Nov 03, 2020
The Small Business Administration (SBA) has issued new loan necessity questionnaires which all businesses with PPP loans greater than $2 million will be required to complete. These questionnaires are intended to help the SBA determine whether the Borrower’s certification of economic uncertainty made the loan request necessary to support ongoing operations was appropriate. SBA has developed two distinct versions of the loan necessity questionnaire: one for for-profit borrowers, and one for non-profit borrowers.
- Form 3509 Loan Necessity Questionnaire (For-Profit Borrowers)
- Form 3510 Loan Necessity Questionnaire (Non-Profit Borrower)
To refresh, during the initial PPP Loan application, borrowers had to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” However, at no point did the SBA provide any material guidance as to what this certification meant, leaving many borrowers anxious. The limited guidance during the loan application phase only stated borrowers must take into account their current business activity and their ability to access other sources of liquidity.
Please note, at this time these forms are not available on the SBA or Treasury website. It is anticipated these questionnaires will come directly from the lender and/or servicer. Lenders who have submitted loan forgiveness on behalf of impacted borrowers will receive a request from the SBA for completion of the form. While the instructions indicate the receipt of the questionnaire does not necessarily mean the SBA is challenging the good-faith certification, impacted borrowers are required to submit the completed forms within 10 business days of receipt from the lender.
Given the short turn-around time, we recommend that all borrowers with aggregated PPP loans of $2 million or more familiarize themselves with these forms now, and begin to gather related documentation
We encourage impacted PPP borrowers to reach out to their WVC advisor for assistance with the completion of the form, as detailed financial information is required.
Jun 18, 2020
Interim SBA Ruling
On Tuesday, June 16 the SBA filed its 19th Interim Final Rule (IFR) focused on revisions made from Paycheck Protection Program Flexibility Act (Flexibility Act) signed into law on June 5th.
Notable provisions in the unpublished document include:
- The newest guidance shows how to calculate owner compensation. For Borrowers using a 24-week Covered Period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For Borrowers using an 8-week Covered Period, this amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower. While the guidance is somewhat unclear, this cap appears to apply to owners of all entity types, and at any level of ownership.
- The payroll requirement was reduced from 75% to 60%.
- Lastly, the loan forgiveness amounts for non-payroll expenses have also been extended to 24 weeks, making it much easier to meet loan forgiveness thresholds.
EZ Version Loan Application
In addition, the SBA also released two new applications: a revised full-loan application and the new EZ Forgiveness Application. The agency says the EZ version “requires fewer calculations and less documentation” and reduces the burden for smaller recipients, like self-employed individuals and sole proprietors. This new EZ application applies to borrowers that:
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%”.
Economic Injury Disaster Loan (EIDL) Re-opened
The SBA recently re-opened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program portal to all eligible applicants experiencing economic impacts due to COVID-19. Businesses with 500 or fewer employees are generally eligible. The loan process is streamlined and is completed online directly through the SBA. Loan amounts are determined by the SBA and can be up to $2 million with repayment terms up to 30 years and an interest rate of 3.75% (2.75% for non-profits). Additionally, you can request an advance on the loan, which will be awarded as $1,000 per employee, up to a total of $10,000.
As always, should you have questions or concerns about your specific situation, please contact your William Vaughan Company advisor. Additional resources can be found on our WVC COVID-19 Resource Center. Finally, stay tuned for an updated version of our WVC PPP Loan Forgiveness calculator which will reflect this updated guidance.
The Treasury Department and Small business Administration’s (SBA) Latest Guidance, Loan Forgiveness Application and the WVC Forgiveness Calculator
May 26, 2020
On May 15, the SBA released its Loan Forgiveness Application for the Paycheck Protection Program. The application outlines the computation for debt forgiveness. While there are still many questions that need to be addressed, the guidance helped clarify some larger items:
- The first day of the Covered Period for your PPP loan must be the same as the PPP Loan Disbursement Date and extends over the 56-day Covered Period. Borrowers with biweekly or more frequent payroll periods may elect to use the Alternative Payroll Covered Period that begins on the first day of their first pay period following the date when you receive the loan proceeds.
- Payroll costs that have either been paid or incurred in the 56-day Covered Period are both eligible for forgiveness. If a cost is incurred and paid in the Covered Period, it will only be counted one time toward the forgiveness calculation.
- Eligible Nonpayroll for forgiveness consist of:
- covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”);
- covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and
- covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”).
- Under the SBA’s guidance, the total amount of cash compensation eligible for forgiveness for each individual employee cannot exceed an annual salary of $100,000, as prorated for the Covered Period; that is, it cannot exceed $15,385.
All guidance on the Loan Forgiveness Application can be found here. While we are expecting more guidance from the SBA, we advise our clients to keep careful and detailed records and documentation throughout this process to maximize forgiveness.
William Vaughan Company is working diligently to update our Forgiveness Calculator to meet the latest SBA guidance. We will be sending you the latest version as soon as possible. Keep an eye out for our email. If you do not already receive our timely communications, please subscribe to WVC Insights here.
Categories: Other Resources
Apr 03, 2020
In light of the novel coronavirus (COVID-19) global pandemic, many small-to-medium-sized businesses are struggling to manage revenue losses amid prolonged economic uncertainty. To offset the pandemic’s financial impacts, Congress has passed several stimulus bills, including the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes provisions that can provide for increased cash flow as well as tax savings. Businesses should quickly consider how these provisions could help their companies during this uncertain time to ensure they are maximizing available benefits.
