overview of loan options · recommend using a plp (preferred lending partner of sba) capped at $10...

ksmcpa.com/vetThe information presented herein is general in nature and

should not be acted upon without the advice of a professional. © 2020 KSM Business Services, Inc.

March 30, 2020

Terry O’Neil CPA, CVABeth Scott, CPANick Spanakis

Overview of Loan Options:CARES Act Loan Programs (Paycheck Protection Program) and

SBA Economic Injury Disaster Loans (EIDL)

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Disclaimer for PNC

CARES Act signed into law March 27, 2020

Key Points and Differences

Paycheck Protection Loan Program

SBA Economic Injury Disaster Loans (EIDL)

Brief Summary of Other Tax Provisions

Questions via Chat Submissions

Agenda

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© 2020 KSM Business Services, Inc.

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All information presented today was prepared by KSM Business Services.

PNC participation in presentation is limited to PNC remarks and opinions and not information included on

slides.

Disclaimer


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Team of Presenters

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Terence O’Neil, CPA, CVAPartnerT 317.580.2294

M 317.502.2724

E [email protected]

Beth Scott, CPAPartnerT 317.580.2085

M 317.464.9853

E [email protected]

Nick SpanakisExecutive Vice President, PNCT 216.222.8545

M 216.905.1191

E [email protected]

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Coronavirus Aid, Relief, and Economic Security (CARES) Act

© 2020 KSM Business Services, Inc.6

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▪ Both loans require a business to demonstrate that they are financially impacted now, or in the near future, because of COVID-19.

▪ SBA EIDL funding is issued by SBA, applicant applies directly to SBA.

▪ CARES Act (Paycheck Protection Program) funding is issued by banks/credit unions, applicant will work directly with bank/credit unions.

▪ A business cannot receive funding from both programs for the same expenses. A business can apply for SBA EIDL and choose to not accept funding once approved in order to take advantage of the CARES Act (Paycheck Protection Program). There is no obligation to take the loan if offered.

▪ Business can get EIDL and PPP loan. Proceeds just can’t be used for the same expenses. PPP could be used for 8 week period and EIDL proceeds can be used for post eight week period. This information was published in U.S. Senate Committee on Small Business.

▪ The CARES Act (Paycheck Protection Program) carries a loan forgiveness provision but this loan focuses on payroll, rent, utilities, and mortgage. The SBA EIDL does not carry a loan forgiveness provision.

▪ If a business has suffered with working capital but sales are still strong and they have not been impacted from a payroll perspective, the SBA EIDL may be more appropriate based on review.

Key Points and Differences Paycheck Protection v. EIDL


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▪ If additional loans are secured:▫ Coordinate with current lenders▫ Review loan covenants▫ Suggest you start with current lender▫ Be cautious with scams

Important Considerations


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Key Observations 1. Has widespread applicability to KSM’s client base. 2. Significant portion of the loan may be forgiven. 3. Loan forgiveness under this provision is non-taxable. 4. Maximum loan amount is $10 million. 5. Loan is nonrecourse (personal guaranty not required), collateral is not required. 6. Interest rate will be 4% or less. 7. There is no prepayment penalty. 8. $349 billion is allocated for this program. 9. Many of the procedural aspects have yet to be established. 10. SBA will look at character of applicant (felonies, etc.).

CARES ACT – Paycheck Protection Loan


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Good Faith Certification▪ Applicants must make good faith certification:▫ Uncertainty of current economic conditions supports the loan request and funds

needed to continue on going operations.- Funds will be used to retain workers or- Make mortgage payments, lease payments

▪ KSM’s understanding is that SBA within 30 days of enactment will issue guidance and regulations that will guide lending institutions in implementing the program.



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Paycheck Protection Program ▪ If a business has already let employees go, this bill covers rehiring them.▪ Loan needs to be made by June 30, 2020.▪ Generally applies to businesses (and nonprofits) w/ less than 500 employees. ▪ Employee includes a full-time or part-time employee. ▪ Need to be aware of affiliated entities (common control – this is a broader

concept than traditional IRC common control rules), except: food service, lodging, and restaurants.



