Sometimes someone writes such great content, that no change is necessary. Such was the case from the communication I received last night from Unbehagen Advisors. Please note, the information below was prepared last night (04/2/2020). It is very informative, so please, read on!
So, right now, those that own small businesses, and those that are self-employed, have these questions: What loan do I apply for, and what stimulus is best for me. Should I collect unemployment? What options do I choose, and how do they work together, or not work together?
If you take some time to read this FULL article, and review ALL of these the links, I am confident that you will have a much clearer understanding of what to do!
This is just ahead of the PPP loan applications being available from your small business bank (likely tomorrow, Friday 4/3/2020 for most). As stated prior, everyone has a HUGE set of questions. Yet, the answers seem to change every hour in the past few days, even from the most reputable sources.
First, a brief understanding of what is going on, and why it is so frustrating not being able to have all of OUR questions answered right now:
Well, the CARES Act gave guidance (a sort of vision) of what the creators wanted. It was signed on Friday. Then, like with all bills, it is then left up to the government bureaucrats and other affiliated organizations to interpret the bill, and administrate this information to the people. In the case of the following information, it is the SBA, the IRS, the various individual state unemployment offices, and the banks.
This bill was signed just last Friday. Usually, this interpretation and implementation can take a couple of months, sometimes more. In this case, they have only about a week or two, because the 'vision' of the CARES Act is to get as much of the stimulus funds discussed in the CARES Act into the hands of Americans -- as quickly as possible. This has led to a storm of speculation and unknowns -- in a time when American individuals and small business owners need funds the most! There has been a lot of reliable information out there, and not so reliable information. It has been an unprecedented week of analyzing and understanding.
For example, when a bill is signed, we usually go to a full week tax seminar to understand the tax implications of it for our clients. This is after the IRS has had months to interpret it themselves. Even then, there are still questions and holes -- still a lot of "what ifs." -- then tax season hits. In THIS case, nobody has that much time.
So, here is what we know now, hopefully, this information finds you well. Just know that this information is current as of today (4/2/2020), and since we have only had days since the CARES Act was signed, I am CERTAIN that much more clarity will come of these topics in the coming week or two.
Hold on tight, and be ready to apply for any stimulus (loans and/or unemployment) that may be available, and may fit you the best -- if you have not already started to.
SBA Loans - A comparison to start with, and other updates as of 4/2/2020:
I know this is a lot to read, but (again) please read it entirely if you are a business owner interested in the SBA loans and grants.
I sent out a previous correspondence on loans, but here is the latest. I have also just learned as of 30 minutes ago, that some banks won't be ready for the PPP loan on Friday (tomorrow) as they are still "interpreting the SBA's guidance," (Chase Bank is one for example).
The EIDL is already available online: https://covid19relief.sba.gov/#/
There are 2 loan programs available. One is an SBA Economic Injury Disaster Loan (EIDL) and the other is the Payroll Protection Program (PPP).
As a nice summary, a bank put together a great side-by-side comparison chart of these two loans. In addition to reading the information below and reviewing the below links, also analyze the chart, and print it to see which program (or both) you may qualify for by clicking the link below:
The Economic Injury Disaster Loan (EIDL)
This takes a bit longer to apply for and the SBA determines how much you qualify for (prior to 48 hours ago, that is - more below on that). It's designed to help you overcome injury due to COVID 19. (Example: If your revenue has stopped and you need funds to pay expenses to get opened back up soon, you've been "injured!"). As of a couple of days ago, they streamlined this application, and it does not take as long now to apply for it (initially that is, because they will likely come back to you for more information afterwards). This new streamlined loan process was put in place so those that apply can get their hands on the first $10,000 'Free GRANT Money' as soon as possible (see more about that below). There's a very long term for repayment and no payments for a year.
There is also a $10,000 GRANT that will be offered (per request) within 3 days of application acceptance that is not required to be paid even if your loan is denied.
