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Experts Weigh In: PPP and EIDL

Today, Inc. and the U.S. Chamber of Commerce partnered on their third COVID-19-related webinar for small business owners.

The 1-hr. session, which you can watch here, attracted some 1,500 registrants and was chock full of helpful information.

CARES Act Payroll Protection Program (PPP)

The PPP gives businesses that employ fewer than 500 employees access to forgivable loans of up to 2.5 times their average monthly payroll costs, excluding the employer portion of payroll taxes.

The loan is forgivable if, eight weeks after the origination date, at least 75% of the loaned amount is used for payroll costs, and the remainder is used to cover rent, utilities or interest. Forgivability is not all or nothing! You may be required to repay a portion of your PPP loan if you, say, reduce headcount or reduce pay such that less than 75% of your loan is used to cover payroll.

Experts on the call cited common mistakes PPP applicants have made.

  • Including FICA/payroll taxes when calculating average monthly payroll
  • Including subcontractors or independent contractors in average monthly payroll calculation
  • Including in average monthly payroll calculation any portion of salaries over $100,000 (only the first $100,000 of a single salary is allowed in the calculation)

Did you, in a panic, submit PPP loan applications at more than one financial institution? You needn’t worry about raising suspicion of fraud, the Chamber’s panel said, so┬álong as you do not receive/accept more than one loan.

Have you been offered a loan that was less than your requested amount? The panel recommended you not accept that loan and instead find a lender who will loan you the full amount.

Worried that time is running out on this opportunity? Experts on the call stated that 250,000 applicants have had $100 billion in loans approved to date. That leaves $250 billion from the CARES Act’s $350 billion allocation for this purpose, with the Senate negotiating to approve an additional $250 billion.

In other words, it seems there’s still time to apply. Know that the pace of applications will pick up as more lenders open their processes, and as independent contractors begin to apply (see below).

Read more from the U.S. Chamber of Commerce on the PPP here.

Independent Contractors and PPP

Several nonprofits rely on independent contractors to deliver their programs. Today, April 10, is the first day that independent contractors may apply for PPP loans up to $100,000 of annual income. These loans are forgivable under the same terms as above.

Experts on the webinar recommended independent contractors calculate their qualifying payroll expenses as follows:

2019 Schedule C bottom line (i.e., net income) / 12 mos. * 2.5 mos.

You can encourage your independent contractors to apply for a PPP loan through their local lender. If they do not have an active lending relationship, they may have better luck working with a smaller financial institution or a fintech company — an online lender.

CARES Act Economic Injury Disaster Loans (EIDL)

Response to the EIDL program, which appeared to offer applicants a $10,000 grant even if they ultimately refused the loan, was overwhelming. Ultimately, this loan program was “oversubscribed” — folks submitted applications for funds far beyond what was available.

As of now, the three-day response time originally promised has looked more like 10 days. The grant amount was reduced to $1,000 per employee, up to a total of $10,000. The loan max, instead of $2 million, is $15,000. The U.S. Chamber of Commerce is advocating for additional funds to be added to this program.

 

 

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