This is an urgent reminder, summary of information, information details and a call to action.
Regarding the Government Loan Programs for Disaster Relief, you have a choice between 2 options:
You can’t accept money from both. Everyone seems to be choosing Option 2 primarily because:
The rest of this page describes details about Option 2 above … The Payroll Protection Program associated with the CARES Act.
Re: CARES Act – Paycheck Protection Program – SBA 7(a) Loan
NOTE: There are many terms on the web describing this program. To minimize confusion, all of the following terms mean the same thing:
You need to get your application in through your bank asap because although the government allocated around $370B for this program, they are going to run out of money … which means first come, first served.** You can do the math:
Amount of money allocated: $349B
Number of businesses in U.S.: 29M (even sole proprietors and independent contractors can apply)
If half of them apply, that’s $24,000 per business, and the average loan is likely to be >$100,000 (wild guess). We have members who will be qualifying for a loan in the millions.
** Note: It is possible that the government will allocate more money to this in the future, but no guarantee.
And how is the banking system going to handle 5-20M + applications? There are about 800 Banks in the country that do SBA Loans.
Calculation for this with different assumptions:
20M companies apply/ 800 = 25,000 loan applications per bank
15M companies apply/ 800 = 18,750 loan applications per bank
10M companies apply/ 800 = 12,500 loan applications per bank
5M companies apply/ 800 = 6,250 loan applications per bank
Translation: You need to be in the que at your bank asap
Here is a summary of the program (YOU NEED TO READ THIS WORD FOR WORD):
Note: We highly recommend you all read the details of this Act, Keeping American Workers Paid and Employed Act, which is posted here:
Here is a very strange thing. The maximum amount of money you can burrow is not stated on that link. So here is what it is:
An obvious question is, do payroll costs include payments to independent contractors? If anyone knows the answer to that, please respond back to us with your input, and we’ll get it out to everyone. The person who is likely going to know the answer to that question is your CPA.
Loan Forgiveness: (this information is also included in the link directly above, however we want to highlight this because it involves some strategy that you need to be thinking about).
This Act establishes that the borrower shall be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.
Note a key item FOR LOAN FORGIVENESS: If borrowers re-hire workers that have already been laid off due to COVID-19 (laid off within 30 days of the enactment of the CARES Act), they will NOT be penalized or have the loan forgiveness reduced by any reduction of employees or reduction in payments to employees, so long as the workers are re-hired on or before June 30, 2020.
Here is the Strategy issue related to this:
If you have not furloughed anyone or not laid anyone off, then this section of the email does not apply to you.
If you have furloughed people or laid off some of your people then …
The strategy issue is this. When you obtain your loan, what if you are not ready to bring employees back onto the payroll because you do not need them yet? If you don’t bring them back, that will reduce the amount of the forgiveness of the loan and it will defeat the purpose of the loan. So you will want to do one of the following things (there may be more options I have not thought of):
Here Are Your Action Steps:
P.S. CARES Act complete language: This email has been talking about one section of the CARES Act. Here is a link to the language of the entire bill:
You need to at-least skim this to decide what applies to you.
P.P.S. Another expert resource for you on all of this is your CPA firm.