economic injury disaster loan (eidl) and paycheck protection program (ppp) · 2020-04-08 ·...

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Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program

(PPP)Aaron Boker and Jeff Gershen | April 8, 2020

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Your Instructors for this Webinar

Aaron BokerPartner, Tax Services Group

Jeff GershenPartner, Tax Services Group

Type your questions using the Q&A feature at any time.


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Agenda

Economic Injury Disaster Loan (EIDL)Paycheck Protection Program (PPP)

Conclusion and Q&A



By the end of this webinar, you will be able to:• Recall some of the opportunities for loans for

small businesses.• Understand eligibility, loan amounts, usage of

loans, how to apply, and forgiveness.

Learning Objectives



Caveats

• Our intent is to give you a general understanding and information. This is not intended to be technical training on how to fill out a form on the programs.

• We, as instructors, are not experts. Our intent is to disseminate information.• Information is changing constantly and there is room for interpretation in some cases. Today

we’re presenting our interpretation of how these programs can benefit your business. • This information is based on what is known as of time of preparation. We may have future

updates on these topics as guidelines change.


Economic Injury Disaster Loan (EIDL)

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Who EIDL Loan Is Available To

SBA’s EIDLs (or working capital loans) are available to:• Small businesses.• Most private nonprofit organizations.

These loans are not available to:• Lobbying organizations.• Casinos and gambling entities.• Businesses who have illegal activities

under federal law.



More About Eligible Businesses

EIDL is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization 501(c)(3) or 501(c)(19) veterans organizations affected by COVID-19.• The 500-employee threshold includes all employees: full-time, part-time, and any other status.

These businesses:• Are directly affected by the disaster.• Offer services directly related to businesses in the declaration.• Are businesses indirectly related to the industry that are likely to be harmed by losses in their

community, such as restaurants, lawyers, and construction.

Note: There are special rules as it relates to affiliated groups of companies.



Three Criteria for Loan Approval

1. Credit history: applicants must have a credit history acceptable to SBA.

2. Repayment: SBA must determine that applicant business has ability to repay SBA loan.

3. Eligibility: applicants must be in any U.S. states and territories and suffered working capital losses due to the declared disaster, not due to downturn in the economy or other reasons.

Note: Applicants do not know what will be received—SBA will make that determination.



1. Eligible entities may qualify for loans up to $2 million.

2. Interest rates for this disaster are 3.75% for small businesses and 2.75% for nonprofit organizations with terms up to 30 years.

3. Eligibility for these working capital loans are based on size (must be a small business), credit worthiness, type of business, and its financial resources.

Three Borrowing Parameters



How Loan Funds May Be Used…and Not Used

May be used* to pay for:• Fixed debts.• Payroll.• Accounts payable.• Other bills that could not have been paid

had the disaster not occurred.

May not be used to pay for:• Lost sales.• Lost profits.• Refinance existing debt.• Expansion.

*Note: Loan recipients cannot use EIDL and PPP proceeds for the same purpose.



Maximum unsecured loan amount is $200,000 due to CARES Act.

Loans over $200,000 require collateral. SBA:• Takes real estate (commercial and residential)

as collateral when available.• Will not decline a loan for lack of collateral

but requires borrowers to pledge when available.

Personal guarantee for owners who have greater than 20% ownership stakes.

Collateral Requirements for Loans



About the Application Process

EIDL funds come directly from the US Treasury.

Applicants apply directly to SBA’s Disaster Assistance Program at https://disasterloan.sba.gov/ela You do not apply at a bank.

There is no cost to apply.

There is no obligation to take loan if offered.

Applicants can have an existing SBA Disaster Loan and still qualify for an EIDL for this disaster, but loans cannot be consolidated.


https://disasterloan.sba.gov/ela


Economic Injury Disaster Advance Loan

Small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000 due to COVID-19.

This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue.

Funds will be made available within three days or more of a successful application.

This loan advance will not have to be repaid.

Applicants can apply at https://covid19relief.sba.gov/.

Even if application for EIDL loan is denied, you still get to keep the $10,000.• Reduces loan forgiveness on PPP.• Reduces loan amount for EIDL.


https://covid19relief.sba.gov/


Express Bridge Loan Pilot Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork.

These loans can provide vital economic support to small businesses to help overcome temporary loss of revenue they are experiencing and can be a term loan or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan.

SBA Express Bridge Loans



If a small business has an urgent need for cash while waiting for decision and disbursement on Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan.

Expires Sept. 30, 2020.

Terms:• Up to $25,000.• Fast turnaround.• Will be re-paid in full or in part by proceed from

an EIDL loan.

