The potentially crippling effects of the COVID-19 pandemic have been far-reaching. It would be difficult to name a region of our planet that hasn’t been impacted (other than Antarctica perhaps?). This will act as a beginner’s guide (with a garnish of technical guidance) to assist business owners in the United States whose operations have been inhibited or otherwise impacted by COVID-19.
Congress and the Small Business Administration (SBA) have responded with two relief programs which I feel businesses should know about--the Paychecks Protection Program (henceforth referred to as the PPP) and the Economic Injury Disaster Loan program (henceforth referred to as the EIDL).
For all intents and purposes, this article will act as a preliminary guide for business owners in regards to navigating the PPP and EIDL responses to the COVID-19 pandemic. Stay calm, stay informed, and stay diligent--Let's get into it!
Paycheck Protection Program (PPP)
This was a response to the ubiquitous cash-flow issues resulting from the COVID-19 epidemic and responses resulting therefrom (i.e. halting most of the economy and requiring non-essential businesses to close indefinitely). There have been an undeniable number of COVID related lay-offs—what this program aims to do is provide loans to small-businesses allowing them to continue paying their workforce, and more importantly, reacquire their recently dispatched employees. Small businesses and other entities will be able to apply if they were harmed by COVID-19 between February 15th, 2020 and June 30th, 2020. This program will be retroactive to February 15, 2020 in order to help bring workers who have already been laid off back onto payroll. Loans are available through June 30th, 2020.
What types of businesses and entities are eligible? - To qualify you must have been in operation as of February 15th, 2020.
- Individuals: Sole proprietorships, independent contractors, and certain self-employed individuals are eligible.
- Nonprofits – 501(c)(3) nonprofits, 501(c)(19 veterans organization, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees
- Small businesses with 500 or less employees per physical location of business concern
What types of nonprofits are eligible?
- In general, 501(c)(3) and 501(c)(19 non-profits with 500 employees or fewer as most nonprofit SBA size standards are based on revenue, not number of employees.
How is the loan size determined?
- Depending on your business, the loan is calculated as the lower of the following:
1) $10 million
OR
2) 250% of your average monthly payroll costs (calculation is dependent on when your business was placed into operation):
a. If you were in business February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date.
b. If you were not in business between February 15, 2019 – June 30, 2019: Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
c. If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.
What costs are eligible for payroll?
- Compensation (salary, wage, commission, tips)
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment required for health insurance and provision of group health care benefits
- Payment of any retirement benefits
- Payment of State or local tax assessed on compensation of employees
What costs are not eligible for payroll?
- Employee/owner compensation over $100,000
- Taxes imposed or withheld for employees whose principal place of residence is outside the US
- Qualified sick and family leave for which a credit is allowed (section 7001 and 7003 of the Families First Coronavirus Response Act)
What expenses qualify for loan forgiveness?
- Business related rent, mortgage obligation interest, utilities expense, and payroll costs that were in effect before February 15th, 2020 (i.e. if you entered into a rental agreement on February 16th it would be disqualified, even if it was for your business
o Keep in mind that loan forgiveness may be considered canceled debt
What are allowable uses of loan proceeds?
- Payroll Costs
- Costs related to health insurance, paid sick leave, family leave, and group health care benefits
- Interest on mortgage obligation incurred in the ordinary course of business (i.e. real or personal business property)
- Rent (under a lease agreement for your business)
- Utilities
- Interest on any other debt obligation incurred in the ordinary course of business before the covered period
What type of loan is it and how do I apply?
- The PPP is a 7(a) loans –See which type is best for your business here: https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans
- Lenders begin processing loan applications as soon as April 3rd, 2020--to learn more: https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp#section-header-4
Economic Injury Disaster Loans (EIDL)
These grants provide emergency advances up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an EIDL. You must first apply for an EIDL, then request the advance—The advance does not need to be repaid under any circumstance, so long as it is used to keep employees on payroll, pay for sick leave, meet production costs due to supply chain interruptions, pay business obligations/debts, or pay for rent.
Who is eligible for an EIDL?
- Sole proprietorships (with or without employees)
- Independent contractors
- Cooperatives (with 500 or fewer employees)
- Business (with 500 or fewer employees)
- ESOP (Employee stock ownership plan)
- Tribal small businesses (See section 31(b)(2)(C) of the Small Business Act)
If I get an EIDL, can I get a PPP loan?
- Yes. These are not mutually exclusive. However, you can not use your EIDL for the same operational purpose as your PPP loan.
- Illustration: If you use your EIDL to cover payroll for certain workers in May, you cannot use your PPP for payroll of those same workers in May; You may however use the PPP for those same workers in June, or for different workers in May.
How do I apply for an EIDL?
- Visit https://disasterloan.sba.gov/ela/ to Apply if your business was effected by COVID specifically. -Other useful link detailing application process: https://www.sba.gov/disaster/apply-for-disaster-loan/index.html - Another good resource –For your local SBA District Office see the following: https://www.sba.gov/localassistance/find/?type=SBA%20District%20Office&pageNumber=1
We are assisting the needs of our clients in these unsettling times and steering them forward without relent. Our small-business experts at Darian Accounting are of the core belief that genuine growth is synergistic--Thus, as accounting, business & tax professionals, we can not grow without the growth of our clients and our local community. We feel it is our responsibility to step up and assist local businesses with alleviating cash flow deficiencies and going concern problems during this time of crisis. Make sure your business's livelihood is in qualified hands. Speak with one of our small-business & accounting experts for further assistance in navigating your business's future. You may email inquires to info@darianaccounting.com.
Find someone who cares more about your business's success than Darian Accounting, and we will do your taxes for free!
Thanks for tuning in!
Sources: 1) Congress – CARES ACT: https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-HCC079DAB5D724A3B9AE86D4E64A83BBE
2) Small Business Administration – SBA.gov - PPP: https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp
3) NJ Emergency Disaster Assistance - https://www.sba.gov/local-assistance/find/?type=SBA%20District%20Office&pageNumber=1
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