Q: Which government loan doesn’t need to be re-paid if used for certain expenses?
A: The Paycheck Protection Program (PPP), which is part of the CARES Act. PPP loans may be forgiven for the amount of the loan equal to the amounts paid for qualifying costs. Qualifying costs include:
- Payroll costs
- Mortgage interest
- Lease payments
- Utilities paid
Learn more here: https://www.guidantfinancial.com/relief.
PPP loan forgiveness is subject to limitations, which include:
- $100k annual run-rate cap per employee
- The percentage of forgiveness may be reduced based on a calculation of number of eligible employees during the first eight weeks of the loan – compared to either February 15, through June 30, 2019 OR January 1 through February 15, 2020.
Q: Can I apply for the both the Paycheck Protection Program loan and an SBA Economic Injury Disaster Loan?
A: Yes. You can apply for both a Paycheck Protection Program loan and an SBA Economic Injury Disaster Loan. If you’re approved for both, you’ll just need to use the funds for different costs. For example, you can use PPP funds to cover your payroll costs and use your EIDL to pay your mortgage or lease.
Q: Who needs to sign the Paycheck Protection Program loan application?
A: Anyone who owns 20 percent or more of the business needs to sign the PPP loan application. If your 401(k) plan owns over 20 percent of the business, any trustee of the plan can sign on behalf of the plan. This application doesn’t require the SBA Waiver because PPP loans don’t need personal guarantees – unlike EIDLs.
Q: Who needs to sign the Economic Injury Disaster Loan application?
A: Anyone who owns 20 percent or more of the business needs to sign the EIDL loan application, as well as a personal guarantee. If your 401(k) plan owns over 20 percent of the business, you’ll need the SBA Waiver to waive the 401(k) as a guarantor.
Q: Do the SBA disaster loan (EIDL) or the CARES Act loan (PPP) require an SBA waiver?
A: The SBA disaster loan (which is called the Economic Injury Disaster Loan or EIDL), does require the SBA Waiver. PPP loans don’t require the SBA Waiver.
The EIDL needs the waiver because the SBA requires a guarantee from any shareholder who owns more than 20 percent of the business. PPP loans don’t require collateral or a guarantee and are non-recourse, so they don’t need a waiver.
Q: What is included as payroll expense in the CARES Act?
A: Payroll expenses include:
- Salary, wage, variable compensation (bonuses, tips, commissions)
- Severance payments
- Payments made for vacation, parental, family or sick leave
- Payments required for group healthcare benefits including insurance premiums
- Retirement benefits
- State and local tax paid as a result of the compensation for employees
These payroll expenses are excluded. They won’t count towards your maximum loan amount or loan forgiveness:
- Compensation of anyone whose salary is above $100,000 (as prorated for the period of Feb 15 – Dec 31, 2020)
- Compensation for any employee whose principal residence is outside of the U.S.
- Qualified sick or family wages covered by a credit under the Families First Coronavirus Reponse Act
- Payroll, income, or railroad retirement taxes
Q: Can you help me fill out the application for the Economic Injury Disaster Loan?
A: While we’re eager to work with you and support you to the best of our ability, we’re not experts on the EIDL program. If there was a problem with your application, it could delay your relief funds – and we never want to put our clients at risk.
For help with the EIDL application, you can reach SBA customer support at 800-877-8339 or [email protected].
Q: What are the EIDL and PPP loan application processes?
A: PPP loans and EIDLs are applied for through different processes.
Paycheck Protection Program Application Process
Banks can begin processing PPP loans on 04/03/2020 for most small businesses. Bank processing for sole-proprietors, independent contracts, and self-employed individuals begins on 04/10/2020.
1. Fill out the application form.
Here’s a walkthrough from Guidant on how to fill out the application:
2. Prepare documentation:
- 2019 and 2020 year-to-date monthly profit and loss statements
- 2019 and 2020 year-to-date payroll reports
- State income, payroll, and unemployment insurance filings
- TAX ID/EIN and complete ownership information
Banks can vary on the documents they require, so you might need additional documents – check with your bank.
3. Call your bank to find out if they’re participating in the Paycheck Protection Program.
SBA Economic Injury Disaster Relief Application Process
You can apply directly with the SBA here: https://covid19relief.sba.gov
Here’s a walkthrough from Guidant on how to apply:
Q: Do I need to rehire laid-off employees as part of the Paycheck Protection Program?
A: No, you don’t have to bring back employees or restore their compensation. But the extent of fewer employees making at least 75 percent of their original compensation will reduce the percentage of eligible payroll expenses that can be forgiven.
Q: How do I account for employees for PPP loan forgiveness?
A: Take the average number of eligible employees during the eight-week period and divide them by either:
- The average number of employees per pay period from Feb 15, 2019 through Jun 30, 2019.
- The average number of employees per pay period from Jan 1, 2020 through Feb 15, 2020.
See the tutorial:
Q: Where should I get my most recent payroll information?
A: There are a few ways to access your payroll information:
- IRS Form 940 and Form 941.
- A W-3, or W-2 summary, shows an aggregated amount of all your W-2s. It should match the totals from all four of your quarterly Form 941s.
- If you’re with a major payroll provider like ADP or Paychex, you can access their customer portal.
Q: I haven’t paid myself a salary since I opened my business. How do I document that in payroll?
A: PPP loans are based on historical payroll costs. If you haven’t done any payroll (such as if you’re the sole employee), you won’t have any payroll to base the loan amount on. This would be a situation to consider an EIDL loan instead of a PPP loan.
Q: What are the new 401(k) Plan Loan Provisions that fall under the CARES Act?
A: The new 401(k) Plan Loan provisions allow for loans of up to 100 percent of your vested balance (with a cap of $100,000) and deferred payments for 12 months.
Q: Can employees who have made deferrals reverse them if furloughed?
A: No. However, new regulations do allow for up to a $100k hardship distribution due to economic hardship as a result of the COVID-1 outbreak. Taking this distribution lets you avoid early withdraw penalties, but it is taxable if the individual doesn’t return the amount loaned within three years.
We’re closely monitoring regulation changes to hardship withdraws for updates your employees can take advantage of. Employees can stop making deferrals by using the salary deferral agreement document found in the corporate and 401(k) plan documents that Guidant prepared for you.