The Paycheck Protection Program
Here’s a quick breakdown:
Covered loan period is Feb 15-June 30 2020
No collateral, or personal guarantee.
Amount: 2.5 months of payroll. Use the monthly average over the one year prior to the date the loan is made. If work is seasonal, use February 15, 2019-May 15, 2019, or alternatively March 1 to June 30, 2019.
Funds can be used for wages, paid leave, health benefits, retirement benefit, state or local tax assessed on employee’s earnings, mortgage, rent and utility payments, and interest on debts incurred prior to 2-15-20
Forgiveness is available for amounts paid over eight weeks starting on the loan origination date for payroll costs, mortgage interest, rent, and certain utilities. There is a possible reduction in the forgiveness for any reduction in employees or employee pay compared to 2019, except for furlough or lower hours in the COVID period just before the loan is granted.
Documentation of paid payroll and other expenses will be required for loan forgiveness.
The amount of the loan remaining after the forgiveness carries a 4% interest rate amortized over a maximum period of 10 years.
An Important Note:
These loans are best taken out in your personal name then deposited into your operating corporation or LLC, rather than the loan being in the name of the corporation or LLC. The reason for this is for something called ‘basis’ in your S corporation or other entity. In effect, the IRS requires that you as the shareholder are at risk. If you are not considered at risk because you do not have sufficient ‘basis’, some or all of your expenses are NOT deductible. I really doubt that the IRS will waive this requirement despite COVID 19. Please pay attention to this important matter.
So far, US Bank has set up an Inquiry Form for small businesses to get started. We have not located any other bank that has yet addressed the Paycheck Protection Program. As we learn more, we will advise.
Our office will be prepared to assist you with the organization of information and or presentation of documents once we learn what will be required.
Update 3/28/20:
Here’s a nifty chart that breaks down the Paycheck Protection Program just legislated yesterday and the pre-existing Disaster Loan [EIDL] program at the SBA. Note that the EIDL is required to be funded in 3 days, bypassing surely much of the red tape that one normally expects with the SBA.
(Thanks to Crusade Specific Chiropractic, Sacramento CA, for sharing this information)