SBA Re-Opening Paycheck Protection Program to Small Lenders on Friday, January 15 and All Lenders on Tuesday, January 19
Lenders with $1 Billion or Less in Assets Will be Able to Submit First and Second Draw PPP Applications on Friday – Continuing Dedicated Access for Community-Based Lenders
WASHINGTON – The U.S. Small Business Administration, in consultation with the U.S. Treasury Department, will re-open the Paycheck Protection Program (PPP) loan portal to PPP-eligible lenders with $1 billion or less in assets for First and Second Draw applications on Friday, January 15, 2021 at 9 am ET. The portal will fully open on Tuesday, January 19, 2021 to all participating PPP lenders to submit First and Second Draw loan applications to SBA.
Earlier in the week, SBA granted dedicated PPP access to Community Financial Institutions (CFIs) which include Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), Certified Development Companies (CDCs), and Microloan Intermediaries as part of the agency’s ongoing efforts to reach underserved and minority small businesses.
On Friday, SBA will continue its emphasis on reaching smaller lenders and businesses by opening to approximately 5,000 more lenders, including community banks, credit unions, and farm credit institutions. Moreover, the agency also plans to have dedicated service hours for these smaller lenders after the portal fully re-opens next week.
“A second round of PPP could not have come at a better time, and the SBA is making every effort to ensure small businesses have the emergency financial support they need to continuing weathering this time of uncertainty,” said SBA Administrator Jovita Carranza. “SBA has worked expeditiously to ensure our policies and systems are re-launched so that this vital small business aid helps communities hardest hit by the pandemic. I strongly encourage America’s entrepreneurs needing financial assistance to apply for a First or Second Draw PPP loan.”
“We are pleased to have opened PPP loans to CDFIs, MDIs, CDCs, and Microloan Intermediaries. The PPP is already providing America’s small businesses hardest hit by the pandemic with vital economic relief,” said Secretary of the Treasury Steven T. Mnuchin. “As the Program re-opens for all First and Second Draw borrowers next week, the PPP will allow small businesses to keep workers on payroll and connected to their health insurance.”
First Draw PPP Loans are for those borrowers who have not received a PPP loan before August 8, 2020. The first round of the PPP, which ran from March to August 2020, was a historic success helping 5.2 million small businesses keep 51 million American workers employed.
Second Draw PPP Loans are for eligible small businesses with 300 employees or less, that previously received a First Draw PPP Loan and will use or have used the full amount only for authorized uses, and that can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. The maximum amount of a Second Draw PPP loan is $2 million.
The legislation, the Consolidated Appropriations Act, 2021, adds $300 to extended weekly unemployment benefits, and provides more than $300 billion in aid for small businesses. It also ensures tax deductibility for business expenses paid with forgiven Paycheck Protection Program (PPP) loans, provides fresh PPP funding, makes Sec. 501(c)(6) not-for-profit organizations eligible for loans for the first time, and offers businesses facing severe revenue reductions the opportunity to apply for a second loan.
The COVID-19 relief package is tied to a $1.4 trillion resolution to fund the government through September 2021. The Senate approved the bill with a 92-6 vote at about 11:45 p.m. Dec. 21, just a couple of hours after the House approved it 359-53.
Key provisions in the bill include:
$325 billion in aid for small businesses struggling after nine months of pandemic-induced economic hardships. The bill provides more than $284 billion to the U.S. Small Business Association (SBA) for first and second PPP forgivable small business loans and allocates $20 billion to provide Economic Injury Disaster Loan (EIDL) Grants to businesses in low-income communities. In addition, shuttered live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding while $12 billion will be set aside to help business in low-income and minority communities.
$166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent.
$120 billion to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
$25 billion in emergency rental aid and an extension of the national eviction moratorium through Jan. 31, 2021.
$45 billion in transportation funding, including $16 billion for airlines, $14 billion for transit systems, $10 billion for state highways, $2 billion each for airports and intercity buses, and $1 billion for Amtrak.
