CARES Act Forgivable SBA 7(a) loan

12.16.2020 UPDATE

6.1.2020 UPDATE

We are continuing to monitor the PPP Loan information. The SBA has released the loan forgiveness application. While changes may still be coming with this program and individual banks may have slight variations on the process, we wanted to share what we know at this moment and make you aware of a few notable items.

If an employer tries to rehire an employee and they decline the offer: the borrower must inform the applicable state unemployment insurance office of such employee’s rejected offer of re-employment within 30 days of the employee’s rejection of the offer. To complete this reporting in the state of Kentucky go to: http://apps.kcc.ky.gov/employer/WorkRefusal.aspx.

Nonpayroll costs are eligible for forgiveness if they were:

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Paid during the covered period; or
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Incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.

Bonuses and Hazard Pay. The Interim Final Rules make it clear that compensation paid to a furloughed employee, and also bonuses and “hazard pay” will be included as legitimate payroll costs, except to the extent that such amounts would push an employee’s total compensation above $15,385 ($100,000 times 8/52nds) during the measurement period.
OWNER LIMITATION: While it has been made clear that salary paid up to $15,385 for employees it was also made clear that owners will be limited to the lesser of 8/52 of 2019 salary or $15,385. This rule had not been talked about prior to the forgiveness application release.
ALTERNATIVE PAYROLL COVERED PERIOD: For administrative convenience of the borrower, a borrower with a bi-weekly (or more frequent) payroll cycle may elect to use an alternative payroll covered period that begins on the first day of the first payroll cycle in the covered period and continues for the following eight weeks. The benefit of using the alternative period would be if employees were furloughed/laid off when the Covered Period began (date PPP loan funds were deposited into the borrower’s bank account), so the first payroll paid during the Covered Period was not a full payroll.
The Interim Final Rules emphasize that there is no forgiveness provided for retirement or health insurance contributions made for self-employed individuals (independent contractors or sole proprietors) or General Partners, using the reasoning that “such expenses are paid out of their net self-employment income.”
Headcount Reduction Relief. An employee who is “fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction” will not be counted as no longer being in the business for the “fewer employees” reduction test. The Rules also add that “borrowers should not be penalized for changes in employee headcount that are the result of employee actions and requests.”
The Interim Final Rules define “full-time equivalent employee” to mean an employee who works 40 hours or more, on average, each week.
Reducing Hours vs. Reducing Rate of Pay. The Interim Final Rules confirm that a reduction in compensation that is attributable to a reduction in the number of employee’s hours will not be counted as a reduction in compensation for the 75% or more test so that borrowers will not be penalized twice for both a headcount and wage reduction. In other words, if an employee making $10 an hour and working 40 hours a week would normally earn $400 a week, and this employee is reduced to 20 hours a week, the fact that he/she will only make $200 a week does not cause this to be considered a more than a 25% reduction in his/her compensation. This would work the same way if he/she was reduced from $10 an hour and 40 hours a week to $7.50 an hour and 20 hours a week, because it would still not be a “more than 25% reduction in pay,” as relative to hours worked. The borrower would still have a reduction in loan forgiveness because the employee headcount would be reduced by at least 0.5, although this reduction could be compensated for by hiring another part-time employee.
SBA Review. The Interim Final Rule indicates that the SBA may review any PPP loan, and whether a borrower calculated the loan amount correctly and used loan proceeds for allowable uses in making its determination as to how much of the loan is to be forgiven, but the SBA is not required to do this and may rely upon the borrower and the lender to do this.

We are continuing to monitor possible changes to the PPP Loan. Thursday the House passed a bill that would change many provisions of the program. A few items that could change are:

Extension of the covered period from 8 weeks to 24
Allow until December 31, 2020 for full rehiring of employees to obtain full forgiveness
Ability to wave FTE requirements if business was slowed or closed or staffing was reduced ‘related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19'

The text of the House bill can be found at: https://www.congress.gov/bill/116th-congress/house-bill/7010/text

We will continue to monitor the progress of possible changes and we will communicate further changes as needed.

4.21.2020 UPDATE

Please find below a calculator to help in determining the possible forgiveness amount of the Paycheck Protection Program. Please note this a simplified version of a calculation we are working on to better answer detailed questions you may have about determining the forgivable amount of this program. If you have questions please contact our office or email covid19team@wswco.com.

Paycheck Protection Program Calculator

Below is an article from Forbes which outlines many of the unanswered questions that we have been internally debating associated with the paycheck protection program.