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Maximum Loan Amount▪ Recommend using a PLP (preferred lending partner of SBA) ▪ Capped at $10 million▪ 100% loan guaranty by SBA through Dec. 31, 2020, then 85% ▪ Formula-driven: Payroll costs (average monthly) loan X 2.5 ▪ Maximum annual wage capped at $100,000 per employee▪ Need to look at each month payroll costs for past 12 months ▪ Average multiplied by 2.5▪ Rough estimate: ~ 10 weeks of payroll costs [4 weeks/month X 2.5]



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Payroll Costs

Includes

• Salary, wage, commission• Cash tips or equivalents• Vacation or other leave• Allowance for dismissal or separation• Payments for group health (insurance premiums)• Retirement benefit• Payment of state or local tax assessed on comp

Excludes• Compensation for employees > $100,000 (prorated over covered

period (2/15/20 - 6/30/20)• Compensation to employee with a principal residence outside the

U.S.• Qualified sick wages or family leave wages paid under Families First

Coronavirus Response Act for which the payroll tax credit is permitted

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How can Loan Proceeds be used? ▪ Payroll costs ▪ Continuation of group health care benefits during periods of paid sick, medical,

or family leave ▪ Employee salaries, commissions, or similar compensation ▪ Interest on mortgage obligations ▪ Rent – need to get clarity on self rented property ▪ Utilities ▪ Interest on other debt (that was incurred before 02/15/20)



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Loan Forgiveness Amount ▪ Entitled for forgiveness equal to the sum of the following (paid during the 8-

week period beginning on the loan origination date). ▫ Payroll costs▫ Covered mortgage interest obligation (mortgage on real or personal property

incurred prior to 02/15/20) ▫ Covered rent obligation (rent obligated under a leasing arrangement in force

before 02/15/20) ▫ Covered utility payment (electric, gas, water, transportation, telephone, internet

access which service began before 02/15/20) ▫ Loan forgiveness amount will not exceed amount of the loan



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Reduction of Forgiveness Amount ▪ Reduction in FTEs:

Loan Forgiveness Amount (X) Avg. # of FTEs per month (over 8-week period)Avg. # of FTEs (02/15/19 - 06/30/19)

OR

Avg. # of FTEs per month (over 8-week period) Avg. # of FTEs (01/01/20 - 02/29/20)

AND



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AND (continued)▪ Reduction in Salary/Wages: ▫ Forgiveness reduced by any reduction in total salary of any employee that is in

excess of 25% of the total wages for the employee during the most recent full quarter before the covered period. - Applies only to employees that received 2019 annualized salary of less than $100,000 - Omits special rule for seasonal employees omited

▪ Employers can mitigate – or eliminate these reductions – if they restore the number of FTEs and total salary by June 30, 2020.



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Loan Forgiveness Application ▪ Submission to lender: ▫ Verification of FTEs and pay-rates ▫ Payroll tax filings ▫ State income, payroll, and unemployment insurance filings ▫ Documentation that covered mortgage, rent, and utility obligations were made ▫ Certified statement that the amount of forgiveness was required to retain

employees or meet the covered obligations. ▪ Lender has 60 days to render a forgiveness determination



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Maturity ▪ If balance remains after loan forgiveness:▫ Maximum maturity = 10 years (from forgiveness application)▫ Interest rate not to exceed 4%▫ Appears to have a 6-month deferment once the repayment begins

Good Faith Certification ▪ Uncertainty of economic circumstances makes necessary the loan request to

support ongoing operations ▪ Funds will be used to retain workers and maintain payroll (or make

mortgage/rent/utility payments)



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SBA’s Economic Injury Disaster Loans (EIDL) Guidance▪ The SBA is offering states and territories low-interest federal disaster loans for

working capital issued in amounts ranging from $25,000 up to $2 million to small businesses and not-for-profit organizations suffering substantial economic injury as a result of the coronavirus (COVID-19) outbreak.

