CARES Act: Paycheck Protection Program (PPP) Overview and SBA Loan Application Process Special Webinar Presentation by: Kohrman Jackson & Krantz LLP APRIL 3, 2020
HOST PRESENTERS Kevin O’Connor Tax Group Chair KJK David C. Jacobs Anne Corrigan President & Banking & Finance Group Chair Chief Operating Officer KJK Oswald Companies Justine Lara Konicki Partner KJK
DISCLAIMER DISCLAIMER This webinar is an informational presentation by the law firm Kohrman Jackson & Krantz LLP that is open to the public. By attending this webinar, no attorney-client relationship is created and neither this presentation nor any supplemental information provided are intended as a substitute for professional legal advice. If you would like more information, please call us at 216-696-8700 to be connected to a KJK attorney or call 1-888-4KJKLAW (1-888-455-5529) between 9 a.m. and 7 p.m. on Friday, April 3 to take advantage of our Ohio Small Business Coronavirus Hotline. 3
AGENDA AGENDA • CARES Act Overview • Detailed Discussion of the Paycheck Protection Program • Review of Application Process & Materials • Q&A 4
OVERVIEW OVERVIEW THE CARES ACT THE CARES ACT Creates the Paycheck Protection Program, with $349B allocated to the forgivable loan program • Expands Economic Injury Disaster Loan Program • Creates new loan authority from the Federal Reserve to loan to mid-size and large businesses • Expands unemployment for Americans who lost their jobs due to the pandemic and provides • for direct payments to Americans Allows forbearance and deferments of student loans and prevents foreclosures and evictions of • single-family homes with federally backed mortgages Expands food assistance programs • Supports the health care providers fighting COVID-19 • 5
THE PAYCHECK PROTECTION PROGRAM – Overview – General Loan Terms – Amounts Available – Forgiveness – Application 6
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM GENERAL LOAN TERMS GENERAL LOAN TERMS LOAN TERM 2 years INTEREST RATE 1% fixed 6 months deferral of payments of principal and interest, but interest will PAYMENT DEFFERAL continue to accrue COLLATERAL/GUARANTY? No LENDER FDIC-insured financial institutions; includes existing 7(a) lenders FEES? No fees charged to borrowers USES To maintain payroll and pay rent, mortgage interest and utilities PREPAYMENT? No prepayment penalties 7
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM ELIGIBILITY: ELIGIBILITY: WHO QUALIFIES? WHO QUALIFIES? Employers — both for-profit businesses and 501(c)3’s — generally with 500 or • fewer employees You can still also qualify under the normal SBA industry-based classifications • Special exemption to the normal SBA affiliation rules for businesses in the • “accommodations and food services” sector (NAICS Code 72) who have more than one location and not more than 500 employees per location Sole proprietors, independent contractors and self-employed individuals are • also eligible – Final Rule makes clear 1099s will have to apply separately Borrowers must have been in business as of February 15, 2020 to be eligible for • a loan 8
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM ELIGIBILITY: ELIGIBILITY: EXCEPTIONS TO <500 EXCEPTIONS TO <500 EMPLOYEE RULE EMPLOYEE RULE You can still also qualify under the normal SBA industry-based classifications - • See 13 CFR § 121.201 for the size table Special exemption to the normal SBA affiliation rules for businesses in the • “accommodations and food services” sector (NAICS Code 72) who have more than one location and not more than 500 employees per location Franchises who have an SBA franchise identifier code • Any business receiving financial assistance from an SBIC • 9
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM LOAN AMOUNT: LOAN AMOUNT: 2.5 X AVERAGE MONTHLY PAYROLL 2.5 X AVERAGE MONTHLY PAYROLL COSTS + OUTSTANDING SBA LOANS MADE AFTER 1/31/20 COSTS + OUTSTANDING SBA LOANS MADE AFTER 1/31/20 Payroll costs = the sum of payments of any compensation with respect to employees that is a: salary, wage, commission or similar compensation • payment of cash tip or equivalent • payment for vacation, parental, family, medical or sick leave • allowance for dismissal or separation • payment required for the provisions of group health care benefits, including insurance premiums • (generally only health, medical and dental, though there are exceptions) payment of any retirement benefit • payment of state or local tax assessed on the compensation of employees • 10 10
