Stimulus Bill Updates

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Update: April 10, 2020

Transcript:

Hi everyone. My name is Erik Fernandez, I'm a partner at Compass Accounting, LLP. I'm putting this video together because in the past two weeks my firm has had a lot of questions regarding the SBA loans that recently were passed and put into law on March 27th. My partners here have read the bill and we've been advising a lot of clients, but there's a lot of information out there and I wanted to put together a brief video that goes over the two main lending options available to businesses that were affected by the COVID-19 pandemic and shut down businesses at this time.

The two loans that I'll be talking about are the Economic Injury Disaster Loan or EIDL, and then the Payroll Protection Plan Loan. The first one, the EIDL, existed before the Cares Act was passed into the law but they added funds to it and streamlined the application process. To apply for the EIDL loan, you can also request up to a $10,000 advance. You go to sba.gov and go into funding loan options and select the EIDL application.

It's a three page application, it's very straightforward. They ask for the business entity name, EIN, business owners or anyone who owns at least a 20% share in it. You have to check that you've been adversely affected by the COVID-19 pandemic, or your business has I should say. Then you request the 10k advance and you give them your bank account and routing information and you spin it.

They are promising about a three day funding on the advance but I think, due to the extreme numbers of people applying, they're behind on that. I think it's been nine days since they've streamlined the application and they have yet to see funds hit people's bank accounts at this point, but fingers crossed that there'll be able to start funding these businesses that desperately need it soon.

If you want to continue with the EIDL application, the limit is $2 million. I believe you have 10 years to pay it back and the interest rate was not more than 3.75% on that. That loan already existed prior to the COVID-19 pandemic and the passage of The Cares Act. When The Cares Act was passed, they introduced a new loan called the Payroll Protection Plan Loan. This loan allows you to apply for two and a half times your monthly average payroll and, what is payroll? It's wages. You can count your health and benefits and retirement expenses in there as well.

The average amount, you times it by two and a half times and you can then submit for that. If you use those funds for payroll, renting and utilities, any interest on prior debt obligations that were taken on prior to February 15th and keep records of that, you can submit that and then have the loan fully forgiven and it's treated as non-taxable on your income of your business at the end of the year.

It's the government's way of trying to put forth much needed capital for businesses in order to keep their employees and their staff employed at this time. The limit on that is $10 million. Like I said, you can be fully forgiven 100%. For that one you don't apply at the sba.gov, I would try your local business banker first or any 7(a) approved SBA lending company; credit unions, other banks, there's other lenders out there. I can flag a list in the comments for other banks that are participating and taking on new clients.

I know Congress recently just passed ... They introduced more funds for it because there's been so many applicants in the past week, but I would encourage you to get your application in quickly in order to be eligible for these funds. Once the funds are received you have eight weeks from the funds being received to use these funds. You have to keep track of the funds, what you use it for, so that means check stubs, potential bank statements, payroll forms, 940 or nine 941 forms, and that's what you'll use to submit for forgiveness of the loan once you've used it.

There's also no personal guarantees on these loans, in the bill states they're non-recourse. If there's any changes on that and guidance that comes out after that, I'll try to update you and let you know about that as well. Those are the two main loans, the EIDL and the PPP loan. There's been a couple questions that we've been answering a lot with regards to these loans so I'll go over them briefly here.


What if I laid off employees prior to this? If you've laid off or furloughed any employees from February 15th to 30 days after this law going into effect, that will not count against your forgiveness as long as you bring your payroll levels back up to the prior levels by June 30th of this year. That's when you'll need to do to not be penalized on the forgiveness.

If, for whatever reason, the loan is not fully forgiven in the PPP side, it matures in two years and has a 1% interest rate. What if my bank is not offering this loan? As of this video, not all banks were participating yet. Wells Fargo at first said they weren't, now they are, but there's a lot of other banks out there, just google SBA 7(a) approved lenders. Also, if you go to the sba.gov site, they have a list of approved lenders there. I would encourage you guys to go to the source so you have that information directly from the SBA site.