Forbes Article

4.3.2020 UPDATE

Please be aware that the SBA has released a version 4 of the Paycheck Protection Program loan application. Click on the link for an instructional sheet that will walk everyone through the 5 things that are different about the new form compared to version 3.

90% of the banks that we have spoken to are requiring an online application and not a paper application. In light of this information, we prepared the above-mentioned instructional sheet to help clients enter the new information in addition to the application that we have already prepared for you. We hope this will be a guide for you to enter the information yourselves in an efficient manner.

For those that have a banking institution that will require paper applications, we will transfer information to the new form for you. However, we see a technical problem with one of the new items on the latest version. We anticipate that there will be yet another version. Please stay tuned.

Please let us know via email (covid19team@wswco.com) your bank’s application process: online submission or paper application.

3.31.2020 UPDATE

We hope that you are doing well and have contacted your bank regarding your intent to submit an SBA 7a loan application under the Paycheck Protection Program of the recently enacted CARES law. We wanted to follow-up about some additional specifics of this particular SBA 7a loan application and what we have heard from the banking community.

Approved SBA 7(a) Loan Application

Here is a PDF illustration of how to calculate the applicable maximum loan amount. The amount is based on 250% of the average monthly payroll costs. We are still uncertain if that calculation will be based on the 2019 cost figures, as has been suggested by many banks and the US Chamber of Commerce. The actual law says the last 12 month period, which would currently be the period from April 2019 to March 2020. We are recommending that the maximum loan amount be calculated under both methods until there is clear guidance. In our preliminary calculations, there have not been any large differences in these two calculations. The 2019 cost figures are the easier calculation for sure.

We are here to help you in this unprecedented time. Please let us know if you need our assistance in any of the following. You can send us an email indicating which level of assistance you would like us to provide for your business. (covide19team@wswco.com)

Completed preparation of SBA Paycheck Protection Program Application, including the detailed calculation of the payroll costs as defined by the CARES Act. And assistance with a preliminary calculation of the Forgivable portion of the loan for the subsequent 8 weeks after receipt of the loan proceeds.
- Calculate the maximum loan balance using both methods.
- Calculate the maximum loan balance using just the 2019 actual costs.
Completed preparation of SBA Paycheck Protection Program Application, including the detailed calculation of the payroll costs as defined by the CARES Act.
- Calculate the maximum loan balance using both methods.
- Calculate the maximum loan balance using just the 2019 actual costs.
Preparation of only the payroll costs as defined by the CARES Act.
- Calculate the maximum loan balance using both methods.
- Calculate the maximum loan balance using just the 2019 actual costs.
Assistance with a preliminary calculation of the Forgivable portion of the loan for the subsequent 8 weeks after receipt of the loan proceeds.
No help is needed with the SBA Form 1919 application or the payroll costs as defined by the CARES Act.

We of course are here to help you and your organization through all of this. As you are likely already aware we have a team of experts who have been at the front line of this for the past three weeks. Please do not hesitate to reach out to us with any additional questions as it relates to this or any other relief measures that have recently been enacted.

Helpful Links:

US Chamber of Commerce Sm. Business Guide & Checklist

NAGGL Provisions of the CARES ACT applicable to the 7(a) loan program

3.30.2020

We want to reach out about the CARES Act law that was passed on Friday.

One of the very favorable provisions of the law relates to the Forgivable SBA 7(a) loan. This loan is available for companies with less than 500 employees. The forgivable portion of the loan covers an eight-week period of eligible costs. Costs include payroll and independent contractor payments, capped at $100,000 per individual and pro-rated for the covered eight weeks; interest on mortgage obligations; rent obligation; and utilities.

The maximum loan amount is determined based upon your last 12 months average monthly payroll multiplied times 2.5, with an overall cap of $10,000,000.

Please note that there are provisions that affect the amount of the loan that is forgiven if there is a reduction of employees. If that is an immediate concern, please give us a call to discuss this more fully.

Another key element of the CARES Act Forgivable SBA 7(a) loan is that for the forgiven portion of the loan, that forgiveness amount will not be taxable income.

If you are interested in taking advantage of this, we strongly encourage you to reach out to your bank and start the application process immediately. For details of this loan program, please follow the link provided below.

The Small Business Owner's Guide to the CARES Act

If there are any additional questions, or if we can help in any of this, please do not hesitate to give us a call.

Sincerely,

WSW COVID-19 Response team covid19team@wswco.com
E. Daniel Clift edc@wswco.com
Ryan Wells rjw@wswco.com
Daniel Mesmer dcm@wswco.com