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM LOAN AMOUNT: LOAN AMOUNT: 2.5 X AVERAGE MONTHLY PAYROLL 2.5 X AVERAGE MONTHLY PAYROLL COSTS + OUTSTANDING SBA LOANS MADE AFTER 1/31/20 COSTS + OUTSTANDING SBA LOANS MADE AFTER 1/31/20 Payroll costs DO NOT include: compensation of an individual employee in excess of an annualized salary of $100,000 • prorated for the covered period taxes imposed or withheld under chapters 21, 22 or 24 of the IRC of 1986 during the covered • period any employee whose principal place of residence is outside the US • qualified sick leave wages for which a credit is allowed under section 7001 of the FFCRA • qualified family leave wages for which a credit is allowed under section 7001 of the FFCRA • Open question regarding whether payments to 1099s can qualify 11 11
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM LOAN AMOUNT FORMULA: LOAN AMOUNT FORMULA: 12 12
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM HOW TO DETERMINE AVERAGE MONTHLY HOW TO DETERMINE AVERAGE MONTHLY PAYROLL COSTS PAYROLL COSTS • Most employers will use their 2019 payroll NOTE: The application materials state to use 2019 payroll amounts, • but the statute says the “1-year period before the loan was made” • Seasonal employers will use either (at their election): The 12-week period beginning Feb. 15, 2019, or • March 1, 2019 to June 30, 2019 • • Employers who were not in business during the period of Feb. 15, 2019 and June 2019, will use Jan. 1, 2020 to Feb. 29, 2020 • Refer to your form 940 and 941 13 13
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM LOAN AMOUNT FOR SOLE PROPRIETORS, LOAN AMOUNT FOR SOLE PROPRIETORS, SELF SELF -EMPLOYED & INDEPENDENT EMPLOYED & INDEPENDENT CONTRACTORS CONTRACTORS • Based on 2.5 times 2019 monthly average for wages, commissions, income, or net earnings from self-employment or similar compensation • New form may be released from Treasury for Independent Contractors or Sole Proprieters 14 14
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM FORGIVENESS FORGIVENESS If you use the loan proceeds for the following costs during the 8 weeks after the loan is originated, the loan can be forgiven up to the amount incurred and spent on: • Payroll Costs (as defined in max loan amount) • Any payment of interest on any covered mortgage obligation (does not include payment of principal) • Any payment on any covered rent obligation • Any covered utility payment 15 15
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM FORGIVENESS FORGIVENESS – ADDITIONAL INFO ADDITIONAL INFO • Forgiveness will be tax-free to the business • The new SBA Rules on the program requires that 75% of proceeds MUST be used on payroll costs • If the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you 16 16
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM FORGIVENESS DEPENDS ON FORGIVENESS DEPENDS ON NOT NOT REDUCING REDUCING HEADCOUNT AND SALARY HEADCOUNT AND SALARY Forgiveness will be reduced by: the ratio of the average number of FTE's per month employed by the eligible recipient • during the covered period to (as chosen by employer): The average # of average # of FTE's per month employed during the period beginning Feb. 15, 2019 and ending • FTE’s will be June 30, 2019; or determined by calculating the average # of FTE's per month employed during the period beginning Jan. 1, 2020 and ending • average number of Feb. 29, 2020; or Full-Time Equivalent Employees for each For seasonal employers, the average FTE's per month employed during the period between • pay period falling Feb. 15, 2019 and June 30, 2019 within a month the amount of any reduction in total salary or wages of any employee (who has a salary • less than $100,000 per year) that is in excess of 25% of the total salary or wages of the employee during the most recent full quarter before the covered period 17 17
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM FORGIVENESS FORMULA: FORGIVENESS FORMULA: 18 18
PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM FORGIVENESS DEPENDS ON FORGIVENESS DEPENDS ON NOT NOT REDUCING REDUCING HEADCOUNT AND SALARY HEADCOUNT AND SALARY Forgiveness reduction will NOT occur if you: • Rehire employees who were laid off between Feb. 15, 2020 and 30 days after the date of the CARES Act; and • Pay the employees rehired back-pay and restore their salary to the pre-coronavirus level 19 19
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