With the EIDL here's no truing up of payroll, etc. (like there is with the PPP, below). It can be used for operating the business and paying many types of expenses (see instructions on EIDL site for information of expenses that this can be used for - it is very non-restrictive). This quick GRANT feature is out there to help you pay expenses quickly if your revenue has suddenly stopped or slowed -- before the rest of the loan is approved and completed.
Some clients want a loan above the $10,000 EIDL GRANT, and not just 'Free GRANT Money', so they are interested in getting a loan with this over the $10,000 initial GRANT. This could be a nice small business loan to have as the rate is 3.75% for up to 30 years. This is usually the main intent of a a SBA 'emergency loan' -- a loan to get your business back up and running in times of an emergency. However, this restructured EIDL SBA emergency loan is different than others in the past. Mostly, because the SBA does not normally have this GRANT option, during emergencies, until now.
The Payroll Protection Program (PPP)
So, here is one the first helpful link for information from an article recently published on the PPP loan. I recommend reading ALL of my links on this -- there are five (5) PPP loan links to read in this section. This article, my below information and other links, seem to answer almost ALL of the most asked (and difficult) questions from our clients (as of now, until something else changes). I recommend printing the below links and taking notes on them.
CLICK LINK BELOW TO READ MORE PPP INFORMATION - "A Simple Guide" from "Bench":
PPP Guide - Source Bench 4/2/2020
My thoughts on the PPP loan:
This PPP loan is the loan which MAY UNDER SPECIFIC CIRCUMSTANCES be forgiven (turned into a GRANT) if used AT LEAST 75% FOR PAYROLL before June 30. If not forgiven, the loan is turned into a term of up to 10 years at up to 4% interest.
This was new information that we didn't have until the past 48 hours. The forgiveness is also reduced by pay reductions in excess of 25%. This calculation means that THIS IS NOT 'FREE GRANT MONEY' just because you pay any amount of payroll. It's designed to bring back your workforce at least 75% between now and June 30 in order to be forgiven. This will be calculated based on future employee numbers and payroll amounts DURING THE PERIOD EXPLAINED PRIOR TO JUNE 30. Basically, only get this if you are going to continue to pay employees at a rate similar to the past, or it will turn into a two year loan, payable back to the SBA.
There is another PPP nice overview here: PPP Payroll Protection Overview Please read it entirely - you will start seeing similar information from the prior link (above), with further, additional, guidance as well.
if you are curious about this program. Many things that were speculated in the bill are a bit different now that it is in writing and further interpretation in front of us. If, after reading these high level documents, you feel that you want to learn more specifics, please read the Borrower's Information Sheet from SBA. This gets into even more details, but is only 4 pages long.
If you are to apply for this forgivable loan, you need to fully understand what you'll need to do in order for it to be forgiven. Also note that forgiveness is not available for Sick Leave or FMLA wages. You get payroll tax credits for that payroll, so you can NOT double dip. This means you need to anticipate your employees WORKING between now and June 30 in order for the loan to be forgiven.
If you're still interested in PPP, before you jump in, take a moment and review the PPP Loan Application. The 2nd page of this application requires you to certify a few things including the first statement. Your bank will likely have one similar or the same when you apply.
Per the instructions on the SBA draft application:
"Current economic uncertainty makes this loan request NECESSARY TO SUPPORT THE ONGOING OPERATIONS OF THE APPLICANT."
You must attest to this, it is considered fraud if you are not stating this as fact. Seek legal advice if you do not understand what this means.
If you can continue to operate despite this speed bump and these funds are "nice to have" but not "necessary" you may need to reconsider your desire to apply. These certifications are pretty strong to prevent criminal fraud charges.
WHO TO CONTACT TO APPLY: If after reading all of this, you are ready to move ahead with a PPP loan, CONTACT YOUR LOCAL BUSINESS BANK if your banker hasn't already contacted you. If they do not seem educated on this program or interested in serving you, CONTACT ANOTHER BANK . The banks are getting paid up to 5% by the SBA (not directly from your loan) to administrate these PPP loans. No doubt, they will be very overwhelmed in the coming weeks.