$82 billion in funding for colleges and schools, including support for HVAC repair and replacement to mitigate virus transmission, and $10 billion in child care assistance.
$22 billion for health-related expenses incurred by state, local, Tribal, and territorial governments.
$13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.
$7 billion for broadband expansion.
The bill includes the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR) which extends and expands upon the Employee Retention Credit (ERC) provided by the CARES Act.
Beginning on January 1, 2021 and through June 30, 2021, TCDTR extends and expands the following
CARES Act provisions:
- Increases the ERC rate from 50% to 70% of qualified wages (Sec. 207(a)(2)(b)).
- Expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility (Sec. 207(d)(2)(B)).
- Increases the limit on per- employee creditable wages from $10,000 for the year to $10,000 for each quarter (Sec. 207(a)(2)(c)).
- Increases the 100- employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees (Sec. 207(e)(1)).
- Allows certain public instrumentalities to claim the credit (Sec. 207(d)(3)).
- Removes the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers.
- Allows businesses with 500 or fewer employees to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year (Sec. 207(e)(1)).
- Provides rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit (Sec. 207(d)(1)(B)); and
- Provides for a small business public awareness campaign regarding availability of the credit to be conducted by the Secretary of the Treasury in coordination with the Administrator of the Small Business Administration (Sec. 207(i)).
- Retroactive provisions. Retroactively effective March 12, 2020, TCDTR:
- provides clarification for the determination of gross receipts for certain tax-exempt organization (Sec. 206(a)).
- reaffirms prior IRS guidance that group health plan expenses can be considered qualified wages even when no wages are paid to an employee (Sec. 206(b); and
- provides that employers who receive a Paycheck Protection Program (PPP) loan may still qualify for the ERC for wages that are not paid for with forgiven PPP proceeds (Sec. 206(c)).
- Disaster relief. Section 303 provides a tax credit for 40% of ages (up to $6,000 per employee) paid by a disaster-affected employer to a qualified employee. The credit applies to wages paid without regard to whether services associated with those wages were performed. Certain tax-exempt entities are provided the option to claim the credit against payroll taxes.
Breaking down the PPP provisions
The return of the PPP is of particular interest to accountants, who played a significant role in helping millions of small businesses acquire $525 billion in forgivable loans during the five months the program was accepting applications, according to SBA reporting. The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences. The following is a high-level view of the PPP provisions.
Who is eligible to apply
PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:
- Have 300 or fewer employees.
- Have used or will use the full amount of their first PPP loan.
- Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” (as defined in the act), provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15, 2020.
PPP2 will also permit first-time borrowers from the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.
The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.
PPP loan terms
As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.
PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.
Simplified application and other terms of note
The new COVID-19 relief bill also:
- Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
- Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
- Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.
- Tax deductibility for PPP expenses
**Other notes and considerations
The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.
While the CARES Act excluded PPP loan forgiveness from gross income, it did not specifically address whether the expenses used to achieve that loan forgiveness would continue to be deductible, even though they would otherwise be deductible. In April, the IRS issued Notice 2020-32, which stated that no deduction would be allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan because the income associated with the forgiveness is excluded from gross income for purposes of the Code under CARES Act Section 1106(i).
In November, the IRS then expanded on this position by issuing Rev. Rul. 2020-27, which held that a taxpayer computing taxable income on the basis of a calendar year could not deduct eligible expenses in its 2020 tax year if, at the end of the tax year, the taxpayer had a reasonable expectation of reimbursement in the form of loan forgiveness on the basis of eligible expenses paid or incurred during the covered period.
President Donald Trump signed on Sunday evening a $900 billion pandemic relief bill into law that includes enhanced unemployment benefits and direct cash payments. The measure is the second-largest federal stimulus package after the $2 trillion CARES Act that Congress approved in March.
Lawmakers passed the bill last Monday, just in time to get something done before the end of December, when several aid programs in the CARES Act were set to expire, including key pandemic jobless assistance measures and eviction protections.
