Paycheck Protection Program (PPP) Loan Applications Begin

Apr 1, 2020

Paycheck Protection Program (PPP) Loan Applications Begin

Paycheck Protection Program (PPP) Loan Applications Begin

and EIDL Loans Made Simple

Paycheck Protection Program Plan:

Wednesday afternoon, the Treasury Department (Treasury) issued four forms, including a sample loan application (your bank may use this one or its own version) and a “Borrower Information Fact Sheet” – links to both of these can be found on this webpage. The sample application and guidance does not perfectly match the CARES Act, so additional revisions before the banks are ready to lend wouldn’t surprise us.

Key Takeaways:

  • Starting April 3, all entity types (corporations, partnerships and Schedule C sole proprietors) can apply for PPP through their bank
  • Starting April 10, independent contractors and the self-employed can apply for PPP
  • APPLY EARLY. Since PPP program is capped at $349 billion, Treasury is advising applicants to apply early for the loan. Loans aren’t likely to be funded for at least another week or two. The 8 weeks forgiveness starts once each loan has been funded.
  • To receive forgiveness, the loan proceeds must be spent on payment costs, rent, utilities and interest on pre-existing loans.
  • To the extent the loan is not forgiven (because not all was used for payroll costs in the 8 weeks following the loan issuance), the loan will have to be repaid in 2 years (not 10) with interest at 0.5% (not 4%), 6 months no payment.
  • You should apply through your bank. The application that Treasury put out is quite short. The actual application your bank supplies will likely be based on this, but it may not be identical. We understand that the banks are still looking for more guidance. It is unclear if the banks will actually ready to process applications on Friday.

Economic Injury Disaster Loan (EIDL):

Key Takeaways:

  • We encourage you to apply. The application process has been streamlined and is much simpler. It has favorable terms (30 years, 3.75% interest, no repayment for 12 months, no prepayment penalties, no personal guarantees for loans under $200,000)
  • Apply through SBA website. Links to SBA website can be found on this webpage
  • If you plan to apply for EIDL AND PPP, you have to apply for EIDL first. You may be able to refinance EIDL loan into PPP. It is still unclear how this refinancing will work.
  • Check the box on application to request emergency grant of up to $10,000 which SBA says it will provide within 3 business days of application.

Additional Information for Paycheck Protection Program Loan:

When Should You Apply?

This will be a judgment call on your part. Treasury (and everyone else) knows that the interest in this is intense. Treasury has advised everyone to apply early. The $349B allocated to these loans will likely run out well before June 30, 2020, the last day they can be issued. If so, we’d hope that Congress allocates more to the program, but there are no guarantees.

We don’t love the idea of taking the loan too early (well before practices reopen and staff rehired), because that will waste some of the loan forgiveness. But, we’d much prefer that than waiting too long, trying to time things perfectly, and then getting shut out. This will be a judgment call based on your tolerance for risk, but we think the best course is to apply sooner than later. In any event, it will likely take a couple of weeks for these loans to process, weeks that you won’t lose in loan forgiveness.

In addition to the application, you will need to provide the bank with payroll documentation. This is supposed to cover the last year. But, what does the last year mean?

Even though the CARES Act mentioned the 12-month period preceding the loan application (i.e., April 2019 – March 2020), when push came to shove, it became obvious that calendar year 2019 made more sense and the application permits that. That will certainly be easier information to compile – and unless your payroll got larger in 2020 (unlikely) - it will also give you the better result.

What counts as payroll costs?

Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee)
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal
  • Payments required for the provisions of group health care benefits including insurance premiums
  • Payment of any retirement benefit
  • State and local taxes assessed on compensation;

For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Start compiling this evidence including quarterly Form 941’s and annual Form 945, a summary of your group health insurance premiums and the annual report for your retirement plan(s) summarizing 2019 plan contributions.

It looks like there is going to be little or no coordination between EIDL and PPP loans. Historically, a borrower could not have two SBA loans outstanding at the same time. This restriction seems to have been ignored during the pandemic. We expect additional guidance on this issue.

The EIDL application was streamlined and made much simpler a couple of days ago. Go to: SBA.GOV The application takes all of 5 to 10 minutes, and you can request a quick $10,000 which should be payable within 3 days. We’ll see if that actually happens.

We think everyone should apply for this. Even if you don’t think you’ll need the money, nobody knows how long this pandemic will last, and the repayment terms are very favorable – 30 years, low interest, no repayment during the first year, and no prepayment penalties, but interest starts accruing when the loan is disbursed.

Collier & Associates, Inc. will update our blog as the CARES Act progresses. We take pride in continuing to keep our subscribers and website visitors updated on current events during this extraordinary time.

We will work diligently to answer general inquiries via our website if time permits and in a little more detail within our Newsletters. However, if your questions are detailed in nature, please request to set up a conference call for a formal legal consultation. Thank you.

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Collier & Associates, Inc. provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act on this information without seeking advice from professional advisors.

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