small-business-loan-guidance

Since the CARES Act was passed back in March, there have been many questions regarding the SBA loans, the terms that apply, and the businesses that qualify. In these unprecedented times, there has been a lot of new information announced, and our accounting firm wants to share some important advice for small businesses. There have been several funding programs developed in response to COVID-19, including Paycheck Protection Program (PPP), EIDL Loan Advance, SBA Express Bridge Loans, and SBA Debt Relief.

Paycheck Protection Program Flexibility Act

As of June 3, 2020, the Paycheck Protection Program Flexibility Act was approved, which relaxes the overall stipulations on the forgiveness portion of the PPP. Importantly, borrowers now have an extended period of time to qualify for forgiveness to December 31, 2020. This will ensure that more borrowers will have more of their loans forgiven. Furthermore, within the PPP Flexibility Act, exemption is granted if there is an inability to rehire employees or if the business is unable to return to the same level of activity due to government restrictions. The original Paycheck Protection Program required that at least 75% of the PPP loan must be used towards payroll costs, however this has been reduced to 60%. To make it easier for businesses, there has been a date extension for when payments must start for the unforgiven portion of the loan. Lastly, the deferral of employer taxes may continue regardless if all or part of the PPP loan is forgiven.

Paycheck Protection Program

The ability to apply for a PPP loan was set to expire June 30, however the President signed a new bill to extend the time to August 8, 2020. So the U.S. Small Business Association (SBA) resumed accepting Paycheck Protection Program applications. However, this bill passed does not allow businesses that currently have a PPP loan to apply for another one. The PPP is designed to incentivize small businesses to keep their employees in a job, or to rehire employees they initially had to let go.

PPP Loan Procedures & Forgiveness Information for Lenders

The SBA will start accepting PPP loan forgiveness applications from lenders on August 10, providing there are no new legislative amendments before that time. SBA has partnered with Goldschmitt-CRI, to provide it’s lenders with a new SaaS platform, known as the PPP Forgiveness Platform. This is only available to lenders and allows them to upload loan forgiveness applications on behalf of the borrowers and other documents. All communications will be through this platform, including loan review requests from the SBA and decisions made by the SBA regarding the amount in the forgiveness decision.

Paycheck Protection Program FAQs

The SBA and the Department of Treasury put together a Q&A document, that aims to answer frequently asked questions about the Paycheck Protection Program by small businesses. One of the most common questions identified was:

Question: Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined to offer? 

Answer: No. The SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer to rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

As there as been growing concern about certifying the need for the Payroll Protection Program loan funds, the Treasury released an additional FAQ (number 46) to address this concern. If you are uncertain about whether to get a PPP loan, this Q&A gives more information about the application and the compliance that must be met.

Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, 20 received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith…

…Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.

For more information regarding this question, click here.

SBA and the Department of Treasury

Tips From Our CPAs About SBA Loans

As we’ve seen since this process started, the rules have been less than static. We are hoping for additional guidance in the coming days and weeks, and will continue to provide relevant updates.

  • We highly recommend that you place SBA funds in a separate bank account. The reason for this is to efficiently reconcile funds used to pay wages, rent, utilities, and interest on pre-existing debt. The idea is to reimburse your general account for these items, some of which may be set up to auto-draft from your general account. Documents should be kept separate to support the reimbursement as the compliance aspect of the loan will be as important, if not more than the application process.
  • Just a reminder that, for 100% loan forgiveness, at least 60% of the loan funds need to be paid out in wages.
  • The payroll costs include:
    • Salary, wages, commissions, or tips – this is capped at $100,000, based on annual earnings for each employee.
    • Employee benefits, such as medical, sick leave, healthcare benefits, retirement payments, and taxes.
    • If you are a sole proprietorship or independent contractor, wages or net earnings are capped at $100,000, based on annual earnings for the individual employee.
  • The rest of the loan can be used for other expenses which occurred before February 15, 2020, including interest on mortgage obligations, rent, and utilities.

Still Unsure if You Need a SBA Loan? Speak to a CPA today!

It is crucial to have all the necessary information when considering applying for a SBA loan, whether it is for the Paycheck Protection Program or the Debt Relief loan. We can help you make the best decision for your business, and make sure all the necessary steps are taken to ensure loan forgiveness. Speak to a CPA today at  (919) 872-0866, or fill out the contact form below.

Contact Form

We would love to hear from you! Please fill out this form and we will get back to you shortly.