Here’s some of the major points:
The package sends direct stimulus payments of $600 to individuals, half the amount provided in the first round of checks, which went out in the spring. Eligible families will receive an additional $600 per child — which is $100 more than Congress gave families in the first round of relief last spring. Eligible children are 16 and under on the 2019 Tax Return. If a child was born in 2020, they are not eligible since they are not documented in the 2019 Tax Return.
The payments start phasing out for individuals with adjusted gross incomes of more than $75,000, and those making more than $99,000 will not receive anything. The income thresholds are doubled for couples. The amounts will be based on 2019 incomes. Those who filed their 2019 tax returns will receive their money automatically, as well as Social Security recipients and those who uploaded their bank account information using the IRS’s online portal to receive their first payments.
Undocumented immigrants who do not have Social Security numbers remain ineligible for the payments. But in a change from the first round, their spouses and children are now eligible as long as they have Social Security numbers.
Eligible Unemployed will receive a $300 weekly federal enhancement in benefits through March 14. The amount is half of the earlier federal boost, which ran out at the end of July. Also, the package extends by 11 weeks two other pandemic unemployment programs that were created in the CARES Act in March and were set to expire at year’s end.
- The Pandemic Unemployment Assistance program: initially expanded jobless benefits to gig workers, freelancers, independent contractors, the self-employed and certain people affected by the coronavirus for up to 39 weeks.
- The Pandemic Emergency Unemployment Compensation program: provided an additional 13 weeks of payments to those who exhaust their regular state benefits.
Both programs will now close to new applicants on March 14th but continue through April 5th for existing claimants who have not yet reached the maximum number of weeks.
Also, the measure provides a federally funded $100 per week additional benefit to those who have at least $5,000 in annual self-employment income but are disqualified from receiving Pandemic Unemployment Assistance because they are eligible for regular state unemployment benefits; In addition, the package gives states the authority to waive overpayments in cases where the claimant is not at fault.
The package also continues full federal financing of extended benefits through mid-March, providing up to 20 additional weeks of payments depending on a state’s unemployment rate. Typically, states and the federal government split the tab. Fewer than two dozen states now offer extended benefits because of the improving economy.
Payment Protection Program & Small business loans
The package reopens the Paycheck Protection Program so that some of the hardest-hit small businesses can apply for a second loan. The program stopped taking applications for the first round of loans in August.
The second loans will be limited to those with fewer than 300 employees that have seen drops of at least 25% of their revenue during the first, second or third quarter of 2020. It also reduces the amount a borrower can receive from $10 million to $2 million, gives businesses more flexibility on how they spend the money and simplifies the forgiveness process for loans under $150,000. It carves out $12 billion for minority-owned businesses. It also expands eligibility to more nonprofits as well as local newspapers, TV and radio broadcasters.
Grants for theaters and other live venues
The package creates a $15 billion grant program for live venues, theaters and museum operators that have lost at least 25% of their revenues. The initial grant can total up to $10 million per eligible business. A second grant, worth half the amount of the first, may also be available. The money will be for specified expenses such as payroll costs, rent, utilities and personal protective equipment.
During the first 14 days of the program’s implementation, grants will be awarded to those who have faced 90% revenue losses. Then, those who have experienced at least 70% revenue losses will be eligible during the next two weeks. After the first month of the program, any other eligible businesses can receive grants.
Funding for schools and child care
It provides $82 billion in aid for K-12 schools and colleges. An additional $10 billion is included to support child care providers that have struggled because of the pandemic.
It extends until January 31 the eviction protection set to expire at the end of the year. It also provides $25 billion in rental assistance for individuals who lost their sources of income during the pandemic.
Federal nutrition assistance
The package raises SNAP benefits by 15% for six months but does not expand eligibility. This is more generous than the original bipartisan agreement from earlier in December, which called for a four-month increase.
