We Answer Your Questions About the Federal Bill
Last week the U.S. Federal Government released its 883 page, $2 Trillion stimulus package to help aid Americans and the economy through the coronavirus pandemic. As a small business owner, you can take advantage of the bill and help your company survive with the aid of Uncle Sam.
We’ve Done the Research, You Reap the Benefits
Since it’s passage we’ve been reading the bill and talking to others about some of the programs outlined. In this article. we’ll go over some of the options that companies in Florida have to help covering some of their expenses and staying afloat while everyone stays at home. If your questions aren’t answered, or you’d like our assistance in signing up for any of the options we discuss, please reach out to us.
The Care Act for Small Businesses
Small businesses make up the core of the American economy and the relief fund recognizes that. A significant portion of the funds allocated by this bill is set aside to help small business owners keep their employees on the job even if they can’t be in the workplace. This is an extremely important measure especially with the recent spike in the number of those filing for unemployment.
$353 billion of the $2 trillion is focused specifically on Small Business alone because some lawmakers understand that keeping people on the job will help keep the economy running and make it easier for those businesses to transition back once this crisis has passed. One of the ways the act works is by taking the SBA 7(a) loan program and expanding it to provide cash to companies quickly.
Of course, this is a loan and not a direct check like those going out to households, but it can assist you in bridging the gap between now and the end of the pandemic. There are also state and local government loan programs that you might be able to provide additional assistance.
Are You Eligible for the Coronavirus Stimulus Package
Funds are available to many through this package and the government has cut through a lot of the normal red tape to get it into your hands and those of other small businesses. However, you must still meet the following requirements:
- Have fewer than 500 employees
- Started your business prior to February 15, 2020
- Be able to show an impact to your company due to coronavirus
We are still waiting for more information on how you’re supposed to prove you’ve been impacted, but suffice to say that if you’re seeing fewer sales, or have canceled contracts, you’re likely to qualify. More direction will come over the coming days and we’ll be discussing those as they come out. You will be required to sign an affidavit acknowledging you need the funds due to a downturn due to coronavirus and this will be followed up on down the line.
Other ways you may be seeing your business impacted that you should consider documenting are:
- Lost sales
- Product chain issues
- Supply chain issues
- Canceled contracts
- Productivity loss due to quarantine orders
There are a lot of gray areas that will be clarified over time, but having good documentation on where your losses are will help us make sure you get the assistance you deserve. Funds will be released to those who need it and we expect them to be distributed quickly once you are able to show you’ve been impacted.
How to Calculate Your Loan Amount
Small business owners can receive up to 2.5x their payroll to use in assisting getting through coronavirus. Funds can be used for payroll, rent, utilities, and to cover health care benefits. Loans are from the stimulus bill and are based on a 12-month trailing payroll average.
To calculate this, you need to take your average monthly payroll starting on February 15, 2019, through February 15, 2020. This is for employees that make up to $100,000 and excludes employer taxes. For employees who make more than $100,000, unfortunately for them, that is the cap. There is a loan cap of $10 million as well, so please keep that in mind for both you and in considering your ability to repay that loan.
Even if you’ve only been open for a few months, you have to annualize based on the months you’ve been in operation.
Your company has been open for 3 years, you have 10 employees making the following salaries:
- 3 employees making $30,000/year
- 3 employees making $60,000/year
- 2 employees making $90,000/year
- 2 employees making $120,000/year
Your total annual payroll average is $$690,000, BUT you are only allowed to average salaries up to $100,000/year, so your two employees who make $120k are going to lose a little bit, making your allowable annual salary $650,000.
Divide that by 12, then multiply by 2.5 to figure out your maximum loan amount. Or…
650,000 / 12 = 54,166.66
54,166 x 2.5 = 135,415
So, $135,415 is the maximum amount of loan you could receive.
You’ve been open for 6 months and 2 employees making $48,000/year. So your annual average salary would normally be $96,000, but since you’ve only been open half the year, and you have to annualize the entire amount of salaries you’ve already paid out, then you’re only allowed to count the $48,000 that has been paid.
Quick math on that is: $48,000 / 12 = $4,000 x 2.5 = $10,000
So the maximum loan amount you would qualify for it $10,000 in this example.
Of course, your numbers will look completely different depending on how your people are paid, and what their actual incomes are. Those whose employees are paid on an hourly basis will have to do more work in calculating those employees average salaries over the past year, and if you’ve hired on new workers or had to let go of workers for reasons not related to coronavirus, then their partial salaries will go into your calculations.