Can you apply for both the EIDL and PPP different loans? Yes, you can apply to both and if you receive the advance or funds from the EIDL first you can then refinance that into the PPP loan which then, if used properly, you get the full forgiveness of the loan so I would encourage you to do that. Apply first for the EIDL, it's very streamlined and easy to do at sba.gov.

Then, when you're applying for the Payroll Protection Plan Loan through your bank or other lending institution, you'll refinance that amount or any amount that's been received from the EIDL into the PPP amount so that you can then use those funds for your payroll, your utilities, and rent, and lease to be properly forgiven for that. A quick note on that. You need to use at least 75% of the loan for payroll purposes in order to be in compliance with the guidelines that were recently issued by the SBA.


Do count independent contractors when adding this up? Now, originally there was some confusion on that because the original bill said yes to include that, but now further guidance had said no and here's why. They're saying don't include independent contractors in your average payroll costs because independent contractors and sole props can apply on their own for relief through the the SBA PPP program as well.

Further guidance is going to be issued on how independent contractors and sole props can apply for the PPP. Today, April 10th is the first day in which they should be eligible to apply but I haven't read any guidance that's come out just yet. If that guidance does come out, I'll do a separate video on independent contractors and sole props applying for PPP as well. I do know sole props might be required to show 1099 income or profit and loss statements to prove their eligibility as well.

Is the loan fully forgiven? Yes, if you can show documentation that you've used it for the proper amounts. The loan is fully forgivable so keep your check stubs, keep your bank statements, document what you're using these funds for because that's what you'll need to submit to your bank or your lending institution in order to be fully forgiven.

If you have further questions about this, please don't hesitate to reach out. My email is Erik@compassnumbers.com, I'll post it in the comments as well. I'm just trying to get this information out to as many people as possible. I've reached out to my alumni networks and anyone else who needs this information. I wanted to get this information out to all businesses that were adversely affected and that are trying to retain their employees during this time when they're not allowed to function or continue their business in a normal way.

Thank you very much for your time, everyone. Please stay safe, observe your local health guidance and everything else, and we'll get through this together. Thank you.

Update: April 2, 2020

Dear Clients,

As a follow up to last week’s letter, we’re keeping you updated on the latest developments from the passage of the stimulus bill and the lending and grants rolled out by the Small Business Administration.

There will be two main programs that will be available to businesses who have been affected by the COVID-19 pandemic. We have left information for businesses of over 500 employees out of this email, if you’d like information about those programs, contact us.

 

To qualify for either or both of the below loans:

  • All business under 500 employees qualify (this includes sole proprietors and independent contractors)

  • Note: these loans are not counted as part of your gross income for income tax purposes.
     

Economic Injury Disaster Loan (EIDL)

  • Limit is $2 Million

  • This week the SBA has streamlined the application process to request up to the 10k advance which should fund in 3-4 days from application.

  • Even if your EIDL loan is not approved, you can still retain the 10k as a grant (loan would be forgiven).

  • To apply for this loan, go to: www.sba.gov

  • This application has been greatly streamlined and is pretty straightforward.

  • All personal guarantees have been removed up to $200,000.

  • The term of the loan is 30 years and interest rates are 3.75% for business and 2.75% for non-profits.

  • Payments are deferred for 1 year.

 

Payroll Protection Plan (PPP)

 

  • Limit is $10 Million

  • Will be funded through your banking or SBA approved lenders. We can use your current bank for ease of funding or we can refer you to a lender.

  • SBA guidance has stated that banks may begin taking applications by this Friday, April 3, 2020 (https://www.sba.gov/funding-programs/loans/paycheck-protection-program-ppp)

  • We’ve been in touch with our colleagues in the business banking community and have requested to have applications forms sent to us when they are available (some banks have begun to released and others have not).

  • PPP will allow you to request a loan of 2.5x your average monthly payroll (12 month).

  • After funding, you will have 8 weeks to use those funds, and they can be used for: Payroll, payroll taxes, health benefits, employee retirement obligations, rent/lease payments, utilities, and interest on debt obligations taken on February 15, 2020.