▪ The overall goal of this program is to provide working capital to businesses in need.

Eligible versus Ineligible ▪ Industries specifically identified as ineligible are:

▫ Religious▫ Agricultural▫ Charitable▫ Gambling

Economic Injury Disaster Loan (EIDL)


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How Does a Business Qualify?▪ While many factors go into qualifying for an Economic Injury Disaster Loan

(EIDL), a primary one is that a small business (less than 500 employees) has to show they have a financial impact or loss directly associated to COVID-19 and as a result are unable to pay their ordinary and necessary operating expenses.

▪ In discussions held, as the entire nation has been declared a state of disaster, there are no disqualifications of other financing means that typically exist with this type of loan (when in doubt, apply philosophy).



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How Can the Loans Be Used?▪ These loans may be used to pay fixed debts, payroll, accounts payable, and

other bills that otherwise could not be paid due to COVID-19. ▪ The loans cannot be used for dividends, bonuses, distributions, repayment of

stockholder loans (unless stockholder injected funds on interim basis and would face hardship if not repaid), or expansion of facilities or acquisition of fixed assets, refinancing long term debt.



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What Is the Interest Rate and Terms of the Loan?▪ The interest rate is 3.75% for small businesses and 2.75% for not-for-profit

organizations. Loan terms are for up to 30 years, structured with a 12-month principal and interest deferral. There are no prepayment penalties.

▪ The EIDL does not allow for loan forgiveness.▪ Currently, we are hearing that loans are taking 3-4 weeks for approval from

submission date. Initial disbursement of $25,000 will be made within five (5) days following approval. Please note there is some language in CARES act to expedite the process for EIDL loan approvals, but not yet defined.



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▪ It allows a borrower who has an EIDL loan related to COVID-19 to apply for a PPP loan, with an option to refinance that loan into the PPP loan. However, the emergency EIDL grant award of up to $10,000 would be subtracted from the amount forgiven under the Paycheck Protection Program.

▪ CARES Act provides from 1/1/20-12/31/20 SBA can advance $10,000 grant to each applicant, paid within three days after completing loan application.

▪ Existing EIDL borrowers not related to COVID-19 are also eligible to apply for PPP for payroll assistance but they cannot refinance into a PPP.



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▪ There is the EIDL which you can apply for and covers XYZ expenses and the loan is not forgivable.

▪ As part of CARES Act, there is an advance element of $10,000 with EIDL that can be financed into PPP but reduces the forgivable portion of the loan by the advance.

▪ As part of the CARES Act, there is the PPP loan which covers XYZ expenses and is forgivable based on ABC.

▪ Within the CARES Act, there is an opportunity to apply for EIDL and then subsequently for PPP. It is unclear at this point what options are available for those applicants who obtain the EIDL and also qualify for the PPP loan. The applicants SBA lender for the PPP should be able to help navigate as more details emerge.



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What Information Is Required to Apply for a Loan?▪ Completed application (SBA Form 5)▪ Tax Information Authorization (IRS Form 4506T)▪ Most Recent Federal Income Tax Returns for the Application Business (or an

explanation if not available)▪ Personal Financial Statement (SBA Form 413)▫ NOTE: If the applicant has this information in a different format, they can note it on

the form and attach with the signed form.▪ Schedule of Liabilities (SBA Form 2202)▪ Acceptable credit history



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Additional information that may be requested by the SBA:▪ Federal tax returns for principals owning 20% or more of the business, for

partners/managing members or affiliates (when owner has more than 50% ownership)

▪ Year-end financial statements for applicant if federal tax return has not been filed

▪ Interim financial statements▪ Monthly sales figures (SBA Form 1368)▪ Additional information may be required


27© 2020 KSM Business Services, Inc.

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Filing Notes▪ If the loan is denied, the applicant will be given up to six (6) months to

provide new information and submit a written request for reconsideration.▪ Ignore the credit elsewhere statement.▪ Articles we have read indicate that the applicant should put together a

letter to go with the application and it should include:▫ Amount of loan requested▫ A brief overview of what the business is and what it does▫ A description of how the business handles its cash flow▫ A description of “the injury”

- As part of this, if a business already knows they had to reduce payroll or if their working capital is reduced, or if they expect it to in April/May, any data they can provide to support will help the request.



