• Sarah Smyth McIntosh

Double Your SBA Paycheck Loan

Senators Rubio and Collins are proposing a new law called the Continuing Small Business Recovery and Paycheck Protection Program Act (Where do they get these names?). Is the acronym going to be CSBR&PPP?

Although this proposed new law has not been passed by Congress yet, there is a high probability that it will be passed with bi-[artisan support.


Can you possibly borrow more under this new law?

New PPP loans will be allowed for past borrowers who meet the following criteria:

  1. The borrower must demonstrate that there has been at least a 50% reduction in gross receipts from January 1 to March 31st of 2020 or from April 1 through June 30th of 2020 as compared to gross receipts for the same period in 2019.

  2. The borrower must employ no more than 300 employees or meet an alternative size standard under SBA published guidelines

  3. The new loan cannot exceed $2,000,000 in most cases and cannot exceed $10,000,000 in the aggregate with other SBA loans approved in the last 90 days (including PPP loans)

Eligible entities must be businesses, certain non-profit entities, veterans organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors or small agricultural cooperatives


The loan amount for the second bite will be identical or almost identical to what the borrower received as an original PPP loan, based upon the most recent SBA regulations and pronouncements; however, the loan is capped at $2,000,000 rather than $10,000,000 and the combined loan amount cannot exceed $10,000,000 in the aggregate if another PPP loan was taken out within the last 90 days.


Therefore borrowers who already received large PPP loans in the first round may consider waiting until the 90 day period has passed to apply again.


Borrowers with loans under $150,000 will not be required to submit the previously issued application and may simply attest to a good faith effort to comply with the PPP loan requirements, but such attestation may be audited and reviewed by the SBA to ensure against fraud.


For loans between $150,000 and $2,000,000 borrowers will not be required to submit formerly required "lender documentation" but must certify the existence of the documentation and retain records and worksheets for 3 years after application for forgiveness is filed


The 8 to 24 week covered period during which a borrower has to spend sufficient amounts to receive forgiveness will now apply for a period of time selected by the borrower, which will start on the day after the borrower receives the funds and will end on the day selected by the borrower but no later than December 31, 2020.


Therefore a borrower can cut off the testing period before making a reduction in workforce which normally would have caused penalties to apply. As long as on the last day of the "covered period" the borrower is at its pre-February 15, 2020 level of employees than even if the borrower later reduces workforce, no penalties will apply.


The 60% test has been retained in this proposed new law. If 60% of the loan amount is NOT spent on payroll, group health insurance and pension contributions (collectively called "Payroll costs"), then the other "nonpayroll costs counted toward forgiveness will be limited so that a 60/40 proportion applies


EXAMPLE

$100,000 PPP Loan

Only $30,000 spent on payroll costs, then only $20,000 of other expenses will count toward forgiveness.

$30,000/0.6 = $50,000 - $30,000 = $20,000


The proposed new law will allow all past and future borrowers to use nonpayroll "forgivable expenses" besides just interest, lease payments and utilities allowed under the original CARES ACT, and include the following expenses regardless of whether they arise or have been increased as a result of COVID-19 virus and the economic crisis resulting therefrom:


1. Covered operations expenditures

2. Property damage costs

3. Covered supplier costs

4. Covered worker protection expenditures


Unfortunately, the costs to hire attorneys and CPAs to understand these rules are not a permitted expense. Also, the deductibility of the PPP forgivable expenses is not addressed in this proposed new law


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