It also expands the Pandemic-EBT program to families with children under age 6 who receive food stamps, deeming them “enrolled” in child care and eligible for benefits. The program now provides money to low-income families with school-age children in lieu of the free and reduced-price meals they would have received in school.
The package sends $400 million to food banks and food pantries through The Emergency Food Assistance Program.It also provides $175 million for nutrition services for seniors, such as Meals on Wheels, and $13 million for the Commodity Supplemental Food Program, which serves more than 700,000 older Americans monthly.
Vaccine and hospital funding
It provides $20 billion for the purchase of vaccines so they can be available at no charge for those who need it, as well as another $8 billion for vaccine distribution. It also gives states $20 billion to assist with testing. And it adds $3 billion to the $175 billion fund for hospitals and health care providers for reimbursement of health care-related expenses or lost revenue resulting from the pandemic. The original agreement would have given them another $35 billion.
Payroll tax repayment Employers who are deferring their workers’ payroll taxes under President Trump’s executive action from August now have until the end of 2021 to increase their employees’ withholding to pay back the taxes owed. Originally, the deferred amount
Revisions to Loan Forgiveness and Loan Review Procedures were issued on Thursday, October 8. In these revisions made by the Small Business Administration (SBA) and the Treasury Department, recipients of Paycheck Protection Program (PPP) loans of $50,000 or less will be able to apply for forgiveness using a simplified application. The new application, Form 3508S, is one and a half pages long and requires the borrower to verify that the amount that is being requested for forgiveness is in accordance with PPP requirements. Documentation consists of payroll and non-payroll costs such as mortgage interest payments, rent, or utility costs.
Looking at the instructions to Form 3508S, it is clear that for borrowers who fall into this category of having PPP loans of $50,000 or less will not receive automatic forgiveness. The good news is that the standard application for forgiveness (Form 3508) is long, confusing, and time-consuming, however, the new form completely removes this. This simplified application incorporates a new interim final rule (IFR) providing new guidance concerning forgiveness and loan review processes. Specifically, a borrowers of a PPP loan of $50,000 or less is no longer required to reduce the amount eligible for forgiveness if the borrower:
- Reduces the salary or hourly wage of an employee (who earned less than $100,000 in 2019) during the “covered period” following the borrowing relative to the first quarter of 2020, or
- Reduces full-time equivalent employees (FTEs) during the covered period relative to a base period.
Meaning, that borrowers are exempt from the PPP requirement that FTE employee numbers pre-pandemic must remain the same during the covered period as well as not reducing employee wages. The CARES Act (Section 1106) gave the authority to the SBA Administrator as well as the Treasury Department to create such exemption.
Aside from those very important exemptions, the application process is largely the same. Borrowers must still compute the amount that they are eligible for forgiveness, but now borrowers do not have to show their math. However, that math should stay readily available in case the SBA requests it at any time.
The SBA is currently processing these forgiveness claims. Borrowers that seek forgiveness must submit a form and accompanying documents within 10 months from the end of their covered period. The lender will then have 60 days to determine whether the loan was forgiven.
There have been 5.2 million approved PPP loans, 3.57 million of which were for $50,000 or less. These loans accounted for $62 billion of the allotted $525 billion in PPP loans. This new forgiveness application can help millions of borrowers.
For those who are not eligible to use the Form 3508S and, instead, have to use Form 3508, a set of step-by-step instructions which is linked here.
For use of any of the forms mentioned here, please see below:
Submitted by: Kendra May
After meeting every day for more than a week, Nancy Pelosi (House Speaker, D-California), Chuck Schumer (Senate Minority Leader, D-New York), Steven Mnuchin (Treasury Secretary), and Mark Meadows (White House Chief of Staff) are trying to find a compromise between the
Democrats’ $3 trillion proposal and the Republicans’ $1 trillion package. While negotiations are still going on, the framework for the next stimulus package called the March to Common Ground has been released. The March to Common Ground includes proposals and key compromises from both parties. The Proposals are being led by Representative Josh Gottheimer (D-New Jersey) and Representative Tom Reed (R-New York) and are being supported by 50 lawmakers—25 Democrats and 25 Republicans.