THEREFORE, WHEN IT COMES TIME TO APPLY FOR THE PPP LOAN, AND YOU ARE FILLING IT OUT AND SIGNING IT -- IT WILL BE UP TO YOUR BANKER TO PROVIDE YOU WITH GUIDANCE ON ANY INFORMATION THAT YOU NEED. THIS IS ABOVE EVERYTHING THAT YOU READ IN THIS ARTICLE, THESE LINKS, OR READ AND HEAR ANYWHERE ELSE. -- IT IS THEIR APPLICATION AND THEY ARE THE ONES MAKING THE DETERMINATION ON YOUR PPP LOAN ACCEPTANCE. YOU ARE THE RESPONSIBLE PARTY WHEN YOU SIGN THE APPLICATION, THAT YOU UNDERSTAND ALL OF IT, AND ANY CONSEQUENCES THAT MAY COME FROM STATING INFORMATION INCORRECTLY ON THE APPLICATION WILL FALL UPON YOU, SO MAKE SURE THEY ARE GUIDING YOU APPROPRIATELY.
Also, independent contractors can apply for this PPP loan. Full guidance is not out on that yet, the SBA proposed it could be available to independent contractors as early as April 10th. The PPP amount will likely be based on 'net earnings' (profit) from their self employment. The interpretation of net income and how that will remain the same during the forgiveness (GRANT) period will be interesting as details arise about that in the future.
Note: These guidelines are based on the official 880-page bill. The SBA has been given 30 days to issue official guidance regarding loan forgiveness. We’ll share updates as soon as we learn of them.
UNEMPLOYMENT (Called Reemployment in Florida)
Update: This below article just came out -- the State of Florida Unemployment apologizes that their website is not working to apply, and it cites reasons why:
WHAT ABOUT UNEMPLOYMENT FOR THE SELF EMPLOYED AND UNDER-EMPLOYED? The CARES Act (as stated in my previous correspondence) is supposed to 'open up' unemployment to self employed folks and those with fewer hours . The application should be online (the above article states that it not available online as of now in Florida). The FL unemployment instructions does not reflect this ability as of now, and it did not yet reflect this yet in my previous correspondence. So, there has been a lot of confusion about self employed applicants, as the information is not yet on the FL unemployment site yet - nor details provided anywhere else other than the CARES Act. I have talked to other accountants in a few other states, and so far their states don't have guidance on their web sites yet either..
Can I take the PPP Loan AND take unemployment?
No, we have heard from reputable sources (as of today) that you can't have the PPP loan AND collect unemployment. That makes sense since you will not be able to collect unemployment, since you are still making income and 'working' as much as you were before - under the forgiveness of debt rules (GRANT rules) set forth by the PPP. However, with the extra $600 per week that is advised to be provided by unemployment to you, it may be a better fit to collect unemployment anyway, if you qualify. -- THIS IS TRUE FOR MANY PEOPLE, INDEPENDENT CONTRACTORS AND SELF EMPLOYED THAT ARE NOT WORKING OR RECEIVING INCOME..-- Especially, if you determine that the PPP is not right for your business, as described above.
Can I apply for paycheck protection (PPP) and an SBA disaster loan (EIDL)?
Yes, you can. However, you can’t apply for an SBA disaster loan for the same purpose as the Paycheck Protection Program. We have heard from reputable sources (as of today, subject to change) that if you apply for BOTH the (EIDL) and the PPP (below), the funds you receive for the EIDL should not be used for the items that the PPP is supposed to be specifically used for (like payroll, rent, utilities, etc.) -- in order for you to be able to have a chance that you can keep both sets of GRANT funds. So, if receiving GRANT funds in both, the funds of the EIDL should be used for other items not included from the PPP loan. This should be easy to do if your business is suffering. There are plenty of expenses to take care of.