SBA Express Bridge Loans



Summary and Key Takeaways for EIDLEIDL Economic Injury Disaster Advance Loan

Intent Working capital loan Short-term funding until EIDL loan determination is madeMaximum loan amount $2,000,0000, reduced by loan advance Fixed grant amount of $10,000Use of loan Fixed debts, payroll, A/P, and other bills Not specifiedLoan determined by SBA N/A, grant amountForgiveness No Automatically, since it is a grantDeferred Up to 12 months N/AInterest rates 3.75% for profit and 2.75% for nonprofit N/ALoan payback Up to 30 years N/A, since it is a grant and there is no paybackCollateral and personal guarantee

Yes, for loans over $200,000 N/A

Apply with SBA SBADate loan proceeds will be received

Estimated 4-5 weeks after successful application

Estimated three days or more after successful application

Use loan proceeds by N/A N/A


Paycheck Protection Program (PPP)


The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep workers on the payroll.

SBA may forgive loans based on employer maintaining levels of FTE and/or salaries.

The Paycheck Protection Program will be available through June 30, 2020.

Program Overview



Program Overview

The Paycheck Protection Program (PPP) prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses.

Under this program:• Eligible recipients may qualify for a loan up to $10 million determined by average monthly

payroll over 12 months times 2.5.• Use 2019 wages (as of now).

We will discuss the formula in more detail later.



Who Can Apply

This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization 501(c)(3) or 501(c)(19) veterans organizations affected by COVID-19.

Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.• The 500-employee threshold includes all employees: full-time, part-time, and any other

status.

Note: There are special rules as it relates to affiliated groups of companies.


https://www.sba.gov/document/support--table-size-standards


Who Can Apply

Small businesses in the hospitality and food industry (NAICS 72) with more than one location could also be eligible at the store and location level if the store employs less than 500 workers. This means each store location could be eligible.

If an applicant is operating as a franchise or receives financial assistance from an approved Small Business Investment Company, the normal affiliation rules do not apply.



A Business Is Eligible If It Is…

A small business with fewer than 500 employees (and had employees as of 2/15/20).

A small business that otherwise meets the SBA’s size standard.

A 501(c)(3) with fewer than 500 employees.

An individual who operates as a sole proprietor.

An individual who operates as an independent contractor.

An individual who is self-employed who regularly carries on any trade or business.

A Tribal business concern that meets SBA size standard.

A 501(c)(19) Veterans Organization that meets SBA size standard.



How to Apply

Applicants can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.

Other regulated lenders will be available to make these loans once they are approved and enrolled in program.

Applicants should consult with their existing banking relationship or local lender as to whether it is participating in program.

Some lenders may have begun processing loan applications as early as April 3, 2020.



What Borrowers Are Certifying and Authorizing on the Application Form

• I have read the statements included in this form, including the Statements Required by Law and Executive Orders, and I understand them.

• The Applicant is eligible to receive a loan under the rules in effect at the time this application is submitted that have been issued by the Small Business Administration (SBA) implementing the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (the Paycheck Protection Program Rule).

• The Applicant (1) is an independent contractor, eligible self-employed individual, or sole proprietor or (2) employs no more than the greater of 500 or employees or, if applicable, the size standard in number of employees established by the SBA in 13 C.F.R. 121.201 for the Applicant’s industry.



What Borrowers Are Certifying and Authorizing on the Application Form

• I will comply, whenever applicable, with the civil rights and other limitations in this form.• All SBA loan proceeds will be used only for business-related purposes as specified in the

loan application and consistent with the Paycheck Protection Program Rule.• To the extent feasible, I will purchase only American-made equipment and products.• The Applicant is not engaged in any activity that is illegal under federal, state or local law.• Any loan received by the Applicant under Section 7(b)(2) of the Small Business Act between

January 31, 2020 and April 3, 2020 was for a purpose other than paying payroll costs and other allowable uses loans under the Paycheck Protection Program Rule.



What Borrowers Are Certifying in Good Faith on the Application Form

• The Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.

• Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.

• The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.

• The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan.




• I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.

• During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program.

• I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.




• I acknowledge that the lender will confirm the eligible loan amount using required documents submitted. I understand, acknowledge and agree that the Lender can share any tax information that I have provided with SBA's authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.



Independent Contractors, Sole Proprietors, or Self-Employed Individuals

If an applicant is an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as:• Payroll tax filings.• Forms 1099-MISC.• Income and expenses from the sole

proprietorship.



• No consideration of other existing or available funding options.

• No personal guarantee.• No collateral.

