SBA CPA Guidance
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed last Friday. The Act provides additional SBA loan funding for small businesses with fewer than 500 employees. Part or all of the loan can be forgiven if certain criteria are met.
Here is the summary of what it is, what you can do, and how we can help:
What it is:
- Your business can get a loan of up to 2.5 times your average monthly payroll costs for the preceding year.
- You can get up to all of the loan forgiven if you spend the loan on payroll, rent, mortgage interest, utilities, and you retain your employees.
What you need to do:
- Go talk to your bank IMMEDIATELY and ask for an application for the Paycheck Protection Program and what other documentation they need from you. If they don’t do this SBA Loan, then I suggest going to a bank that does.
- There is a cap on the amount of money that is allocated for this, so we suggest doing this as soon as possible.
What we can do to help:
- We can help you calculate your wages for the past year, which will give you the amount available for the loan.
- We can also help you with the nitty-gritty details of the calculations and forgiveness criteria.
Below are the initial details of the loan that determine payroll costs, payback, and loan forgiveness.
The loan amount is calculated as up to 2.5 times average monthly payroll costs of the year immediately preceding the loan issuance/application date.
The payroll costs above include:
- Salary, wage, commission, or similar compensation up to an annual wage of $100,000, prorated for the preceding year, and
- Payment for vacation, parental, family, medical, or sick leave (this DOES NOT include the mandatory sick leave from the Families First Coronavirus Response Act), and
- Payments for group health care benefits, including insurance premiums, and
- Payment of retirement benefit, and
- Payment of employer-paid state taxes based on compensation of employees, such as state unemployment, disability, reemployment, etc.
This loan is to be used for payroll costs, group health care benefits, employee pay, interest on mortgage obligations, rent, utilities, and interest on any other debt obligations that were incurred before the applicable period.
Forgiveness of the loan will be based on use of the funds over the 8 weeks after receiving the funds. It may be reduced if employees are not retained or employee wages are decreased. Up to 100% of the loan may be forgiven based on the combination of the following expenses during the 8-week period:
- Payroll costs (as defined above)
- Interest on a mortgage
If the sum of these expenses over the 8-week period is greater than or equal to the loan received, the entirety of the loan will be forgiven. If the sum of these expenses over the 8-week period is less than the loan received, then a portion of the loan equal to the total of those expenses will be forgiven. Due to the demand for these loans, it is expected that payroll costs should make up more than 75% of the use of the funds received to qualify for forgiveness.
Banks will be offering these loans. We have attached the application as well as a fact sheet provided to us from the SBA. As more information becomes available on this Act, we’ll send out applicable updates.
If you are self-employed, with no payroll, there are loans that may apply to you. We will send out updates as soon as we have it.