THE MARCH TO COMMON GROUND
The United States Treasury has already claimed they would accept a $1.5 trillion deal, however the Democrats may have to make more compromises for the deal to go through. As of right now, all eyes are on the Democrats to see if there will be a successful compromise. The framework for the March to Common Ground includes:
- $1,200 second stimulus checks and $500 per child and dependent adults
- $450-$600 weekly unemployment benefits
- $500 billion to state and local governments
- $290 billion for Paycheck Protection Program and other small business programs
- $100 billion for virus testing and tracing and public health
- $25 billion for mortgage and rental assistance
- $145 billion for schools and child care
- $25 billion for broadband, agriculture, Postal Service and Census
- $11 billion for WIC and SNAP assistance
- $400 million for 2020 elections
- Student loan forbearance through December 31, 2020
- Worker and Liability Protections
PAYCHECK PROTECTION PROGRAM
The Paycheck Protection Program (PPP) was created to help small businesses during the COVID-19 pandemic. It is a loan program designed to provide a direct incentive for small businesses to keep their workers on the payroll to reduce unemployment. Most small businesses who took out a PPP loan earlier in the year have exhausted the resources, and for many, the company and their employees are hanging in the balance.
A major component of the March to Common Ground relief framework includes $290 billion for the PPP and other small business programs. $240 billion of this fund is allotted for the PPP which will allow small businesses to take out a second PPP loan and will allow for a simplified forgiveness process. In addition, $50 billion has been allotted for the Targeted Employee
Retention Tax Credit (ERTC).
ANOTHER DELAY TO THE BILL
On Tuesday, September 22, House of Representative leaders abruptly delayed plans for a floor vote on a stopgap funding measure that is needed to avoid a partial government shutdown. Even with the stopgap funding measure passed in the House, it still needs to be approved by the Senate and President Trump to ensure the government does not have a shutdown in eight days. Continual hiccups of this nature will slow down congressional leaders and their approval of the March to Common Ground as well as other bills.
According to the Small Business Administration (SBA), there was $518 billion in funding for the 4.9 million Paycheck Protection Program (PPP) loans that were approved. However, Goldman Sachs reported that 84% of small businesses that received a PPP loan will have exhausted the funding by the beginning of August. With October right around the corner, most small businesses have indeed exhausted all their funds and many businesses are fighting to stay afloat amid the COVID-19 pandemic. Furthermore, businesses located in distressed areas and operated by people of color did not have the ability to obtain anything from the first round of PPP loans.
To mitigate businesses from falling under, $240 billion for a second-round of PPP loans could help sustain businesses. This PPP loan would include flexible use, full transparency, simplified forgiveness, and prioritize distressed businesses. Borrowers would have an easier application as there will be significantly less paperwork to fill out for loans under $150,000 but would still have to maintain the record as SBA reserves the right to “review and audit these loans to ensure against fraud.” The flexible use could include allowing businesses to use the loan for face masks, plexiglass shields, improving HVAC system, and/or adding furniture that encourages social distancing.
With $145 billion remaining from PPP to be re-appropriated, $95 billion of the money can be distributed into a variety of things, including $11 billion for Community Development Financial Institutions Funds (CDFIs), $17 billion for small/community banks, $17 billion for mid-sized banks, and $50 billion for Economic Injury Disaster Loans (EIDLs). The CDFI program offers both financial assistance and technical assistance to CDFIs. This assistance allows the CDFI organizations to meet the needs of the communities they serve by financing businesses and providing affordable housing units. Small and mid-sized banks would benefit from the relief by not collapsing after loaning money to businesses that have gone bankrupt due to the pandemic. The EIDL program is designed to provide economic relief to businesses affected by COVID-19. This covers working capital and normal operating expenses such as:
- Health care benefits
- Fixed debt payments
The other $50 billion can be used for Targeted Employee Retention Tax Credit (ERTC). This is a refundable tax credit against certain employment taxes equal to 50% of the qualified waged an eligible employer pays to employees from March 12,2020 to January 1, 2021. Those eligible can receive immediate credit by reducing employment tax deposits.