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Website for application: https://disasterloan.sba.gov/ela/



https://disasterloan.sba.gov/ela/

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1. Click on Apply Online and the screen below appears.



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2. Scroll down until you see the screen below. The user will complete the applicable forms and attach them in this area. The user will then be required to input a description and email address. This appears to be the new process to submit information.



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KSM Contact for EIDL application assistance:▪ Fill out our form:▫ https://www.ksmcpa.com/blog/accessing-sba-s-disaster-relief-loans-as-a-result-of-

covid-19-ksm-can-help▪ Contact Terry:



Terence O’Neil, CPA, CVAPartner

T 317.580.2294

E [email protected]

https://www.ksmcpa.com/blog/accessing-sba-s-disaster-relief-loans-as-a-result-of-covid-19-ksm-can-help

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▪ $2 trillion - Largest spending bill passed in history of nation▪ Provisions include: (Further information from KSM will be made available)

▫ SBA loan options for small business – today main meeting agenda▫ Many tax law changes (some that modify December 2017 laws)

▪ Tax law changes include:▫ Delay in filing deadline from 4/15/2020 to 7/15/2020 including payment of 2019 tax liability and 1st quarter estimated

tax payment – need to check each state.▫ Net operating losses – allow five year carryback for 2018, 2019, and 2020, previously limited and to taxable income

limitation and could not be carried back.▫ Delay of Employer Payroll Taxes – Eligible Employers share 6.2%, to be paid 50% by 12/31/2021, and remainder

half by 12/31/2022 – Does not apply to Employers that have debt forgiven under CARES Act.▪ Benefits for individuals:

▫ $1,200 rebate for single filers with gross income up to $75,000.▫ $2,400 rebate for married filing jointly with gross income up to $150,000.▫ Qualifying children will add $500 per child▫ Unemployment, supplement tradition unemployment insurance of additional $600 per week for up to four

months.

CARES Act – Brief Summary


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▪ Eliminates the 10% early withdrawal penalty for qualified distributions up to $100,000 for coronavirus-related purposes if made on or after 1/1/2020 and before 12/31/2020

▪ Employee Retention Credit for Employers Subject to Closure Due to COVID-19: Eligible employers may be able to claim a refundable payroll tax credit for 50% of qualified wages paid to employees during the COVID-19 crisis. This credit is capped at $5,000 per EE and available to those whose business operations were fully or partially suspended due to a COVID-19-related shutdown order or whose gross receipts declined by more than 50% as compared to prior year metrics.

▪ Exclusion for Certain Employer Payments of Student Loans: Under the Act, employers can contribute up to $5,250 annually toward an employee’s student loans through January 2021.

SBA – Loan Options Presentation 3/30/2020


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▪ Families First act provides new leave requirements 4/1/2020 – 12/31/2020.*▫ The Act requires certain employers to provide 80 hours of paid sick leave at full

wages (pro-rated for part-time employees) and up to three months of paid emergency family and medical leave at two-thirds of normal wages.

▫ Sick leave attributable to an employee caring for themselves is paid at their full wage up to a maximum of $511 per day.

▫ Sick leave attributable to an employee caring for another individual is paid at two-thirds of their normal wage up to a maximum of $200 per day.

▫ Emergency family and medical leave is paid at two-thirds of their normal wage up to a maximum of $200 per day and $10,000 in aggregate.

▫ The Act provides employers with payroll tax credits designed to offset the cost of providing additional paid leave.

SBA – Loan Options Presentation 3/30/2020


*KSM defers all eligibility and interpretation of applicability to each company legal advisors.

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The information presented herein is general in nature andshould not be acted upon without the advice of a professional.


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Questions?KSM Link to COVID-19 Latest Information

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overview of loan options · recommend using a plp (preferred lending partner of sba) capped at $10...

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