Paycheck Protection Program (“PPP”) which is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27, 2020
Small Business Administration (“SBA”) – Known as “7(a) Loans”. Applications can be made through any of about 1,700 lending institutions that participate in the SBA 7(a) lending program.
Profit and Non-Profit (including religious organizations) employers with 500 or fewer employees (with limited exceptions if SBA size standard allows for more than 500 employees). Some Non-Profit groups may be limited by revenues not employees.
Maximum Loan Amount:
2.5 times you average monthly “payroll costs” during the 12-month period before the loan is taken up to maximum of $10,000,000.
What are “Payroll Costs”?
Very broadly includes – 1) Employee salaries, wages and commissions, etc. up to $100,000 per employee per year; 2) Vacation, parental, family, medical or sick leave; 3) Severance payments; 4) Group health insurance; 5) Retirement plan contributions; 5) State and local taxes on such compensation. Does not include Federal tax withholdings, individual employee compensation over $100,000 per year, compensation for non-U.S. residents and a few other items.
Collateral requirements and personal guaranties are waived.
Use of Loan Proceeds:
Loan proceeds can be used to pay Payroll Costs (as detailed above), interest (not principal) on mortgages/debt, rent, group health insurance premiums and utilities (including electricity, gas, water, transportation, telephone, internet access, etc.) for the 8-week period that begins on the origination date of the loan (“Eligible Uses”).
What can be forgiven?
Monies spent on Eligible Uses can be forgiven. The amount forgiven cannot exceed the principal amount of the loan.
The amount of loan forgiveness will be reduced proportionally by the reduction in employees in the “Covered Period” of 2/15/20-6/30/20 versus 2/15/19-6/30/19 (e.g. – if you employed 15 people in the 2019 period and 10 in the 2020 period then forgiveness would be reduced by 1/3). Further reductions will be made for retained employees whose pay is cut by more than 25%. If a business rehires workers or restores their pay by 6/30/20 then loan forgiveness will not be reduced. Employers can chose which 8 weeks they want to count toward the Covered Period as early as February 15, 2020.
Loan proceeds used for non-qualifying purposes (such as inventory) will not be forgiven.
If the full amount of principal is forgiven then the borrower is not responsible for interest accrued during the 8-week period.
How is loan forgiveness obtained?
Submitting documentation regarding- 1) employees on payroll during the 8 week period including Federal and state payroll tax filings; 2) Documentation such as canceled checks, receipts, etc. verifying rent, utility and interest payments and 3) an Officer Certificate regarding the truth of information submitted amount forgiven was used as outlined in program guidelines.
Forgiven debt under this program is excluded from income.
Loan for Portion Not Forgiven:
The remaining balance will be guaranteed by the SBA with a maximum maturity of 10 years and interest rate of 4.0%. The loan is prepayable without penalty. Payments may be deferred up to 6 to 12 months.
Application items likely will include: 1) Employee compensation for previous 12 months; 2) Employee-related paid time off, sick pay, family leave, etc. 3) State and local tax withholding on employee compensation; 4) Group health insurance for previous 12 months; and 5) Last 12 months of retirement funding costs
“Good Faith Certification”:
Borrowers will need to certify that uncertainty of current situation requires obtaining this loan to pay payroll or to make mortgage, lease or utility payments.
This information was gathered from sources believed to be reliable but program elements are still being finalized and clarified. This should not be construed as legal or accounting advice.
This summary was written by Walt Coughlin, Executive Vice-President of Coughling & Co. Since 1990, Walt has helped a nationwide network of non-profit and faith-based borrowers design, structure, and complete tax-exempt and taxable financings. These 150+ transactions, which total more than $1,000,000,000, have financed schools, health care facilities, affordable housing communities, churches, and many other worthy projects. Walt Coughlin and Coughlin & Co. have no affliation with Trinity Fiduciary Partners, LLC.
Trinity Fiduciary Partners (Trinity) is a Registered Investment Advisor with the Securities and Exchange Commission. You can contact Trinity at (877)334-1283. Some of the information given in this publication has been produced by unaffiliated third parties and, while it is deemed reliable, Trinity does not guarantee its timeliness, sequence, accuracy, adequacy, or completeness and makes no warranties with respect to results to be obtained from its use.