If you have any 1099 contract workers, then you can include their wages in the formula as well. Again, you have to annualize what you’ve paid them if they haven’t been working with your company for the entire year. Retirement benefits are another area that, according to our reviews, will be included in your application as well.
The math can get intense, but if it helps you keep your employees working and the lights on, then we really believe this program will help you.
When and How You Will Receive Coronavirus Stimulus Loan Funds
There are still several wrinkles to iron out over the next several weeks and months, many business owners will receive the funds from any loans directly into their business operating accounts. When you apply for the funds you will need to designate where you want those funds distributed and, per our reading, it will need to be an FDIC insured bank or credit union.
Once they are distributed, you and any other small business owners will have eight weeks to use the funds to keep your company afloat. You will need to make sure the funds are only spent on those costs that qualify to be considered eligible for any loan forgiveness in the future.
As we mentioned above, other than payroll – on which the loan is calculated – you can use the funds to cover rent, utilities, and health insurance benefits. Expenditures on other, non-qualified expenses may disqualify you from forgiveness so it’s important that you keep records of what your costs are and how you spent the funds received through this program.
What Paperwork You Need to Have to Apply for the Coronavirus Stimulus
While this is an area where you may feel like more is better, and you may be right, here is what you absolutely need to bring in order to apply for one of the loans provided by the Coronavirus Stimulus
- EIN documentation
- Tax returns
- Payroll tax returns
- Proof you had employees and payroll
- Proof you were in business prior to Feb 15, 2020
- Loan amount calculated on your Payroll
How to Ensure You’re Eligible for Loan Forgiveness
These loans are potentially forgivable by the Federal Government after that eight-week timeline assuming you follow and meet the guidelines set out in the program. As the loans are based on your payroll, their forgiveness is also based on your continuing to keep the employees you currently have.
If you continue to employ all of your employees through this crisis, and you only spend the funds on those qualified expenses, then you are eligible for forgiveness of 100% of the loan given. If you are required to let go of employees during the crisis, then your forgiveness is reduced by the percentage of those employees you let go. So, if you have 5 employees and you have to get rid of 2, then you will still be eligible to have 60% of your loan forgiven.
If you let go of anyone from Feb 15 and for 30 days after the bill is signed, but you are able to bring their role back by June 30, 2020, then you will be eligible for 100% forgiveness. You will need to fill out the requisite paperwork once you’ve made it through the eight weeks and we don’t have a timeline, currently, on when you will receive confirmation of forgiveness, but expect that information to be available as soon as the first group of people starts working through the program.
What to do About Any Unforgiven Portion of the Loan
After the eight weeks are up, and if you had to let go of any of your employees without the ability to bring them back in their same role, then the unforgiven portion of the loan will convert into a 10-year loan at a rate of 4% or less with no need for collateral or personal guarantee.
Your lender (your bank) are being required to defer interest and principal payments for the first six months of the loan. We’re not sure if this starts upon the deposit or after the eight weeks are up, look for clarification as soon as we get it. This ensures that you don’t have to start repaying on the loan as soon as it is received, as you would with normal business or personal loan, and that you and your company are able to survive through this time.
The Tax Implications of the Coronavirus Stimulus Loans
When Can I Apply for Coronavirus Stimulus Loans
Today! You can apply for and start the process for these loans as soon as possible, with the understanding that, given how new this program is, your bank may not be as ready as you are. So start putting together your paperwork now, and reach out to us as soon as you think you have it together and let’s get you started on the process.
As for when funds will be distributed, again, the Federal Government is trying to fast-track this and every area of the stimulus package to try and get funds out to those who need it. We don’t yet have exact dates on when distributions will happen but assume that those who apply early will receive the funds first over those who wait.
Jordan Law is Here to Help
We are here to help you apply for this and all the other loan programs available through the Federal and Florida State governments. We want to help you keep your lights on, have your bills paid, and ensure you don’t have to let anyone go through this crisis. We know that letting people go, especially due to something outside their and your control, is one of the hardest decisions you can make. Let us help you in ensuring you don’t have to make this difficult choice.
Coronavirus and its fallout are causing a lot of concern and questions, but it is also providing us with opportunities that weren’t there before. We want to help you take advantage of those opportunities and help you bridge the gap.