What Lenders Are Not Considering



How Much Can Be Borrowed

In general, loans can be up to 2.5x borrower’s average monthly payroll costs, not to exceed $10 million.

Maximum loan amount for non-seasonal employers:• 2.5x average total monthly payroll costs incurred during 2019. As of now, the application says to

use payroll costs from 2019. Note: There is some contradiction between the Act and the Treasury on whether to use 12 months preceding the loan or payroll costs incurred during 2019.

There are special rules and calculations for businesses that were not operational in 2019 or are seasonal businesses.



Use of Loan Proceeds

The loan proceeds can be used for:• Maintaining payroll costs:

– Wages, healthcare benefits, and retirement, etc.

• Interest on mortgage and debt payments, originated prior to Feb. 15, 2020.

• Rent payments, originated prior to Feb. 15, 2020.

• Utilities payments.

Loan proceeds used for other purposes are required to be paid back.



How to Calculate Average Monthly Payroll Costs

CY 2019 payroll costsAVERAGE MONTHLY PAYROLL COSTS12



Payroll Costs for Employers

The sum of payments of any compensation with respect to employees that is:• Salary, wages, commission, or similar compensation within the United States.• Payment of cash tip or equivalent.• Payment for vacation, parental, family, medical, or sick leave.• Allowance for dismissal or separation.• Payment required for provisions of group health care benefits, including insurance

premiums.• Payment of any retirement benefit.• Payment of state or local tax (SUTA) assessed on compensation of employee.

We do not believe guaranteed payments and profit distribution to partners can be included payroll costs. This is a point of clarification that many borrowers are looking for.



Payroll Costs for Sole Proprietors and Independent Contractors

The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as prorated for covered period.

Note: Compensation is capped up to $100,000, but not entirely thrown out of the equation.



Excluded Payroll Costs

Compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary.

Payroll taxes, railroad retirement taxes, and income taxes*.

Any compensation of an employee whose principal place of residence is outside of the United States.

*Note: There is some inconsistency in the application as to whether to use gross or net payroll. Our belief is to use gross payroll.

Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act.



Simple Example of How to Calculate Average Monthly Payroll Costs

maximum loan amount (capped at $10,000,000)

payroll costs 2.5

salary for any employee in excess of $100,000

This is a simplistic example of how to calculate average monthly payroll costs for illustrative purposes only. Nuances of what is included wages and benefits may vary by client.

12



Loan Payments Details

Loan payments will also be deferred for six months. However, interest accrues.

No collateral or personal guarantees are required.

Neither the government nor lenders will charge small businesses any fees.

At the time of this webinar, this loan has a maturity of 2 years and an interest rate of 1.0%.

Different banks are requiring different documentation. Here is a list of sample information, including, but not limited to:• Three years of tax returns.• Payroll records and reports.• Cancelled checks for pensions and

insurance.• Financial statements.• Certificate of good standing.• Operating agreement or articles of

incorporation.• Personal returns of owners with greater

than 20% ownership stake.



• Borrowers may be eligible to have all or some of their loans forgiven.

• Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.

• However, forgiveness may be reduced if FTEs decline or if salaries and wages decrease.

• Can be based on the full principal amount.• Loan forgiveness will not be considered

taxable income.

Loan Forgiveness



How Much Can Be Forgiven

A borrower is eligible for loan forgiveness equal to amount borrower spent on following items during eight-week period beginning on origination of loan date:• Payroll costs (75% used for payroll and using same definition of payroll costs used to

determine loan eligibility).• Interest on mortgage and debt payments incurred in ordinary course of business, originated

prior to Feb. 15, 2020.• Rent on a leasing agreement, originated prior to Feb. 15, 2020.• Payments on utilities, such as electricity, gas, water, transportation, telephone, and Internet.• For borrowers with tipped employees, additional wages paid to those employees.



Test 1: What if Business Brings Back Employees or Restores Wages

• Measure FTEs as Feb. 15, 2020.• June 30, 2020 FTEs equal Feb. 15, 2020

FTEs.• You cannot have wages reductions more

than 25% for employees who earn less than $100,000.

• At least 75% of the loan goes towards payroll costs.



Test 2: How Forgiveness Could Be Reduced

Assuming a business fails the first test of bringing back employees or restoring wages by June 30, 2020, the amount of loan forgiveness calculated can be reduced if there is a reduction in number of employees or a reduction of greater than 25% in wages (compensation) paid to employees.

In the Act, there are formulas on how to reduce the forgiveness amount based on reduction of number of employees and reduction in salaries.



