April 2nd, 2020 NACBA conference regarding the CARE Act

“Yesterday evening I participated in an online presentation sponsored by NACBA, National Association of Consumer Bankruptcy Attorneys regarding the CARE Act., and several of the important immediate issues. First and foremost is the question people have as to the PPP, Paycheck Protection Program, and the EIDL, Economic Injury Disaster Loan. EIDL is the program that allows for the “immediate” $10,000 transfer to eligible small businesses. That money is a grant, not intended to be repaid, is not considered income, and no tax would be due. The EIDL sought directly from the SBA, and the PPP program is to be available through traditional lenders, and was able to be applied for as of midnight, yesterday. The PPP program has certain requirements- the applicant having been operating a business through a specific time, must have no more than 500 employees, with a maximum 12 Million Dollar annual revenue. The basic rough calculation is 2.5 times the amount a certain amount of payroll, 8 weeks of payroll, to allow for an amount which should cover 10 weeks of future payroll. The amount is not based only on traditional payroll. it can include health insurance for these employees and other forms of compensation, as well as non-employees such as 1099 workers. The salary of any employee for the purpose of the PPP calculation is capped at $100,000.

I saw in the news last night that Chase, who is a eligible lender, would not be ready to process applications, as they were not aware of all the details of the program. As of yesterday, the program has been created quickly and many of the details of the program were still being sifted through. One of the speakers of yesterday’s seminar is responsible for working directly with the Department of Treasury and members of the Senate Banking Committee and reported some very interesting details in this seminar. The lenders who process these applications through the SBA, Section 7 (a) will be paid by the Federal government, no fees to the applicant. These lenders earn approximately 3% of the amount sent to the applicant. The banks who process these loans are not the guarantor of these loans and have no risk. I have not used the word “loan”, yet, as any of these monies EIDL or PPP, are not really intended to be repaid, as it is the hope that the PPP money will be used for maintaining the same amount of employees that existed prior to this pandemic. Some exceptions exist but the criteria is very liberal in favor of the employer’s not having to repay this money, but to insure it was used for the purpose intended: that PPP money is used for salaried employees to remain employed. In the event that it is not, and does not meet the forgiveness criteria for all the money distributed to the applicant, , that amount would be paid back over 10 years with a maximum interest rate of 4%. There is no personal guarantee of these loans. Reserves in the business bank account are not supposed to be a criteria that would prevent the eligibility of these funds.

Forgiving the PPP money. Forgiveness of the PPP is to be applied for from the lender who processed your initial PPP application. It is recommended by yesterday’s panel that when the money is obtained that it be put into a separate account. That a spreadsheet be prepared contemporaneously with the use of the funds, showing those moneys used for salary purposes as outlined in the rules. Such practice is likely to increase the probability of forgiveness of the PPP. In the event that the recipient cannot get the entire amount of the PPP forgiven, they would still be entitled to a 6 month deferment, up to one year, and then the repayment would then begin of any such residual amount.

Finally, as there is so much to share of these programs, I would also like to point out that under the new regulation, a business may even defer their 2020 payroll taxes into two payments, one December 2021, and the second December 2022, but I do not recommend doing that, as these monies are the responsibility of the company principal and often creates many other issues down the road. Got questions, want to talk about this? My number is 639-7011.”