or with revenues of less than $2.5 billion.
- The term of these loans is four years, and loan amounts generally range between $1 million and $25 million. The loan amount is calculated as 4x earnings before interest, taxes, depreciation and amortization (EBITDA) less any debt. The minimum loan amount in $1 million.
- Interest rates on these loans will be anywhere from 2.5% to 4%, with a repayment term of four years.
- These loans cannot be used to pay off any other existing debt.
- Once you have a loan, there are several requirements you must meet. First, all efforts must be made to maintain payroll and retain workers through the pandemic and economic crisis. Second, you must meet all compensation, stock repurchase and dividend restrictions that apply to direct loans under the CARES Act. Finally, there are several salary restrictions for employees or officers making more than $425,000.
- This loan is available through your bank or local lender, and you are still eligible if you have made use of other SBA loans, such as the PPP.
We will continue to keep you informed as information becomes available. Please don’t hesitate to contact us with questions or concerns.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.