The CARES Act that was signed into law by President Trump during the coronavirus pandemic provided much needed financial assistance to states, cities, communities, businesses, and individual citizens. One portion of this act was the Paycheck Protection Program (PPP) which provided critical funds to certain businesses to help keep them open and their employees paid. In addition, the program includes the ability to request forgiveness of the balance of the loan as well as any accrued interest, if appropriate requirements are met. 

Application to Apply:

The SBA is once again accepting applications for the Paycheck Protection Program. Please click here to apply. We are working applications in the order in which they are received, including those that were submitted during the first round of funding. We are only accepting iQ member applications at this time. The application window ends on August 8, 2020. 

Loan Forgiveness:

Below is conditional information from the SBA about the loan, the rules of forgiveness, and how to best use your funds to apply for forgiveness. The SBA may release further instruction on how these loans can be forgiven, so as always, please make sure to consult with your tax or legal adviser about your own specific situation for loan forgiveness and your 2020 taxes.   

PAYCHECK PROTECTION FLEXIBILITY ACT (PPFA)

Congress recently passed and the President signed the Paycheck Protection Flexibility Act ("PPFA").

The PPFA brings important changes to the Payroll Protection Program (PPP) and will provide significant assistance to you as an employer, particularly retail and restaurant businesses just now beginning to open. 

The Treasury Dept and SBA are continuing to develop the system for processing PPP Forgiveness loans. We are standing by ready to integrate these changes into our program as soon as they are released. You will receive information about how to access the platform when it becomes available.

The PPFA does two important things.  First, it triples the amount of time allotted for PPP loan recipients to spend the funds and qualify for forgiveness from 8 weeks to 24 weeks. Under the original PPP, recipients could only receive forgiveness if they spent the funds in the 8 weeks following disbursement.  That arrangement was problematic for businesses just beginning to open as they were unable to fully use the funds during the 8 weeks. This extension will provide significant relief to those businesses as they begin to reopen, but under social distancing and other conditions which will impact revenue.  Borrowers can elect whether to keep the original eight-week period or extend to the 24 weeks.

Second, the SBA regulations required that 75% of the PPP funds must be used on payroll. The PPFA reduces that to 60% of the loan amount.  This will provide relief to businesses in high rent areas, with Congress now recognizing that businesses who cannot pay their rent cannot also retain their employees.  This change comes with an important catch, however.  Businesses must spend at least 60% of the loan on payroll, or none of the loan will be forgiven.  The prior regulations simply limited the forgiveness if the 75% threshold was not met.  This restriction may be adjusted in future SBA regulations, but, for now, borrowers should be careful not to fall below that 60% threshold.

The PPFA contains other modifications to the PPP. These include easing the requirement that businesses fully restore their workforce, allowing forgiveness if employees turn down rehire offers and if businesses cannot restore their workforce to pre-pandemic levels due to government operating restrictions. Borrowers also have up to 5 years, instead of 2, to repay any non-forgiven amounts.  Finally, businesses that took a PPP loan can now also delay payment of their payroll taxes under the CARES Act, which was originally prohibited.

WHAT TO KNOW ABOUT PPP

 

Interest Rate: 1% 

Maturity Time-frameUp to 5 years 

Repayment Schedule: If your loan is not forgiven, you will need to begin making payments 6 months from the date your loan was disbursed to you. Interest will still accrue in that 6-month deferral period.   

Is this Loan Forgivable? Up to 100% of your loan, including any interest, may be forgiven if you use the funds for approved purposes and your employee compensation levels are maintained. If some or all employees were let go or laid-off prior to this legislation, they must have been quickly rehired to be eligible for loan forgiveness. No more than 40% of the loan can be used for non-payroll expenses. Ultimately, the SBA is responsible for determining if you meet the qualifications for loan forgiveness. 

How to Apply for Forgiveness: iQ is pursuing an online forgiveness application platform that will walk you through the application process step-by-step and provide a secure portal for uploading any required documentation. The system will calculate your loan forgiveness amount. You will receive information about how to access the platform when it becomes available

HOW TO USE YOUR PPP FUNDS FOR LOAN FORGIVENESS

At least 60% of your total loan amount MUST be used for “payroll costs” since the purpose of the loan is to keep American workers employed. 

