COVID-19 BUSINESS RESOURCES (SPONSORED)
The federal government's $2.2 trillion stimulus package known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act contains significant benefits for small businesses and nonprofit organizations, but one of them in particular — the $349 billion Paycheck Protection Program (PPP) — requires prompt action to take full advantage of the benefit.
Organizations with less than 500 employees (which includes both for-profit and nonprofit organizations and even the self-employed) can and should apply now for special Paycheck Protection Program (PPP) loans, which are federally insured loans administered through the Small Business Administration. These loans generally can be up to 2.5 times an employer’s average monthly payroll (with a maximum loan of $10 million). Therefore, a company with $1,200,000 in annual payroll costs would get a $250,000 loan.
No payments for either principal or interest needs to be made on the loan for 6 months, no collateral needs to be provided, and no personal guarantee needs to be made by owners or officers. The current interest rate for the loan can be just 0.5%, which is very low. Lenders are currently advertising loan terms of two years although the law potentially allows for terms as long as ten years. There also are no prepayment penalties. All greater than 20% owners will need to answer questions about prior criminal history, current bankruptcy, disbarment, and prior losses to the government, which could make a company ineligible. Beyond those issues, getting approved for a loan should not be especially difficult.
The biggest benefit is that part or all of the loan can be forgiven, and this loan forgiveness will not be included in taxable income like it normally would under tax law. Loan forgiveness is based on the amount an organization spends on payroll (which broadly includes retirement benefits and group health insurance), mortgage loan interest payments (on loans taken out prior to February 15, 2020), rent (on leases signed prior to February 15, 2020), and utilities in the 8-week period following the receipt of the loan proceeds. If an employer’s expenses for these items in the 8-week period are high enough, as much as 100% of the loan can be forgiven. Be careful about one thing though: loan forgiveness will be reduced if an organization reduces its number of employees or total wages paid during this 8-week period, so at least maintaining current staffing levels is ideal. Also, if an organization utilizes a PPP Loan, it cannot also take advantage of the Employee Retention Credits, which are credits against payroll taxes that can save a maximum of $5,000 per employee. Generally though, an employer will save more money with a PPP Loan and the related loan forgiveness than they would with the credits, so it is still advisable to get the loans.
One catch is that total loans funds are limited and at some point could run out, so it is ideal to apply as soon as possible. Banks began accepting applications on April 3. It is recommend to gather all your organization’s recent payroll tax filings and income tax returns and speaking to your banker right away.
Application for Paycheck Protection Program (PPP) loan for most businesses and nonprofit organizations: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf
Additional guidance related to the Paycheck Protection Program (PPP):
We are here to help
As always, our team at Hungerford Nichols CPAs + Advisors is available to answer your questions during this time.
Additionally, please visit our Business Resource Page on our website for continuously updated resources, executive orders, and additional information that may help you run your business or organization.
email: [email protected]
Business Resource Page:
Phone: (616) 949-3200
Daniel Harris is a senior tax manager who works with businesses and individuals in a wide range of industries. His work is focused on tax reviews, projections, planning and research for clients. To reach him, call (616) 949-3200 or email [email protected]