SBA Paycheck Protection Program
This $350 billion forgivable loan program, included in the CARES Act, significantly expands which organizations are eligible for Small Business Administration (SBA) loans. For organizations facing financial strain as a result of COVID-19, these loans can help offset a variety of costs.
What can the loan be used for?
The loan can cover costs including payroll, the continuation of health care benefits, employee compensation (excludes compensation in excess of $100,000 on an annual basis), mortgage interest obligations, rent or lease payments, utilities, and interest on debt incurred before the covered period.
Who is eligible for the program?
To qualify for the program, businesses must have either fewer than 500 employees (including full time, part-time and “other” employees), meet the SBA’s size standards, or have less than $15 million of tangible net worth and less than $5 million of average net income in the last 2 years. There are some special eligibility rules for businesses in the hospitality and dining industries.
How much can a business borrow?
The maximum amount for these loans is two times the average total monthly payroll costs, or up to $10 million. The interest rate may not exceed 4%. Businesses can also defer payment of the principal, interest, and fees for six months to one year.
Is there loan forgiveness?
Yes, provided your business meets certain conditions. Your business will be eligible to apply for loan forgiveness equal to the amount you spent during an eight-week period after the loan closing date on:
- Payroll costs
- Interest on mortgages
- Payments of rent
- Utility payments
Principal payments of mortgage payments will not be eligible for forgiveness.
How do you apply?
Applications and underwriting are handled by SBA-approved banks. While documentation requirements will vary between institutions, we would expect them to include the following:
- Current personal financial statement
- Latest available personal tax return
- Latest available business tax return
- Latest available internal 2019 YE financials
- YTD internal 2020 financials
- A spreadsheet detailing the following:
- List of all full-time employees with eight weeks salary + payroll taxes
- Cost of two months of rent with copies of leases
- Cost of two months of mortgage interest with a copy of loan payments
- Cost of two months of utility costs with a copy of utility payments
What is required to be eligible?
Borrowers will need to include a Good-Faith Certification that:
- The loan is needed to continue operations during the COVID-19 emergency.
- Funds will be used to retain workers and maintain payroll or make mortgage, lease and utility payments.
- The applicant does not have any other application pending under this program for the same purpose.
- From February 15, 2020, until December 31, 2020, the applicant has not received duplicative amounts under this program.
Are there any other considerations to be aware of?
- Given these very limited requirements for borrowers, we may see additional guidance from the SBA on how banks should be underwriting these loans.
- Additionally, the CARES Act does not appear to have overridden the SBA’s “affiliation” rules. Entities are considered “affiliates” when they are controlled by or under common control of another entity. This classification generally includes private equity owners. Business cannot exceed the size thresholds for either the primary industry of the business alone or the industry of the business and its affiliates, whichever is greater. For groups of affiliates that operate in different industries—a typical case for private equity portfolio companies—industry code is based on the primary income-producing entity. However, there is some ambiguity in the text of the CARES Act, so additional guidance may be forthcoming.
Employee Retention Credit
The CARES Act provides eligible employers with a refundable credit against payroll tax liability.
How much does the credit cover?
The credit is equal to 50% of the first $10,000 in wages per employee (including the value of health plan benefits).
Who is eligible for the credit?
Eligible employers must have carried on a trade or business during 2020 and satisfy one of two tests:
- Business operations are fully or partially suspended due to orders from a governmental entity limiting commerce, travel, or group meetings.
- A year-over-year (comparing calendar quarters) reduction in gross receipts of at least 50% – until gross receipts exceed 80% year-over-year.
For employers of more than 100 employees, only wages for employees who are not currently providing services for the employer due to COVID-19 causes are eligible for the credit. For employers of 100 or fewer employees, qualified wages include those for any, regardless of if the employee is providing services.
Employers receiving a loan under the SBA Paycheck Protection Program are not eligible for this credit.
Delay of Employer Payroll Taxes
The CARES Act postpones the due date for employers and self-employed individuals for payment of the employer share of taxes related to Social Security.
When are the deferred payments due?
The deferred amounts are payable over the next two years – half due December 31, 2021, and half due December 31, 2022.
Who is eligible for the deferral?
All businesses and self-employed individuals are eligible. However, employers who receive a loan under the SBA Paycheck Protection Program and whose indebtedness is forgiven are not eligible for the payroll tax deferral.
How We Can Help
Small to medium-sized businesses have many potential avenues—including the SBA loan program and payroll tax incentives—to help offset costs during this uncertain time. However, navigating the complex loan application process is a daunting task. The payroll tax provisions in the CARES Act interact with the SBA loan provisions, adding to the complexity.
In the immediate term, we can assist in analyzing which approach will be the most beneficial for your employees and your company. Those seeking SBA loans will need to move quickly to get their loans approved and funded. We can help you navigate the required paperwork and help organize the necessary information in an expedited manner—so you can boost your cashflow ASAP.
In addition to maximizing these available options, there are also beneficial income tax provisions to claim on income tax returns, including 2019 returns. We can assist companies in determining possible cash tax refunds through net operating loss (NOL) carrybacks and quick refunds of 2019 taxes already paid. Contact your William Vaughan Company advisor today!