Tag Archives: PPP

Education, IRS, Tips

SBA Economic Injury Disaster Loans (EIDL)

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UPDATE 6/10/20:
Sec. Carranza indicated today that new EIDL applicants will begin to be accepted next week — they are still working through the queue of previous applicants, but as they get a handle on that, the system will be available again (currently it is only available to farmers). I have a client who applied on April 8th who received their loan this past week, so I can confirm that they really are still in-motion… when you see money suddenly show up in your bank account with “SBA TREAS” in the description, that’s probably it.

UPDATE 4/27:
As of 11:15 am Central, the SBA now notes on their website that they are continuing to review the existing queue of EIDL applications and will provide further information on new applications soon. More information in a new blog post here.

UPDATE 4/25: the EIDL program has had some funds replenished in the most recent round of legislation, and full information on it and how to apply can be found here.

We’ve spent so much time talking about PPP loans that we’ve left its older sibling, the Economy Injury Disaster Loan (EIDL), in the shadows.

The idea when you apply for an EIDL is that you need cash fast to save your business (historically, these types of loans are given out to businesses hit by a natural disaster of some type). So when you apply, they try to fund an advance of up to $10k (not necessarily the full $10k) in approximately three days — you even give them your bank info when you apply so they can deposit the funds stat.

In other words, if you meet the minimum qualification criteria to apply for an EIDL loan, and submit an online application to the SBA, you will receive up to a $10,000 advance in short order — that does not need to be repaid.

From Nav.com, a lending site I’ve used in the past for clients: If you meet the minimum requirements to apply for a disaster loan, the grant will be available to you whether or not your loan application is approved. With that in mind, if you need access to capital quickly, and don’t need a larger loan amount, this may be a good option for you.
These working capital loans (including the grant) may be used only to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or to pay for expansion. Funds cannot be used to pay down long-term debt. They also cannot be used to consolidate debt.

So you certainly could receive an advance, and then not be granted a loan, and yet still get to keep the advance.

But as to a question I was recently asked during one of my daily client Q&A sessions: could you get the advance… but not apply for a loan, or decide against the loan if granted? And if not, then what’s the lowest amount you could request as a loan?

From what research I’ve done (by no means authoritative, so please reach out if you discover otherwise), it sounds like you do have to apply for some sort of loan. I have not yet found an answer about how small a loan you could request. If you apply for $25k or less, there is no personal guarantee and no collateral required. Over that amount, but under $200k, will require a personal guarantee and collateral — but it will avoid some additional costs that come with higher loan amounts.

There is an interesting note on the SBA site, however:
There is no obligation to repay the grant. To receive the $10,000 emergency grant, it is not necessary to have an approved EIDL loan. However, if you are able to secure a PPP loan, the $10,000 grant will be subtracted from the forgiveness amount.

I am unsure about whether this is still true or not — it certainly was initially, but in the past week it’s been widely reported that you may receive both a PPP and an EIDL loan as long as both are not paying for the same expenses, so it’s possible that the info on the SBA site is outdated. It remains important to have a good relationship with your lender to get these kinds of questions answered before signing.

I’ll leave you with some additional info from Brian Thompson over at Forbes:

The EIDLs expanded provisions include: 

  • Can be approved by the SBA based solely on an applicant’s credit score (not repayment ability and no tax return is required).
  • EIDLs smaller than $200,000 can be approved without a personal guarantee. They are also not requiring real estate as collateral and will take a general security interest in business property. 
  • Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss. 
  • It expands access to sole proprietors or independent contractors, as well as tribal businesses, cooperatives, and ESOPs with fewer than 500 employees and all non-profits including 501(c)(6)s. 

Because lending decisions are based on self-certification and the applicant’s credit score, the review process should go quickly. CARES also waives the requirement that you be unable to obtain credit elsewhere. That means you can apply even if you already have a credit line.

You apply for these loans directly through the SBA at www.SBA.gov/disaster.  There are no loan fees, guarantee fees or prepayment fees. As of March 30, the new streamlined online application is up and running. Make sure to apply for Economic Injury for the Coronavirus, rather than physical damage due to another disaster (that is a different declaration number).

UPDATE 6/13/20: Although there is much disagreement among colleagues on this topic, according to the AICPA it is likely that EIDL grant advances will have to be subtracted from PPP forgiveness when the time comes.

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Education, IRS, Tips

Payroll Protection Program Calculation Template

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IMPORTANT: This blog post is now out-of-date due to new guidance released on April 6th — see new post here.

The most recent interim guidance for the Payroll Protection Program makes a few vague and misunderstood items clearer… and creates some new issues in the process.

From my colleagues over at KMK Law:

Material Changes in PPP

  • Independent contractors do not count as employees for PPP loan calculations or loan forgiveness.
  • All federal employment taxes, including employee’s federal income tax withholding and both employer and employee’s share of FICA from February 15, 2020-June 30, 2020 are excluded from “payroll costs”.
    • This means that businesses are eligible for loan forgiveness based on the after-tax pay to employees (after FICA and income tax are withheld), not the gross pay made by the employer.
    • This exclusion applies only during the Feb. 15, 2020-June 30, 2020 period, which seems to imply that borrowers do not have to deduct employee income tax withholding and FICA when calculating the loan amount from 2019 payroll costs, except to the extent total payroll costs exceeds $100,000 per employee (including FICA and income tax withholding).
  • Interest rate is 1.0%.
  • At least 75% of PPP loans proceeds must be used on payroll costs (whether or not used in the 8-week period eligible for forgiveness; and to be eligible for forgiveness such payroll cost must be paid during the 8-week period).
  • Borrowers knowingly using PPP loan funds for unauthorized purposes may result in additional liability, including fraud.  In addition, if one of the borrower’s shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against that shareholder, member or partner.

Note in particular the bit about payroll taxes: as a result, a lot of folks could be caught by surprise due to the fact that the initial loan request amount is based on gross pay, and the loan forgiveness is based on net pay. Most of us are pretty sure this was not the law’s intent, but we have to work with the most recent regulations released by the Treasury.

This excellent template by Joey Brannon at Axiom takes the new regs into account and explains his analysis by referring directly to each passage in the most recent release. Keep in mind that if you use Gusto or ADP, they will have calculated much of this for you — just make sure to gut-check the results.

The Treasury has also released a PPP Fact Sheet (it’s a little vague, but relatively simple to follow).

Of course, the entire small business community, accountants, advisors, lawyers, banks and other lenders are all frustrated beyond compare that this calculation couldn’t have been standardized and applied consistently. My favorite tax writer, Tony Nitti at Forbes, wrote an excellent article in the form of an open letter to the Treasury Secretary that outlines everything we’re thinking and feeling (but more intelligently, backed up with data, and without swear words).

Furthermore, Gusto is getting push-back from some clients and lenders who disagree with the interpretation of the new regs, and they have released an updated report that allows users to choose either method of calculation.

Hopefully this is just a glitch that will be remedied in the next week, after the ten days of comments are up — but just in case, you may wish to have all employees go to 9 exemptions for those eight weeks, making up the under-withholding later in the year. (And it serves the dual purpose of getting cash into the hands of people now, rather than at tax-time.)

Are we having fun yet?

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.