The Main Street Lending Program should also be rectified to help businesses in need. This program was established on April 9, 2020 by the Federal Reserve to support small to medium profit businesses and nonprofit organizations that had good financial standing before COVID-19. The Federal Reserve will buy 95% of new or existing loans to qualified employers, while the issuing bank will keep 5% to discourage irresponsible lending. In exchange for the loan, employers must make reasonable efforts to maintain payroll and retain workers.
However, even with these solutions, Congress has yet to pass the second-round PPP loans, and according to the Silicon Valley Business Journal, the chances of a second round of PPP loans or any small business stimulus from Congress is beginning to fade as the election nears.
Despite the $630 Billion funding provided by the Treasury Department and Small Business Administration (SBA) through the Payroll Protection Program (PPP) to assist small businesses survive during the Covid-19 crisis and subsequently over 170,000 jobs saved, there are almost 140,000 small businesses that still remain closed. Of the closed businesses, approximately 41% will remain that way permanently, according to Yelp’s Economic Impact Report.
Business owners are now wondering what happens to a small business that received PPP loans if it goes out of business. Loan forgiveness will depend if funds were completely utilized for the purposes of keeping the business open, regardless of amount. The PPP program states that if a PPP beneficiary utilized all funds within the time-frame given them (eight weeks, or twenty-four weeks for those who received an extension thanks to the PPP Flexibility Act), and can demonstrate that 60% of the loan went to payroll, then the PPP loan qualifies to be completely forgiven. However, should the beneficiary not meet the requirements for loan forgiveness, then any amount remaining must be repaid.
Businesses that borrowed PPP and/ or disaster loans of $25,000 or less will generally benefit from more favorable terms from lenders, according to financial experts. In the event of bankruptcy, loans of small amounts can generally be forgiven, provided the borrower acted in good faith (utilized funds as stipulated). However, if small businesses misused its PPP loans and then closed permanently, the SBA and Treasury have made it clear they intend to pursue monies owed.
In the unfortunate event the borrower cannot repay the loan and defaults, the consequences will depend on the loan amount borrowed. For example, businesses that borrow PPP and EIDL (Economic Injury and Disaster Loan) funds of $25,000 or less are not required to provide collateral or personal guarantees to the financial institution. As such, lenders usually are not able to seize business or personal assets to cover the loss. This does not mean that the business owner is out of the woods! Keep in mind that PPP and EIDL loans are government loans, thus making the U.S. Government the actual lender. Although personal or business property may not be seized, the federal government can report borrowers who default to all credit bureaus, making it very difficult to obtain future credit. And even if a business (in default) can obtain credit, it will mostly likely come with a high interest rate. Furthermore, the federal government can also seize any income tax refunds or other amounts owed to the borrower.
For business owners that borrowed amounts, specifically EIDL (Economic Injury and Disaster Loan) loans, greater than $25,000 this situation becomes a bit more complex. Should the business close permanently and is not able to repay amounts owed, the SBA can appropriate any assets, including warehouse inventory, receivables, machinery, trucks and other items to cover the borrower’s debts.
In addition, businesses that received EIDL amounts of $200,000 or greater, which requires borrowers to provide personal guarantees before loans are granted, can have even their personal property, including cars, bank accounts, investments and/ or personal tax refunds seized to cover outstanding amounts. “That is a much scarier proposition,” said Paul Becht, CPA, partner at Margolin, Winer & Evens, of personal guarantees required for large EIDL loans.
