April 22, 2020
Dear Clients and Friends,
The Senate on Tuesday approved additional funding of $310 billion to replenish the Paycheck Protection Program (PPP), which provides forgivable loans to certain types of businesses struggling as a result of the pandemic. It is expected to be passed by the House Thursday and signed by the President.
This opens the flood gates again to the PPP bank applications. Time is of the essence to apply while the funding is available. Many small businesses, self- employed persons, independent contractors, and sole proprietors likely qualified for relief but were shut out of the first round of money as the well ran dry.
I know several business owners who successfully received PPP funding or SBA Economic Injury Disaster Loans (EIDL) from the first wave of applications over the past few weeks. I’ve also listened to several SBA presentations made to the Las Vegas business community on these programs. So, I’d like to pass along some tips from my view and recent experiences that may help in getting your application approved:
- Choose your lender carefully: Leverage your banking relationships by going with the strongest one. This might get you nearer to the top of the heap faster. But if you don’t have a solid banking connection, don’t give up, a list of participating banks is at www.sba.gov. I’ve heard success stories with the large national banks and the smaller regional banks so far. Non-bank lenders are also in the mix, such as Intuit Quickbooks, Kabbage, and PayPal and I’ve heard good feedback there as well. Lenders have been overwhelmed by demand, and the banks were clearly backed into a near-impossible situation to administer this government relief program. However, from what I’ve seen many are doing an incredible job to serve the business community and deserve credit where it’s due.
- Stick to one bank/one application: Avoid blasting out applications to several lenders hoping one sticks. I’ve heard of situations where an applicant was flagged by SBA for submitting applications to four or five banks in their rush to the gate. The SBA may suspect fraud and duplicity in this case and freeze all the applications. I know of a few people who have stretched it to two applications, I leave this to your judgment but be forewarned that this may backfire.
- Calculate your loan amount correctly: You will probably get one shot at your requested loan amount. For businesses with employee payroll, your loan amount is generally calculated as your 2019 average monthly gross payroll plus employee benefits paid such as health insurance multiplied by 2.5. Of course, the devil is in the details of the SBA guidelines. A simple concept such as Payroll Costs can get complicated quickly and includes limitations. For the self-employed, independent contractor, and sole proprietor payroll cost is your 2019 business income (capped at $100,000), divided by 12 then multiplied by 2.5. Consult your accountant if you are not sure of your number so that you don’t short-change yourself.
- Submit a COMPLETE application: 100% complete. Not mostly complete. Don’t miss any check boxes. Triple check the application before you push the button. If you miss one item your application will likely fall into a black hole. Provide all the requested supporting documentation. For employers, you will need to provide the 2019 payroll tax filings (IRS Forms 941/940). Have them ready to go in PDF to upload to the lender’s web portal. For the self-employed, you’ll need to substantiate your income to the bank e.g. Forms 1099 received, your Schedule C filed with your 2019 tax return, or other books of record. If you haven’t filed your 2019 tax return yet call your CPA to prepare it rather explaining to the lender that you’re too exhausted from sheltering in place to deal with it.
- First, be sure PPP really fits you: This program is designed and intended to help small business employers adversely impacted by the Covid-19 crisis to keep their employees paid during an 8-week period ending by June 30. And to help the self-employed get paid too during these unprecedented times. Neither the government nor the banks want to get stuck servicing a loan. The goal is 100% loan forgiveness. Meaning, the money should be spent primarily on its intended purpose, paying employees and replacing the business owner’s own paychecks through this economic downturn. The application’s personal Certifications are made under the penalties of perjury and should be taken very seriously. A big caveat for us In Nevada, we are still shut down and the governor not has not announced a re-opening. So, it may very well be a challenge to spend at least 75% of the loan proceeds on payroll by June 30 as required for 100% forgiveness. I suggest we examine our own specific situations closely prior to rushing into an application with a marginal benefit that may not really be worth the effort.
The Senate has also appropriated another $60 billion for the SBA Economic Injury Disaster Loan (EIDL) program. Seems like a paltry sum compared to the $310 billion for PPP but this program may work for you if it can last. I’ve heard personally of just a few advances being received so far from the first round. Note also that SBA says if you receive the smaller advance portion in the coming days, it doesn’t necessarily mean that your application for the larger loan has been denied.
- Make sure your application number begins with “3”: For those who already applied several weeks back. The first release of this on-line application at www.sba.gov involved filling out paper forms and uploading them to the portal. It was simplified to a streamlined application shortly thereafter. The SBA has advised that you must fill out the streamlined application to stay in the process and to also be eligible for the $10,000 advance. I am finding this communication has slipped through the cracks for many applicants. If your application number beings with “3”, no further action is required, otherwise visit the website and also do the streamlined app. It only takes 15-20 minutes.
- Do not forget about the EIDL option: You may apply to both PPP and EIDL. You just can’t double dip on the loan proceeds for the same expenses. EIDL is designed to provide up to a year of working capital to fund business operations through the economic downturn. No personal guarantee and waives the general SBA requirement that you need to exhaust other borrowing options first. A low interest loan with very friendly terms isn’t a bad deal! The forgiveness aspect of PPP makes PPP the whole enchilada, but an EIDL loan at 2.75% amortized over 30 years with a 6-month deferral may be just what the doctor ordered to get through this downturn. .
- Prepare a budget of monthly business expenses through 2019: Be organized and have a schedule of business expenses ready in a professional format such as an excel spreadsheet or use the schedule of business liabilities on the SBA website. This loan is based on your working capital needs, not just payroll alone like PPP. This way you have it ready when (hopefully) the SBA case manager calls you to discuss your application. You may have an opportunity to pitch your story to your Case Manager and it will help to be armed with real numbers that can back up the loan amount.
Hope this helps, and please feel free to contact me with questions, as we are in this together. Best regards, Eric
Eric Johnson, CPA
Tel. (702) 941-7787
Eric Johnson CPA LLC
2850 W Horizon Ridge Pkwy #200
Henderson, NV 89052
Near I-215/Eastern Ave. exit; only 2 miles via Eastern to Coronado Center at W. Horizon Ridge. The “Regus” building.