Relief In Sight - Part 3 Paycheck Protection Program

Dated: April 22 2020

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Relief In Sight Series Title

Relief In Sight
Part 3- Paycheck Protection Program loan

by Jeff Coleman

In this series we’ll take a look at a new federal law, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, that provides protection for taxpayers, homeowners, small business owners, contractors, and workers unemployed due to the effects of COVID-19 and government responses to it. 
I’ve put this together from sources listed within and at the end of this article.  I am not a financial planner, attorney, or debt relief specialist. This is not a recommendation for any action and is only intended to be a source of learning what options might be available. I recommend talking with an expert before making decisions in this critical area of your life. If you don’t have a consultant you trust, I’d be happy to provide you contact information for attorneys and financial planners, or to discuss real estate options in the current market.

See previous entries in this series:
Part 1 – Economic Impact Payments

Part 2 – Mortgage Relief

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The CARES Act provision of the Paycheck Protection Program loan (Section 1102) has been in the news quite a bit lately especially after it ran out of money to supply small businesses with low cost forgivable loans that were meant to keep workers on the payroll. As of this writing, Congress has yet to pass additional funding for this program. However, I expect them to do so and when they do it would be best to be ready as there’s no guarantee that additional funds will not run out just as quickly.


Table of Contents

What’s the purpose of the PPP loan?
Who’s eligible for the PPP loan?
Who’s not eligible?
How much can I apply for?
What can I use the money for?
What are the repayment terms?
Will I have to pay back this loan?
Do I have to make a personal guarantee, or provide collateral to cover the loan?
Are there application fees?
How do I apply?
Is there a time limit to apply?
What will I need in order to apply?
Can I apply for more than one business?
What about scammers?
For More Information/Resources

What’s the purpose of the PPP loan?

For the SBA to “…provide relief to America’s small businesses expeditiously…to provide low cost funds to borrowers to meet eligible payroll costs and other eligible expenses during this temporary period of economic dislocation caused by the coronavirus.” See SBA Interim Final Rule 4/15/2020 “Business Loan Program Temporary Changes; Paycheck Protection Program” Section II, and Section III,2.I. https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program



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Who’s eligible for the PPP loan?

Any business in operation on February 15, 2020 with no more than 500 employees that needs the loan to keep its operations going due to the effects of the coronavirus pandemic. This includes independent contractors, sole proprietors, self-employed individuals, and corporations, LLCs, PCs, etc. The applicant “shall make a good faith certification” that the “funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments” among other qualifications.

See CARES Act, Section 1102 (a)(2)(D), and (G)
https://www.congress.gov/bill/116th-congress/house-bill/748/text#H49BA06D7DDCB4C2CB937E84E328CE902


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Who’s not eligible?

Any applicant or business that is not adversely effected by COVID-19, or any applicant or business:

  • currently involved in bankruptcy
  • delinquent or has defaulted on any SBA/federal loan within the last 7 years
  • presently incarcerated, on probation or parole, or subject to criminal charges
  • that has felony within the last 6 years
  • that has received another PPP loan


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How much can I apply for?

The maximum loan amount is 2.5 times the average monthly payroll payments by the applicant up to a maximum of $10 million. So, for example, if you average $1,000 per month for payroll costs, or your Schedule C income tax return for your sole-proprietor business shows that as an average monthly profit, then you can apply for a loan up to $2,500. There are exceptions for seasonal employers, or employers who just started business recently.

See the CARES Act section 1102 (a)(2)(E): https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-HCCF2DA7CBD6341059EAB97C24489743B  

See SBA Interim Final Rule, Section III.2.E. https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program


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What can I use the money for?

  • Payroll costs,
  • costs related to group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums,
  • employee salaries, commissions, or similar compensations,
  • payments of interest on any mortgage obligation,
  • rent,
  • utilities, and
  • interest on any other debt obligations that were incurred before the covered period.