  • If you’ve laid off or furloughed employees, you will not be penalized as long as you bring back payroll to its prior levels by June 30, 2020. (Employees laid off or furloughed between February 15, 2020 or 30 days after funding of this loan will not negatively affect your ability to apply for forgiveness as long as they are brought back to prior levels by June 30, 2020.

  • MAKE SURE you save all documentation of how these funds were used so you can supply them to your bank to request forgiveness of this loan (we can assist with this process)

  • All amounts forgiven will not be included in gross income, this eliminates the tax consequence.

  • All personal guarantees have been removed.

  • You can refinance your EIDL loan into this PPP loan

  • Loan term is 2 years at 1% interest rate and payments are deferred 6 months.

 

There are several other aspects of the stimulus bill such as the tax credits, unemployment benefits, etc. However, the SBA loans are time sensitive, so we wanted to make you aware of that now and will provide further information on the personal implications in the coming weeks.


If you have any additional questions, please feel free to reach out and we’re happy to assist in completing any of these applications for your businesses. Again, this is time sensitive, if you need assistance please contact us as soon as possible.


This letter was specifically focused on the SBA Business lending options of the bill due to their time sensitive nature. We will follow up with information on the personal tax changes in future letters.

 

As further details develop, we’ll be sure to keep you updated.


Sincerely,
 

Erik Fernandez & Mario Franqui Jr.
Founding Partners
Compass Accounting, LLP

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Update: March 18, 2020

Dear Clients,

Everyone has felt the upheaval of the recent global changes of the past few weeks. We hope you are all safe and the current changes caused by the COVID-19 virus are causing you the least amount of stress possible. The reality is, many of us are being greatly impacted both personally and professionally. Due to the extremely high email volume regarding COVID-19, we are trying to focus informational emails on topics that directly relate
to tax relief, due dates, stimulus/ lending programs, and general business/personal changes from the IRS and State levels.

At Compass, we have moved to a remote work environment for the safety of our staff and their families. We were able to implement protocols to ensure that all of our client’s work is handled as efficiently as possible. If you have any questions please contact us via email. It’s the best way to reach our staff and get any questions answered quickly.

This crisis has caused significant financial hardship and uncertainty for many of our clients. We are actively working to financially stabilize your companies and provide assistance with planning, government relief loans, and account management on your behalf.

 

There are a number of enacted and proposed relief items to make everyone aware of.


At this point this is what has been made official:

  • 50 billion emergency SBA lending (below 2m per loan) for small businesses

  • IRS payment and due dates have been delayed by 90 days with no penalties or interest, the new due date is July, 15 th 2020

  • State moratorium on evictions and foreclosures (personal residences)

  • 95% Federally guaranteed 7A Loans (women and minorities)

  • Certain Credit Card companies have changed their payment policies, please check with your provider.


Here are some of the proposed measures that have been discussed and no official details are available:

  • Reimbursement for hourly employees that are not dismissed

  • $1,000-$2,000 payments per US Citizen (phased out by income)

  • State moratorium on evictions for businesses

  • Private banking banks are offering relief on payments of auto and loans

 

By the time you receive this, more programs might be available. We are in one of the most rapidly changing economic situations in history. We have already begun to submit SBA disaster loans for clients and can assist on preparation if needed. We are also available for review of any company financials to determine short term cash management and economic
outlook.

 

Please feel free to pass this along to family and friends who may also need this information for their businesses. We are working to get information disseminated to all who need it as efficiently as possible so we are open to assist them at this time as well. Feel free to pass on our contact information should they have questions. They can also reach out to Becky Quinto (Becky@compassnumbers.com) who will schedule a time for one of us to speak with them. The office line is 310-921-8225.

 

We have weathered storms with clients before and we are here for you now should you need us. We are all in this together. If you need assistance with any financial or tax matters for your business, please do not hesitate to reach out and we will. Our team is ready to help and assist. While the future outlook remains uncertain, we are dedicated to finding solutions that will allow your business to survive this difficult period and emerge stronger when the world returns ready to do business again.

 

We remain committed to all of our clients and ensuring they are here today and for many years to come.

 

Sincerely,
 

Erik Fernandez & Mario Franqui Jr.
Founding Partners
Compass Accounting, LLP

To download this correspondence, please click the icon. >>>

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