Late last night, the SBA released an Interim Final Rule (IFR), and an updated application and additional documents for the Paycheck Protection Program were also released. The full IFR can be found here. The IFR is considered “interim,” and requests public comments over a 30-day period. It is anticipated that lenders will move forward in accepting applications in reliance of the new interim guidance as early as today, April 3, 2020.
Note, our team has heard from several banks that they will not begin processing applications until Monday April 6th at the earliest and some hesitate to participate at all. Contact your lender TODAY to understand if/when they will accept applications and what you need to prepare for your lender to apply. If you do not have a relationship with a Preferred lender, you can review the list here or reach out and we will try to connect you to a lender from that list. Some are expecting the funds to run out in a matter of days.
Below are several items of significance from the IFR:
- 1099s can not be included in payroll costs of companies.
- Interest rate increased from .5% to 1% on the unforgiven SBA 7a loan.
- Exclusion of Federal Employment taxes imposed or withheld during the covered period is confirmed to mean only those federal employment taxes (including federal withholding) imposed or withheld from 2/15/20 through 6/30/20.
- If you received an Economic Injury Disaster Loan that is not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan.
- Clarifying language regarding loan forgiveness and SBA asserting they will issue additional guidance on loan forgiveness.
- Language seems to indicate a trailing 12-month payroll period (several banks have revised their templates to make this change) should be used and not 2019 calendar year (this is currently an area of uncertainty and we will update you as we are made aware of any changes).
Key Details of the Paycheck Protection Program are below:
How do I calculate the maximum amount I can borrow?
The following methodology, which is one of the methodologies contained in the Act, will be most useful for many applicants.
Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000.
Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).
**We created a payroll cost template and will provide upon request. However, this calculation as we understand it has changed several times and we can not be certain it will be the final template we use for calculating payroll costs.
Do independent contractors count as employees for purposes of PPP loan calculations?
No, independent contractors can apply for a PPP loan on their own, so they do not count for purposes of a borrower’s PPP loan calculation.
What Do I Need to Apply?
SBA Form 4583 (link here and above), payroll documentation, and any other documents requested by your lender. Payroll documentation must be submitted to establish eligibility, forms of documentation listed include payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.
What is the interest rate & maturity on a PPP loan?
The interest rate will be 100 basis points or one percent; maturity is 2 years.
Loan Forgiveness Rule Modification
Not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs. The Administrator has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll. It is our understanding that the employee retention factor must still be considered, but this is currently an area of ambiguity.
We are in constant communication with various lenders, while we do not expect significant changes, areas of uncertainty exist. We will keep you updates as we learn more.
We are happy to discuss any questions or comments you may have. We have a dedicated COVID19 resource team working to provide as much information as possible and respond to your questions and concerns. Please contact our office at 610-544-5900 or firstname.lastname@example.org .
We are in this together,
Brinker Simpson & Company, LLC
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice & cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).