If you are a business with employees who live in the Unites States, “payroll costs” consist of the following: 

  • Salary, wages, commissions, or similar compensation 
    • Note: Independent contractors do not count as employees for the PPP loan. Independent contractors can file for their own PPP loan. 
    • Note: Reduction in the number of full-time employees or their salaries could reduce your forgivable amount.   
  • Cash tips, or the equivalent 
    • Note: Based on employer records of past tips, or reasonable, good-faith employer estimates of such tips. 
  • Payment for employee leave, including: 
    • Vacation Pay 
    • Parental Pay 
    • Family Pay 
    • Medical Pay 
    • Sick Pay 
  • Payment for the provision of employee benefits, including: 
    • Group health care coverage 
    • Insurance premiums 
    • Retirement 
  • Allowance for separation or dismissal 
  • Payment of state and local taxes assessed on the compensation of employees 

If you are an independent contractor or sole proprietor, “payroll costs” consist of the following: 

  • Wages
  • Commissions
  • Income 
  • Net earnings from self-employment 
  • Similar compensations 

Up to 40% of your loan can be used for “non-payroll costs. 

“Non-payroll costs” consist of the following: 

  • Interest (not principle) on mortgage obligations incurred before February 15, 2020 
  • Rent for leases signed before February 15, 2020 
  • Utilities with a service agreement before February 15, 2020 

UPDATED LOAN FORGIVENESS GUIDELINES

The SBA has updated Loan Forgiveness guidelines and will be including a new shortened Loan Forgiveness application Form 3508EZ. 

We are integrating these changes into our program and you will receive information about how to access the platform when it becomes available.  Borrowers can use the shortened form 3508EZ if they meet at least one of the following requirements:

  • The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).

  • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);

    AND

    The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused. See 85 FR 33004, 33007 (June 1, 2020) for more details.

  • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);

    AND

  • The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

WHAT IS EXCLUDED IN LOAN FORGIVENESS

  • Compensation of any employee whose primary residence is outside of the United States 
  • Compensation for an individual employee in excess of an annual salary of $100,000. 
    • Note: This only applies to cash compensation, not to non-cash benefits, including: 
      • Employer contributions to defined-benefit or defined-contribution retirement plans  
      • Payment for employee benefits consisting of group healthcare coverage, including their insurance premiums 
      • Payment of state and local taxes on the compensation of employees 
  • Federal employment taxes imposed or withheld between the dates of February 15, 2020 and June 30, 2020 
    • Note: Including employee’s and employer’s share of FICA and Railroad Retirement Act taxes 
    • Note: Including income taxes required to be withheld 
  • Sick and Family Leave wages where a credit is allowed in sections 7001 and 7003 of the Families First Coronavirus Response Act 

WHAT IF THE PPP FUNDS AREN'T USED CORRECTLY?

 

PPP loans dollars that are used unknowingly for purposes other than the approved expenses above will not be forgiven. If it is found that the funds were used knowingly for unapproved expenses, then you may be subject to additional liability such as charges of fraud. Forgiveness will be reduced if FTE headcount or salaries decline.  Loan forgiveness will depend in part on the amount spent on approved expenses during the 8 weeks following disbursement of your loan. 

Loan forgiveness eligibility is determined by the SBA.

*Consult your tax or legal adviser for your specific situation* 

Contact Us

We know everyone’s circumstances are a little different right now, so please get in touch with us right away to talk about your options.

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DISCLOSURE

Skip/deferred payments will continue to accrue interest during the month(s) in which the payment was skipped. Normal payments will resume after the skip payment period is over unless otherwise stated. If you have GAP or other insurance coverage related to your loan, consult your policy documents prior to skipping a payment as doing so might impact your coverage. Terms and conditions subject to change at anytime without notice. 

Loans in bankruptcy on in default on any loan agreement are not eligible. 

2A borrower experiencing financial hardship has a right to request a special forbearance lasting up to 180 days (with the option of an additional 180-day period) during the pendency of the "covered period." The covered period is defined as the period beginning on the date of enactment of the Act and ending on the sooner of the termination date of the national emergency or December 31, 2020.

IRA DISCLOSURE

For specific information about how the IRA changes may impact your tax situation, please consult your tax advisor.