See the CARES Act section 1102 (a)(2)(F) Allowable uses of covered loans: https://www.congress.gov/bill/116th-congress/house-bill/748/text#H5427935EB27445449B263BA4B4CB51B4


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What are the repayment terms?

According to the overriding SBA Interim Final Rule:

  • the maturity date of the loan is 2 years with
  • an interest rate of 1% and a
  • maximum deferment period of 6 months. Interest accrues during this period even though you won’t have make payments during the deferment period.
  • Borrowers will have an opportunity for loan forgiveness. See next question “Will I have to pay back this loan?”

cf. April 15, 2020 SBA Interim Final Rule “Business Loan Program Temporary Changes; Paycheck Protection Program” Sections III.2.I, J, and N: https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program

(The CARES Act and the SBA Interim Rule differ. The CARES Act calls for loans to have a maximum maturity of 10 years after loan forgiveness application with a maximum interest rate of 4%.  See the CARES Act section 1102 (a)(2)(K), (L), (M): https://www.congress.gov/bill/116th-congress/house-bill/748/text#H94EF0D1B63AA438CB8BD3B919A8BBDD1)

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Will I have to pay back this loan?

That depends upon whether you are granted loan forgiveness under the CARES Act.

The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgiveable purposes described below [in the SBA Interim Rule paragraph III.2.O] and employee and compensation levels are maintained.

https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program




The expected forgiveness amount means the amount of principal that a lender expects a borrower to spend during the covered period on


A)   payroll costs. (see the complete definition of what “payroll costs” are and aren’t under the SBA Interim Rule section III.2.F and the CARES Act, Section 1102 (a)(2)(A)(viii) at these two links: https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program https://www.congress.gov/bill/116th-congress/house-bill/748/text#HE4E7B1F84B384B0D92459C0BEB5AA857


B)   interest payments on covered mortgages. Note this does NOT include interest on any other debt obligation even though it is an allowed use of the loan proceeds.

C)   payments on covered rent

D)   covered utility payments

The SBA interim rule states that no less than 75% of the loan forgiveness amount has to be spent on payroll costs.


Other details of loan forgiveness are outlined in the CARES Act, section 1106 and the SBA Interim Rule section III.2.O:
https://www.congress.gov/bill/116th-congress/house-bill/748/text#H2A93DA7DFCA5414E9AEBF383EBAA0B77




https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program

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Do I have to make a personal guarantee, or provide collateral to cover the loan?

No. See the CARES Act section 1102 (a)(2)(J):
https://www.congress.gov/bill/116th-congress/house-bill/748/text#H85FE66BEEED24E2FA023534AC55F1E76


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Are there application fees?

No. Agents are not allowed to charge fees to complete the application. See the CARES Act section 1102 (a)(2)(H) & (P): https://www.congress.gov/bill/116th-congress/house-bill/748/text#HC8BB8C8488784411A188BFE3251D0E8C


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How do I apply?

You have to go through a Small Business Administration certified lender and submit the PPP Borrower Loan App Form 2483 found here:
https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf

Your lender may have its own form(s) for you to complete in addition to supporting documentation (see “What will I need in order to apply?” below). Attorney Thomas J. Niemann of Summers Compton Wells, and CPA Terry E. Richars of Mueller Prost recommend the following lenders in the region:

  • Enterprise Bank
  • West Community Credit Union
  • Midwest Regional Bank
  • Jefferson Bank and Trust
  • First State Bank of St. Charles
  • Midland States Bank


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Is there a time limit to apply?

The covered period for making loans begins February 15 and ends on June 30, 2020. However, the program ran out of funds on Thursday April 16. Should current negotiations bring out about more funding for the program it seems wise not to wait. https://www.kiplinger.com/article/business/T049-C000-S010-ppp-program-is-out-of-funds-but-apply-anyway.html


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What will I need in order to apply?

