We have received several calls, emails and social media posts regarding the $2 trillion stimulus package signed by President Trump on Friday, March 20th. To clear away some confusion, here are some ways that bill will impact our small business and individual clients.
Individuals will receive direct payments based on your 2018 (or 2019 if you have already filed) income level, filing status and number of children.
- Those with Single status and under $75,000 of Adjusted Gross Income (AGI) will receive $1,200.
- Those with Married status and under $150,000 of AGI will receive $2,400.
- Those who meet those criteria and claim children will additionally receive $500 per child.
For those with AGI above $75,000 as Single or $150,000 Married, your stimulus check amounts will be reduced by $5 for every $100 you are over those amounts. So if you have no children, are single and make $99,000 or more or you are married, with no children and make more than $198,000 as a couple, your stimulus check will be zero.
If the IRS directly deposited your refund check in the past, the IRS will use that banking information to send your payment. Otherwise a check will be mailed out. Checks are expected to be sent out in three weeks.
The $2 trillion stimulus package offers a lifeline to small businesses under the Paycheck Protection Program (PPP). The purpose of the PPP is to allow small business owners impacted by the COVID-19 crisis to keep their employees employed while their business experiences a reduced revenue level. It provides low-interest loans that may be forgivable (more on this later). The exact mechanics of how everything will work still needs to be ironed out by the banks and lenders, but here are the details we know so far.
How much can I borrow? Businesses can borrow up to $10 million dollars. This will be based on 2.5 times the business’s average monthly payroll costs. Payroll costs include salary, wages, payroll taxes, and benefits.
Where do I apply? These loans will be processed by banks and other lenders via the SBA 7(a) program. So, you will apply for the loans at a bank or lending institution and not the Small Business Administration (SBA) directly.
How long do I have to pay back the loan? The lending terms are up to ten years, but you will likely not need this long because the loans are forgivable by the SBA.
What it the interest rate: The maximum interest rate is 4%.
How can I repay the loan when I have no revenue? Re-payment will be deferred a minimum of six months.
Do I need collateral? No collateral is needed, no personal guarantee required, and best of all no recourse because they are forgivable loans.
You keep saying forgivable, what does that mean? This is the best part: if you receive an SBA loan via the Paycheck Protection Program and use the funds for payroll, benefits, rent, and/or utilities within eight weeks of receiving the loan, you can have part or all of the loan forgiven by the SBA.
Example 1: Your average monthly payroll costs are $20,000, your rent is $6,000/month and monthly utilities are $1,000. You could apply for a loan up to $50,000 (2.5 X 20,000). If during the first eight weeks after receiving the loan, you spend $37,000 on payroll costs, $12,000 on rent and $2,000 on utilities for a total of $51,000 you would be eligible for having 100% of the loan forgiven.
Example 2: Same monthly costs as above, so the business owner borrows $50,000. However, this business owner already reduced his employee count. So during the first eight weeks after receiving the loan, he spends $15,000 on payroll costs, $12,000 on rent and $2,000 on utilities for a total of $29,000. This business owner would only be eligible to have $29,000 forgiven. The remaining principal balance of $21,000 would have to be repaid over up to ten years.
These two examples highlight the behavior the government is trying to encourage with these forgivable loans: keep your employees even if you don’t have the revenue to support them, or if you have already laid off employees, get the loan and rehire them to increase your payroll expenses and the amount of the loan that is forgivable.
This program works similarly for self-employed people, Uber/Lyft drivers, independent contractors, etc. Instead of payroll information, the SBA will look at income from your 1099-MISC. Exact details on that will be forthcoming.
What you will need to get a Paycheck Protection Program loan:
- Payroll Expenses Verification. This will be the prior year’s 941, W3s, state payroll tax filings. Basically support for the twelve-month average payroll costs.
- Completion of SBA FORM 1919. This form is used to collect information about you and your business.
- Economic Impact Statement. This is a statement about what the financial hardship is that your business is experiencing.
- Application Form. This is yet to be released. It is not expected to be difficult to complete since the government wants most businesses to qualify to keep the economy afloat.
What do I need to keep track of to get the loan forgiven? If you don’t already do this, you will need great recordkeeping. The exact details are not known, but we expect you will need at least:
- Paystubs for the eight-week period immediately following receipt of the loan.
- Check stubs for rent as well as a copy of the lease dated before February 15, 2020.
- Copies of utility bills and checks.
- Bank statements.
- Accurate financial statements.
As a CPA firm, we work with several banks and can connect you with a great banker who can make this process as painless as possible. Below is a partial list (in alphabetical order) of the banks we can work closely with:
- Bank of America
- Cornerstone National Bank and Trust
- First Midwest Bank
I hope you have a better sense of how the government is trying to help businesses and individuals through this crisis. If you still have questions or need helping getting and keeping everything in order, our accountants and CPA’s are offering a FREE 30-minute phone consultation. Sign up below:
Take care and be safe.
Kevin Kummer, CPA