CARES Act: Paycheck Protection Program (PPP) Overview and SBA Loan - - PowerPoint PPT Presentation

CARES Act:

Paycheck Protection Program (PPP) Overview and SBA Loan Application Process

Special Webinar Presentation by:

APRIL 3, 2020

Kohrman Jackson & Krantz LLP

David C. Jacobs

President & Chief Operating Officer Oswald Companies

Kevin O’Connor

Tax Group Chair KJK

Anne Corrigan

Banking & Finance Group Chair KJK

Justine Lara Konicki

Partner KJK

HOST PRESENTERS

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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.

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AGENDA AGENDA

• CARES Act Overview
• Detailed Discussion of the Paycheck Protection Program
• Review of Application Process & Materials
• Q&A

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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

OVERVIEW OVERVIEW

THE PAYCHECK PROTECTION PROGRAM

6 – Overview – General Loan Terms – Amounts Available – Forgiveness – Application

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 7

GENERAL LOAN TERMS GENERAL LOAN TERMS

LOAN TERM 2 years INTEREST RATE 1% fixed PAYMENT DEFFERAL 6 months deferral of payments of principal and interest, but interest will 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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 8

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 9

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 10 10

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 11 11

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 12 12

LOAN AMOUNT FORMULA: LOAN AMOUNT FORMULA:

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 13 13

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 14 14

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 15 15

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 16 16

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 17 17

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):

• average # of FTE's per month employed during the period beginning Feb. 15, 2019 and ending

June 30, 2019; or

• average # of FTE's per month employed during the period beginning Jan. 1, 2020 and ending
• Feb. 29, 2020; or
• For seasonal employers, the average FTE's per month employed during the period between
• Feb. 15, 2019 and June 30, 2019
• 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

The average # of FTE’s will be determined by calculating the average number of Full-Time Equivalent Employees for each pay period falling within a month

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 18 18

FORGIVENESS FORMULA: FORGIVENESS FORMULA:

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 19 19

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

PAYCHECK PROTECTION PROGRAM PAYCHECK PROTECTION PROGRAM 20 20

HOW TO REQUEST FORGIVENESS HOW TO REQUEST FORGIVENESS

• Submit a request to your lender
• The request will include documents that verify the number of full-time

equivalent employees and pay rates, as well as the payments on eligible mortgage, lease and utility obligations

• You must certify that the documents are true and that you used the

forgiveness amount to keep employees and make eligible mortgage interest, rent and utility payments

• The lender must make a decision on the forgiveness within 60 days

THE APPLICATION

21 – What information you may need – Where to apply – Helpful practical tips

APPLICATION MATERIALS APPLICATION MATERIALS 22 22

HOW DO I APPLY? HOW DO I APPLY?

• Applications are made by banks (preferably your bank):
• Not limited to just existing SBA lenders
• FDIC Insured banks and credit unions can also lend under the program
• For small businesses and sole proprietorships, applications will be

accepted by SBA starting today, April 3, 2020

• For independent contractors and the self-employed, applications start

April 10, 2020 (new form includes independent contractors specifically)

• Application must be submitted to your bank in time to be processed by

June 30, 2020

• HOWEVER: The SBA encourages early filing because only $349B was

allocated to the program and it may run out of money before June 30, 2020

20% or greater owner of an Applicant Business, defined as:

• For a partnership:
• All general partners, and
• All limited partners owning 20% or more of the

equity of the firm

• For a corporation, all owners of 20% or

more of the corporation

• For limited liability companies, all members
• wning 20% or more of the company; and
• Any Trustor (if the Applicant is owned by a

trust)

• For a sole proprietorship, the sole proprietor

APPLICATION MATERIALS APPLICATION MATERIALS 23 23

The first section and questions 1-4 request information about the business.

APPLICATION MATERIALS APPLICATION MATERIALS 24 24

Questions 5-7 and the certifications are now signed by an “ Authorized Representative.” The previous form required this for each 20% owner.

APPLICATION MATERIALS APPLICATION MATERIALS 25 25

APPLICATION MATERIALS APPLICATION MATERIALS 26 26

CERTIFICATIONS REQUIRED (PAGE 2 OF APP) CERTIFICATIONS REQUIRED (PAGE 2 OF APP)

• Current economic uncertainty makes the loan necessary to support your
• ngoing operations
• The funds will be used to retain workers and maintain payroll or to make

mortgage, lease and utility payments

• You have not and will not receive another loan under this program
• You will provide to the lender documentation that verifies the number of

full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments and covered utilities for the eight weeks after getting this loan

APPLICATION MATERIALS APPLICATION MATERIALS 27 27

CERTIFICATIONS REQUIRED (CONT.) CERTIFICATIONS REQUIRED (CONT.)

• Loan forgiveness will be provided for the sum of documented payroll costs, covered

mortgage interest payments, covered rent payments and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

• All the information you provided in your application and in all supporting documents and

forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.

• You acknowledge that the lender will calculate the eligible loan amount using the tax

documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

APPLICATION MATERIALS APPLICATION MATERIALS 28 28

DOCUMENTATION DOCUMENTATION

• Submit such documentation as is necessary to establish eligibility such

as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship.

• For borrowers that do not have any such documentation, the borrower

must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.

HELPFUL PRACTICAL TIPS HELPFUL PRACTICAL TIPS

• Contact your bank TODAY

TODAY

• Banks may have additional requirements in addition to the

application from the SBA, including your legal formation documents and tax returns

• Banks will prioritize their regular customers over new ones
• Read the application instructions carefully – do not check

boxes in the certifications section. An initial is required.

APPLICATION MATERIALS APPLICATION MATERIALS 29 29

Email

• Kevin T. O’Connor| KTO@KJK.com
• Anne T. Corrigan | ATC@KJK.com
• Justine Lara Konicki | JLK@KJK.com

Visit coronavirus.KJK.com for up to the minute updates on the paycheck protection program and other financial relief programs

CONTACT CONTACT