Reduction Formulas

FTEsAverage number of FTEs per month for the eight weeks beginning on loan origination date

Option 1:Average number of FTEs per month from Feb. 15, 2019 to June 30, 2019Option 2:Average number of FTEs per month from Jan. 1, 2020 to Feb. 29, 2020

If you restore FTEs by June 30, 2020, these formulas are not necessary. However, if you do not restore FTEs by June 30, 2020, the amount of loan forgiveness based on the greater of a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.

PAYROLL COSTCalculated on slide 38

Wage reduction for any employee who had a 25% or more compensation cut for employees earning less than $100,000



Summary and Key Takeaways for PPPPPP

Intent Keep your workforce in place by paying their salariesMaximum loan amount Lesser of 2.5X business’s average monthly payroll or $10,000,000Use of loan Maintaining payroll costs (75% of loan); mortgage and debt interest payments, originated

prior to Feb. 15, 2020; rent payments, originated prior to Feb. 15, 2020; and utilities payments

Loan determined by OriginatorForgiveness In full and partial; reduced by $10,000 if received Economic Injury Disaster Advance LoanDeferred For six months, but interest accruesInterest rates 1.0%Loan payback 2 yearsCollateral and personal guarantee NoApply with Approved SBA lenderDate loan proceeds will be received TBDUse loan proceeds by (for forgiveness) Eight weeks from loan origination date


Conclusion and Q&A


Summary and Key Takeaways of All LoansPPP EIDL

Intent Keep your workforce in place by paying their salaries Working capital loan

Maximum loan amount Lesser of 2.5X business’s average monthly payroll or $10,000,000 $2,000,0000, reduced by loan advance

Use of loan Maintaining payroll and group healthcare benefits (75% of loan); mortgage and debt interest payments, originated prior to Feb. 15, 2020; rent payments, originated prior to Feb. 15, 2020; and utilities payments

Fixed debts, payroll, A/P, and other bills

Loan determined by Originator SBA

Forgiveness In full and partial; reduced by $10,000 if received Economic Injury Disaster Advance Loan No

Deferred For six months, but interest accrues Up to 12 months

Interest rates 1.0% 3.75% for profit and 2.75% for nonprofit

Loan payback 2 years Up to 30 years

Collateral and personal guarantee

No Yes, for loans over $200,000

Apply with Approved SBA lender SBA

Date loan proceeds will be received

TBD Estimated 4-5 weeks after successful application

Use loan proceeds by (for forgiveness)

Eight weeks from loan origination date N/A



COVID-19 Advisory Services

Sources of Financing

• Paycheck Protection Program (PPP)

• Economic Injury Disaster Loan (EIDL) Program

• State and local relief programs

• Traditional debt financing

Tax Benefits and Interrelationships

• PPP loan forgiveness• Employee retention tax

credit• Payroll tax deferral• NOL carryback analysis

Service offerings to help you find the right business solutions for COVID-19 challenges



COVID-19 Advisory Services

Financial Emergencies

• Cash flow budgets and working capital analysis

• Financial ratios and covenants calculations

• Pro forma historical financial information

• Prospective financial information and scenario analyses

• Claims and requests for equitable adjustment

Supporting Transactions

• Distressed M&A due diligence / quality of earnings

• Debt restructuring• Profit-improvement

initiatives• Post-acquisition

disputes

Business and Asset Valuations

• Impairment analyses• Estate, gift and trust

valuations• 409A valuations



Resources

EIDL• SBA’s Disaster Assistance Program • Economic Injury Disaster Advance Loan

PPP• US Chamber of Commerce’s Coronavirus

Emergency Loans• Paycheck Protection Program• Application Form

Aronson LLC resources• COVID-19 Advisory and Resource Center


https://disasterloan.sba.gov/ela

https://covid19relief.sba.gov/

https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final.pdf

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf

https://aronsonllc.com/service/covid-19-resources/


Who to Contact with Questions

Aaron BokerPartner, Tax Services Group

[email protected]

Jeff GershenPartner, Tax Services [email protected]


mailto:[email protected]?subject=PPP%20&%20EIDL%20inquiry

mailto:[email protected]?subject=PPP%20&%20EIDL%20inquiry


Upcoming Webinars

Coronavirus Aid, Relief, and Economic Security (CARES) Act and Families First Coronavirus Response Act (FFCRA) with Tom Christiana and Anatoli Pilchtchikov, Thursday, April 16, 2020 from 12:00-1:00 p.m.


Any Questions?Thank you for your time.

economic injury disaster loan (eidl) and paycheck protection program (ppp) · 2020-04-08 ·...

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