Hello again… During this crisis, I am doing regular updates to keep small businesses and the self-employed informed of financial support, legislation, resources, and other help available to them.
Remember: I am doing a Facebook Live Monday to Thursday at 1pm EDT/10am PDT at facebook.com/RhondaAbramsSmallBusiness to keep you updated and answer questions. And if someone forwarded you this newsletter, you can sign up at PlanningShop.com.
Today, I’m going to address the Payroll Protection “forgiveable” loans in the CARES act (the “phase three” coronavirus relief act). There are other loans and help available that I’ll address in other newsletters and Facebook Live events.
YOUR INPUT NEEDED! CROWDSOURCING FOR THE NEXT BILL
It is widely expected that another bill (“Phase Four”) will be needed, possibly introduced in the House of Representatives, which is currently more friendly to the smallest businesses than the Senate. I’m working with elected officials and a variety of organizations putting together recommendations for the next stimulus bill. And I will be putting those recommendations into my USA Today column.
Here’s your chance to get your needs addressed. E-mail email@example.com to send me your—and others’—recommendations for what’s missing, what needs to be clarified, and what should be amended in the next bill.
In particular, send me your stories—of your specific situation—of why a loan won’t keep you, your contractors, your workers—in business and employed.
In a Nutshell, What You Want to Know About the FORGIVEABLE LOANS
- This is the only provision (with one minor exception) that holds out the hope that a small business is going to get financial help that does not have to be paid back. (The one minor exception is up to a $10k ‘grant’ to hold over those who are applying for a different loan.
- This only applies to those who have—or had—PAYROLL (W2) STAFF. If you have no
payroll—only independent contractors and/or you pay yourself through a draw—you will not qualify.
- If you’ve already laid off your staff, that’s OK. You can qualify if you hire them back.
- The maximum amount is 2.5 times your average monthly payroll costs (see below) for the year previous to applying for the loan. If you weren’t in business last year, it’s the average of your payroll costs from January 1-Feb 29, 2020. PLUS: In addition to that amount, you can roll in outstanding amounts of SBA Disaster loans made between January 31, 2020, and the date you get this loan.
- Payroll costs include ALL costs of an employee: salary or wages, commissions, bonuses, health insurance, retirement contributions, local and state payroll taxes.
- Money can be used for payroll, utilities, rent. Cannot be used to compensate anyone in excess of salary based on $100k per year, those residing outside US, or if you are already getting reimbursed for paid sick/family leave under the act passed two weeks ago. (More deciphering this confusion in future updates.)
- Money cannot be used to refinance long-term loans. This may end up being a sticking point, as one lender has already indicated a “Statement of Liabilities” may be required. I will try to get clarification of what this will mean for the majority of small businesses who have debt.
- Loan forgiveness will be based on the percent of payroll employees you keep employed/hire back/increase their wages (due to lost tips, etc.) If you fire employees or reduce their wages, that will reduce the amount of loan that will be forgiven.
- The maximum amount of the loan is $10 million. Don’t think this applies to small businesses? These loans are available to owners of businesses who have 500 or fewer employees in any one location. So an owner of 300 burger franchises could still qualify for these small business forgiveable loans.
HOW WILL THE LOANS BE FORGIVEN?
Loan forgiveness can be up to or equal the amount spent during eight weeks after the origination date of the loan on the following types of costs:
- Payroll costs, rent, or interest payments on leases or mortgages in effect before February 15, 2020, and utilities in place before February 15, 2020.
BUT: the forgiven amount would be reduced by the extent employees have NOT been retained or pay reduced more than 25% compared to prior year.
From a lender’s website: “The lender will decide whether or not to accept the forgiveness application. The current forgiveness time frame is 60 days from request, with a 90-day window for the SBA to reimburse the lender.”
WHEN WILL THIS BE AVAILABLE?
The Treasury Secretary has said he wants this in place by this Friday. It will take time, obviously, for lenders to get up-and-running and understand the process.
I will discuss all this further during my Facebook Live sessions 1 pm EDT/10 am PDT, Monday to Friday at facebook.com/RhondaAbramsSmallBusiness and in future daily updates—sign up at PlanningShop.com (scroll to middle of page) if you are not already on my mailing list.
Stay well and stay home.
Copyright Rhonda Abrams, 2020