THE SILVER LINING – CHAPTER 11 BANKRUPTCY TO THE RESCUE
Despite millions of small businesses receiving federal aid to survive the pandemic crisis, many businesses expect to close permanently. “I think this will become one of the biggest issues [for loan recipients],” said Nick Oberheiden, a Dallas-based attorney. “I received the loan, I’m going out of business, now what happens to my loan liability?”
There is, however, a silver lining: rather than defaulting, businesses can seek protection by filing for Chapter 11 Bankruptcy under the Small Business Reorganization Act. Chapter 11 Bankruptcy permits “small businesses a really fast and unbureaucratic reorganization while they’re in bankruptcy protection,” said Mr. Oberheiden. Normally, PPP and EIDL loans can be dismissed in bankruptcy, per Michael Brauneis, managing director of Protiviti, a financial services consulting firm. However, as Sharon King, Executive Director of the Boulder Small Business Development Center points out, “most or all of the loan is likely to be discharged as part of the process (provided) the borrower has acted in good faith.”
The SBA has yet to provide additional instruction pertaining to PPP and EIDL loan forgiveness, particularly for business that closed permanently, or are in bankruptcy protection. Once guidance is provided, borrowers should have a better idea on how their PPP and disaster loans will be handled.
With the deadline for applying for a Small Business Administration (SBA)’s Payment Protection Program (PPP) extended, additional businesses are taking advantage of applying for a PPP business loan. Once business have utilized the funds to pay employees and company expenses, borrowers can apply for either loan forgiveness, or if not all the funds were utilized, begin repayment of the remaining portion. To simplify repayment, the Small Business Administration (SBA), in conjunction with the U.S. Treasury Department, plans to release a new online portal to simplify the PPP. FIS (Fidelity National Information Services), a provider of financial technology services to business and communities world-wide, is developing the online. The SBA aims to have the web portal available in August.
Available to all businesses and lenders, the portal will provide an easier method for executing the PPP loan forgiveness procedure from start (application filing) to finish (approval). Financial institutions can set up the FIS Portal quickly, with minimal time consumption. Once setup, lenders can enter data pertaining to borrowers and their corresponding loans, so that pre-filled applications can be provided to borrowers for quick completion and submission. Required documentation proving funds used to cover mortgage payment, utilities, required amount to payroll and other expenses, can be uploaded digitally to the portal as well.
The FIS Portal determines the loan amount that will be forgiven based on the information provided. The results are presented to the lender for review and/ or approval, then to the borrower (and back to lender) for e-signature (electronic signature). Once the application is processed completely, the Portal submits the documents to the SBA for confirmation.
“As a critical infrastructure provider, FIS is focused on making it as easy as possible for small businesses and merchants to complete the loan forgiveness process and help them get back to business as soon as possible,” said Rob Lee, head of Global Core Banking and Channels, FIS. “Our new portal uses advanced automation technology to handle the entire process, reducing the time and complexity for businesses in getting forgiveness of the essential loans that are critical to their business.”
FIS Real-Time Lending previously helped expedite the distribution of SBA PPP Loans through financial institutions to borrowers impacted by the Covid-19 crisis.
The Harris County Small Business Recovery Fund (SBFR), a $30 million grant program approved on June 30th to aid small businesses that have not received Covid-19 related economic relief, took effect yesterday, Monday, July 13, 2020 at 8am. The SBFR program will run for ten (10) business days. The last day to submit applications will be Friday, July 24, 2020 at 3:30pm.
Funded through Harris County, the SBFR program is designed to help small business owners remain open as Texas continues to fight the coronavirus crisis. Businesses that meet certain criteria will be awarded grants up to $25,000 to assist covering expenses including Payroll, rent, accounts payable, utilities and other operating costs.
“The impact of this crisis on small businesses has been devastating. We can’t afford to lose a source of jobs, innovation and the enterprising spirit our region is known for,” Harris County Judge Lina Hidalgo said. “These grants will help business owners stay afloat as Harris County continues to fight the COVID-19 crisis.”
