April 6, 2020
By Jesse Erickson and Dave Baron
The U.S. Small Business Administration’s new programs to help businesses stabilize during the COVID-19 pandemic have brought a number of new issues, questions and frustrations to business owners around the country. The programs were being revised almost hourly prior to their recent launch. We break down some of the frequently asked questions about the Payroll Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program here. Please contact us if you have additional, specific questions.
Does my business qualify for the PPP?
- You must have fewer than 500 employees.
- You must have been in business before February 15, 2020.
- You must have had payroll since this date.
Can any bank (my bank) help me do this?
- Technically, any FDIC-insured institution or credit union can open this program.
- However, some banks are choosing not to proceed. Make sure you check with your bank.
- Many banks, particularly those who have not been SBA lenders in the past, are struggling to build capacity, understand the program and get it underway. If you work with an SBA lender currently, you may want to start there regardless of where your other banking activities occur.
How much can I get, and what do I use it for?
- You can get up to 2.5 times the amount of your average monthly payroll (over the past year, 2019, until now).
- Payroll costs can include salaries, hourly wages, commissions, tips (estimated), vacation pay, sick pay, leave pay, other contributions, health insurance premiums, and state and local payroll taxes. However, it does NOT include federal payroll taxes.
- This can become complex. Some qualified sick or family leave may be a better fit under the Families First Coronavirus Response Act under certain conditions.
- Some retirement benefits may not qualify.
- Costs above $100,000 per person are not included.
- Payroll to non-US residents is not included.
- You can use the money to pay for payroll. This is the primary use.
- You can also use the money to pay for rents, mortgages, utilities and other debts you may have, but paying these has some additional stipulations. Please contact an expert to discuss this.
How does forgiveness work?
- Let’s be clear: Despite many calling this a grant, this is a loan.
- However, most of these loans will be forgiven IF you use the money correctly and keep the same number of employees for 8 weeks. If you lower the total employee count or total payroll cost, or if you use more than 25% of the loan proceeds for allowed non-payroll expenses, some of the loan may be forgiven and some may become a 2-year (minimum) loan at a 1% interest rate. This is discussed and determined by the lender prior to receiving the PPP.
- You will not pay taxes on any of the forgiven debt, unlike other forgiveness of debt income that you may have seen in the past.
Can I start payroll now and qualify for this program?
- No, you cannot. Your lender will ask about previous payroll, before February 15, 2020.
What if I have been paying employees “under the table,” through sites like Upwork, or as 1099 contractors?
- These do NOT count toward your average monthly payroll. These individuals may be able to qualify for these funds on their own (separate from your company) starting on April 10 – but more details have not been provided yet.
What if I already laid off employees?
- As it reads today, you need to maintain the staff count that you had as of pre-crisis levels.
- You have until June 30, 2020, to restore your employment count and salary levels for any changes you have made during the period between February 15 and April 26 in order to both receive the full PPP amount and also have that amount forgiven.
What if I personally have been running a small side business … can I qualify?
- This gets complex. If you have been running as a sole proprietorship, you technically qualify.
- However, if you have not been paying taxes on this side business income, have not filed any legal paperwork, etc., you will likely not qualify.
- If you have filed yourself as a 1099 contractor or as a self-employed individual, you may not apply until April 10.
- You may also NOT apply if you have already filed for unemployment instead.
What else should I know?
- There is a line in the bill regarding purchasing American-made equipment and products. It is unclear how this will be monitored or enforced, but we suggest you stick to this guideline if you move forward with the PPP.
- 501(c)(3) nonprofit organizations are eligible, in general, but may have a few different rules around the program depending on what your organization does.
- The rules and forms around this program have been fairly fluid, some even changing just Friday morning. Please speak with your lender about these rules to ensure you understand them clearly.
What about the free $10,000 that I can get through the EIDL (Economic Injury Disaster Loan) I keep hearing about?
[Answered by Jesse Erickson]
- At this time, my recommendation is to avoid this program. The program was set up for other types of economic disasters outside of COVID-19 and is, in fact, a LOAN program.
- The $10,000 is an advance. While it is sometimes described as a grant, no clear information has been provided by the government about how this works within the subsection of the loan program, for COVID-19.
- Verbiage that has been used typically says you must request a certain amount up to $10,000 (but then the application never allows you to do so). Saying “up to” indicates this is not a freebie $10,000. IF your business gets anything, it could be less. Technically, the way it is written, you could be awarded just $100, or $0.
- Further, there have been no confirmed cases of a business receiving this grant in recent weeks, even though it is suggested this “grant” will arrive in 3 business days.
- No one is clear as to how this will work, what stipulations there might be or even if they will ever award these “grants.”
- Some SBA officials have offhandedly mentioned the award of these grants or loans might be based on the number of employees. Since the program can be for loans up to $2 million, these are likely going to go to larger businesses with full-time employees.
- My suggestion: Focus on the PPP and NOT on the EIDL.
For more information about local resources, visit the Alliance’s COVID-19 Response & Recovery portal.
JESSE ERICKSON is president and CEO of Catalyst, a Kankakee, Illinois-based business and organizational consultancy. Catalyst leads clients through business and strategic planning, development of new revenue streams and cost-cutting tactics, the implementation of better financial management processes, and the integration of strategic initiatives to improve organizational visibility, data analysis, and overall growth. Jesse is a Quickbooks Certified ProAdvisor, an Asana Certified Pro and a Certified Business Incubation Manager. He holds a Doctorate in Business Administration (Strategy & Innovation concentration), Master of Engineering Management (Technical Entrepreneurship concentration) and a B.S. in Electrical Engineering.
DAVE BARON, an attorney with Kankakee-based Deck & Baron, engages in a general civil practice representing businesses, lending institutions, local government entities and individuals. Active with a number of non-profit and civic organizations, he is lead counsel for the Kankakee County Branch NAACP legal aid clinic and serves on the boards of directors of the Kankakee County Convention & Visitors Bureau, Kankakee Development Corporation (KDC), Key City Community Development Corporation, and Kankakee Riverfront Society, Inc. Dave earned a Juris Doctor from Harvard Law School in 2009 and a Bachelor of Arts from the University of Notre Dame in 2006.
DISCLAIMER: The forgoing is intended for informational purposes only and should not be interpreted, regarded or construed to form or as an offer to form any type of client, advisory or fiduciary relationship. Before applying for any of the benefits or programs referenced herein, you are advised to confer with an attorney, accountant and/or other relevant professional to discuss your particular circumstances.