You should be prepared with at least the following documentation (if applicable to your business):

  • Organizing documents for your corporation or LLC
  • List of other businesses owned or controlled
  • Payroll summary report
  • IRS Forms 940 (FUTA Return), Employer’s Quarterly Federal Tax Return, and/or 944 (Employer’s Annual Fed Tax Return), as applicable
  • IRS Form 1099-MISC (Miscellaneous Income) or Form 1096 (Transmittal of 1099s) for independent contractors
  • Income and expenses from sole proprietorships
  • Form 2483 found here: https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf 

The ACT specifically states “An eligible self-employed individual, independent contractor, or sole proprietorship seeking a covered loan shall submit such documentation as is necessary to establish such individual as eligible, including payroll tax filings reported to the Internal Revenue Service, Forms 1099–MISC, and income and expenses from the sole proprietorship, as determined by the Administrator and the Secretary.https://www.congress.gov/bill/116th-congress/house-bill/748/text#H8428FDBA27B0410AB47A359259C03627

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Can I apply for more than one business?

Yes and No. “While the Act does not expressly provide that each eligible borrower may only receive one PPP loan, the Administrator has determined… a one loan per borrower limitation is necessary to help ensure that as many eligible borrowers as possible may obtain a PPP loan.” (SBA Final Interim Rule, Section III.2.K). I read that as a company or individual may only receive one loan, but if you own multiple companies than each company could apply. I read that also as only one loan per FEIN (Federal Employer Identification Number) will be allowed. So if you own multiple sole proprietorships all under your social security number, then you’ll be eligible to receive only one loan. Check with your financial adviser.

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What about scammers?

https://www.fema.gov/Coronavirus-Rumor-Control
There have been reports that scammers are pretending to be the government, contacting people by robocall, text message, email and other outreach. These scammers say they can get people financial help during the COVID-19 pandemic, and then ask for money or personal information, like your Social Security, bank account or credit card number. This is a SCAM.

Don’t trust anyone who offers financial help and then asks for money or personal information. Federal and local disaster workers do not solicit or accept money. The Department of Homeland Security, FEMA, U.S. Health and Human Services and the Centers for Disease Control staff never charge for disaster assistance.

The Federal Trade Commission scams page has tips to help you avoid scams online, on the phone, by text and through email. If you see a scam, please report it to the Federal Trade Commission: ftc.gov/complaint.


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For More Information/Resources

H.R. 748 CARES Act Text


https://www.congress.gov/bill/116th-congress/house-bill/748/text




H.R. 748 CARES Act, Section 1102-Paycheck Protection Program


https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-HCCF2DA7CBD6341059EAB97C24489743B




SBA Interim Final Rule 4/15/2020 “Business Loan Program Temporary Changes; Paycheck Protection Program”
https://www.federalregister.gov/documents/2020/04/15/2020-07672/business-loan-program-temporary-changes-paycheck-protection-program
Or pdf version:
https://www.govinfo.gov/content/pkg/FR-2020-04-15/pdf/2020-07672.pdf



SBA Interim Final Rule effective 4/15/2020- Business Loan Program Temporary Changes; Paycheck Protection Program with regard to certain affiliate rules

https://www.federalregister.gov/documents/2020/04/15/2020-07673/business-loan-program-temporary-changes-paycheck-protection-program





PPP Borrower Loan App Form 2483 found here:


https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf


Families First Coronavirus Response Act


https://www.govinfo.gov/content/pkg/PLAW-116publ127/pdf/PLAW-116publ127.pdf




Thomas J. Niemann, Attorney


Summers Compton Wells


https://www.summerscomptonwells.com/


tniemann@summerscomptonwells.com


314-991-4999 




Terry E. Richars, CPA 


Mueller Prost


https://muellerprost.com/


trichars@muellerprost.com


314-862-2070


Real Estate Buying, Selling, Consulting



Jeff Coleman

www.JeffColemanHomes.com


jeff@JeffColemanHomes.com


314-922-8425




See more life and home tips in my newsletters


https://jeffcoleman.myhomehq.biz/newsletters



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Jeff Coleman

Jeff Coleman is a candid, detailed and caring communicator. Working with one of the top performing real estate offices in St. Louis he provides more buyers for your property and more sellers for you ....

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