Eligible businesses that qualify for the Harris County SBRF grants include (but are not limited to):
- Sole Proprietorship
- Self-Employed Individuals
- Independent Contractors
Organizations including gambling, residential builders, speculative real estate investors and sexually oriented businesses are not eligible to apply.
Eligible firms (for and non-profit) must meet the following requirements to qualify for financial relief funds:
- Must have been operating for the entire 2019 calendar year;
- Must have 30 or fewer employees;
- Be in good standing with local, state, and federal governments with no outstanding tax obligations or liabilities;
- Must be located within Harris County. Organizations located within the city of Houston are not eligible for the program unless they are located within Precinct One; and,
- Must prove that the Covid-19 pandemic negatively impacted operations.
Qualifying businesses can apply for SBRF assistance online at www.harriscounty-sbrfund.org. Applicants that cannot apply online may call (713) 845-2476 for information on filing an application by mail or email.
In addition to the application, businesses must also include the following supporting documentation:
- Business tax return for 2018 or 2019
- Income and expenses for 3 months
- Articles of incorporation, business license or DBA certificate
- W-2 statement, pay stubs, or personal tax return.
Businesses approved for SBRF aid will receive 75% of the amount granted within 30 days from the date the program closes (July 22, 2020). To receive the remaining 25% of grant aid, businesses must show proof that it is still operating as of November 30th, 2020.
Organizations that have previously received Covid-19 aid through the SBA’s Payroll Protection Program and other state or local finical relief are also eligible to apply for SBRF relief. However, businesses that have not yet received any assistance from Federal or Local assistance programs are receiving priority.
As the Covid-19 Pandemic continues to hit the U.S. economy, businesses are struggling to maintain afloat. As a result, consumers, who are now either unemployed or dealing with cuts in pay are having to reprioritize what goods and services to consume. This has led to a surprise growth in some business sectors, while others continue to deal with dropping demand.
The new challenges posed by the Covid-19 Pandemic are being overcome through the implementation of ingenuity: creating new business strategies. Businesses that are implementing new business models are expected to see increased sales, despite restrictions local authorities have enacted to reduce the spread of the Coronavirus.
There are already several business sectors that are implementing new strategies, including:
- Restaurants :
– If consumers cannot dine at the facility, restaurants are now offering online ordering and delivery service.
– Groceries and paper goods can now be purchased at many restaurants.
- Businesses with more than 50 employees (including large, multinational corporations) are enabling their employees to work from home by setting up home offices.
- Furniture stores, seeing an increase in the need for office furniture as more workers are working from home, have increased inventory and are providing quick delivery of office equipment to employees homes.
- Grocery stores have begun offering both curb side pickup and same day delivery of grocery items .
- Telehealth – With the use of a wide variety of modern technology and services, healthcare professionals can now impart non-clinical services, such as provider training, administrative meetings, and continuing medical education, in addition to clinical services, to organizations worldwide.
- Telemedicine –Health care professionals are now utilizing telecommunications (computer or mobile phone) to evaluate, diagnose and treat patients remotely. This trend is quickly becoming part of the new norm in medical care.
Lastly, small businesses should remember to continue implementing that magic ingredient that keeps clients coming back: Good customer service and personal interaction ! Always remember these four steps:
- Put yourself in the place of the consumer: be ready to provide not only great service, but respect any precautions that the client may follow at home.
- Be honest with consumers: Offer solutions to what they truly need.
- Go the extra mile. Understand that we are all in the same boat, trying to get past this pandemic. Clients are feeling what you feel. And,
- Keep in contact with clients (email, social media). Let them know you are there if they need you.
In the wake of these unprecedented times, the world economy is changing the landscape of how we conduct business, and in retrospect, is expected to last beyond the Covid-19 pandemic. Particularly as businesses begin to save on office rental costs, consumers save time by having groceries ready for curb-side pickup, and even virtual doctor visits becoming more common, the full potential offered by digital communication in the form of e-commerce will finally reveal itself.
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