If you feel like the last few weeks have been straight out of the Wild West, you are not alone. We understand that our clients are experiencing significant changes in their business operations and personal lives. Our experts have carefully reviewed the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and can help you navigate the resources available to you. We can help determine what provisions you might be eligible for and believe there is no “one-size-fits-all” solution. Each option takes time to evaluate and what might seem like the perfect answer right now may not appear to be the best decision an hour later. We appreciate you allowing AZ to be your trusted advisor to provide you with options, information, and support. If cash is your number one concern, the most popular solutions provided by the CARES Act are the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) emergency advance. Both programs are meant to assist small businesses to overcome the temporary loss of revenue as a result of the COVID-19 pandemic. Small businesses must have less than 500 employees, except for certain industries. Each application requires certain certifications of the borrower and these should be reviewed in advance to determine eligibility.
So which program is right for you? The answer could be both.
The Economic Injury Disaster Loan emergency advance is a maximum of $10,000 that is not required to be repaid. However, it is not an automatic $10,000. It is $1,000 per employee up to $10,000.
The PPP was designed to keep employees on the payroll. The forgiveness portion of this program is key and requires planning to ensure you don’t get caught off guard by a potential repayment. The portion of PPP loans not forgiven is repaid over 2 years at 1% interest. Payments may be deferred for up to 6 months and interest will continue to accrue during those 6 months.
The PPP loan amount is based on average payroll costs multiplied by 250%. The definition of payroll costs is not complicated but certainly isn’t all-inclusive. For most employers, you take gross wages and add in the following: payments for provisions of group health care benefits (including premiums), payment of retirement benefits, and state taxes paid on behalf of the employee (this does not include state withholding tax). The amounts excluded from payroll costs include compensation over $100,000 for any employee in the 12 months used for the calculation as well as any compensation of employees whose principal place of residence is outside of the U.S.
So what about loan forgiveness?
The PPP loans are eligible for forgiveness of up to 100% of the principal and accrued interest. The initial calculation of the amount forgiven dollar-for-dollar up to the loan amount will be based on specific expenses incurred and paid in the 8 weeks following the loan origination. Eligible expenses include the following:
- Payroll costs included and excluded in the calculation of the loan amount are the same for the forgiveness piece but will now be reduced by any amounts paid to employees under the FFCR Act for sick and family leave pay.
- Rent payments for lease agreements in place on February 15, 2020.
- Mortgage interest for mortgage obligations in place on February 15, 2020.
- Utility payments with in-service dates before February 15, 2020.
After the initial forgiveness calculation is completed, there are additional provisions to take into consideration. The total amount forgiven could be reduced if the number of full-time equivalent employees (FTEs) or wages paid to any employee is not increased to the level they were at on February 15, 2020. If these reductions are proven to be restored by June 30, 2020, there will be no reduction of the forgiveness amount.
We anticipate further guidance from the SBA in the coming weeks as it relates to the calculation of the forgiveness of the loan and will update our information as it is released.
When you are looking for assistance in applying for an EIDL advance or PPP loan we want to be by your side. During our uncertain times, it is hard to know exactly how much each decision we make today will affect tomorrow. These decisions certainly deserve some thoughtful consideration. Your team at AZ can help get you and your business out of the Wild Wild West and back to a Big Sky state of mind.