Stimulus Update: Significant SBA Loan Changes
As you probably know by now if you’ve been keeping up with my blog posts, the SBA now has two loan programs available to small businesses.
The Payroll Protection Program (commonly referred to as PPP) is the new program enacted last Friday. The Economic Injury Disaster Loan (referred to as EIDL) expands an SBA program that existed prior to COVID.
Earlier today (4/3/20), the SBA announced significant changes to both programs. The changes directly impact your application for either program and more importantly could result in part or all of your EIDL $10,000 grant being converted to a loan which you then would be required to repay to the SBA.
Look at changes below, and you’ll see how intricate the programs rules are becoming. I expect we will soon see an avalanche of additional rules, regulations, and interpretations, and these will occur at every level of government, federal, state and local.
My Recommendation
Having become a “Virtual CFO”, my best advice is not to do this without professional guidance. That is in no way meant to try and drum up business, but is my genuine belief based on the intricacy of this system and the importance of its outcome. For perspective, we are talking about $400 Billion to be distributed to 30 Million businesses across the United States. You know how brain-numbing payroll regulations are, now think about that on steroids, times 10, and that should give you an idea of where we are headed.
When you submit your application for a loan, you do so through your banker. The SBA approves the application and guarantees the bank that if you don’t repay the loan, then the federal government will. Now you need working knowledge of bank loan requirements, the SBA, federal, state, and local tax codes, the Families First Act, valid COVID related paid leave and payroll regulations. That’s not the entire list.
I really enjoy answering your questions and will continue to post regular updates to assist everyone in our community. Clearly though, the intricacies of the loan programs are beyond what I can easily communicate in emails or blog posts. I wrote this post to be sure you didn’t mistakenly believe the loan programs are as straight-forward as hopefully, my posts have been.
SBA LOAN CHANGES
Loan Interest Rate Changed - The interest rate on the loan is now 1% down from 4% which was in the law passed last week.
Change to NOT include Independent Contractor payments in the loan calculation
Your business cannot use independent contractors in its calculation of payroll costs for purposes of the loan calculation. This is in direct contrast to the law which created the loan.
If you included independent contractors in your payroll calculation for purposes of determining the loan amount you must update the calculation. If you have not already filed for the SBA loan – remove the contractor pay from the calculation.
If you have filed, retract your application and update accordingly.
If you are unable to retract your current application – reach out to your banker to have them modify.
Caution: Do not submit duplicate applications or you will delay processing.
Change for the loan forgiveness calculation In order to qualify for loan forgiveness, wages paid during the 8-week period following receipt of the loan now have to be no less than 75% of the loan forgiveness.
As you can see, this package has a lot of moving parts and pieces, and despite the bill being signed into law, the parts and pieces are still moving on a daily basis. Stay tuned to my social media and website for regular updates on the bill. I will continue to do my best to break down the complicated financial implications in ways that are easy to understand. If you want to make sure you are getting updates from me via email, please contact me to be added to my list.