The Paycheck Protection Program instituted by the CARES Act.


Edit April 27, 2020:

The SBA released the form necessary to make application. You can access the form by clicking here.

You should contact your bank immediately regarding this loan. If you don't have a bank, we have been speaking with a number of banks, the most aggressive bank at this time seems to be the following (we will update this list as other banks show more interest):

John Ballinger
(971) 645-0644
JohnB@maxwellmorgan.com
First State Bank
914 Lake Street
PO Box 79
Gothenburg, NE 69138

Drew Mixon
Commercial Bank of Texas
AVP | Commercial Loan Officer | NMLS: 1654262
Tel: 214-383-3466
Fax: 214-383-5373
dmixon@cbtx.com

 

 

Edit April 2 at 4:48 pm CDT

We recently received information from multiple banking officers that further explain the data you need to gather for this loan.

  • W-2/W-3 for all employees for 2019
  • Quarterly 940/941 payroll reports for 2019 (there should be 4)
  • Filings with the Texas Workforce Commission to show unemployment tax paid to the State

If you have an LLC:

  • Certificate of Filing
  • Certificate of Formation
  • Company/Operation Agreement
  • EIN
  • 2 forms of ID

If you have a corporation:

  • Certificate of Filing
  • Certificate of Formation
  • Meeting Minutes
  • Bylaws
  • EIN
  • 2 forms of ID

Further, we just heard Steve Mnuchin, Treasury Secretary, admit in a press conference that funds might run out and that if they do the administration will go to Congress to secure further funding. Again, we implore you to wait and also again recommend you use the banker(s) listed below if you don't have a relationship with a bank at the moment.


Edit April 1 at 2:30 pm CDT

We are hearing from banks that although the application form (that you can access the form by clicking here.) is a two page form, banks are still going to require things like Certificate of formation, articles of incorporation, assumed name certificates (if any), and other SBA disclosures. Additionally, we are expecting that the bank will want to perform its usual background check. Needless to say, this will significantly delay the release of any monies.

Also, and we think this is immaterial, the loan application period will close June 30, 2020. Our opinion is that the program will run out of money before then as there is only $349 billion available to lend.

Regarding loan forgiveness:

How can I request loan forgiveness? You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.


Edit March 31, 2020 at 3:20 pm CDT:

The SBA just-released the form necessary to make application. You can access the form by clicking here.

You should contact your bank immediately regarding this loan. If you don't have a bank, we have been speaking with a number of banks, the most aggressive bank at this time seems to be the following (we will update this list as other banks show more interest):

Drew Mixon
Commercial Bank of Texas
AVP | Commercial Loan Officer | NMLS: 1654262
Tel: 214-383-3466
Fax: 214-383-5373
dmixon@cbtx.com

 


 

On March 27, 2020 the “Coronavirus Aid, Relief, and Economic Security Act” also known as the “CARES Act” was enacted. The Act is a broad sweeping bit of legislation that will impact virtually every corner of our society. We have no intention of addressing the breadth of the CARES Act and instead will focus on a very narrow provision of the Act that we believe will have a significant impact on our clients. Specifically, we will focus on the portion of the Act that provides loans to small businesses that are then forgiven.

This type of loan is being referred to by the Small Business Administration, and in the banking industry, as the Paycheck Protection Program or PPP.

We are in conversations with a number of banks to determine their readiness to accept loan applications. We will be sharing contact information with banks as we find out they are ready to accept loan applications.

What does the word “forgiven” mean in this context?

Within the terms of the Act the term forgiven means that the loan obtained under the provisions of the Act are paid by the US government to the bank, not by the borrower. There are conditions to this forgiveness, as you will see below.

What is the maximum loan amount for a PPP loan?

The maximum PPP loan available to any business is 2.5 times the average monthly payroll costs (see below for an explanation of this term) of the business over the year prior to the date of the PPP loan, excluding the prorated portion of any annual compensation above $100,000 for any person. There are some adjustments for seasonal employers and an overall maximum loan amount of $10 million.

What businesses qualify for a PPP loan?

Generally, all businesses, including non-profit entities and self-employed persons (even without employees), with fewer than 500 employees. Note: If your business employees more than 500 employees, it may still qualify.

How can PPP loan proceeds be used?

PPP loan proceeds can be used for:

  • Payroll costs;
  • Group healthcare benefit costs and insurance premiums;
  • Rent on a leasing agreement;
  • Mortgage interest (but not prepayments or principal payments) and rent payments;
  • Interest on debt that existed as of February 15, 2020.

What is considered a “payroll cost” for PPP loan purposes?

“Payroll costs” include:

  • The costs of payroll (payroll per employee is limited to $100,000);
  • Vacation, parental, family, medical and sick leave;
  • Allowances for dismissal or separation;
  • Payments for group health care benefits, including insurance premiums; and
  • Retirement benefits.

Calculations vary slightly for seasonal businesses and businesses that were not in operation between February 15 and June 30, 2019.

How much can you borrow?

The maximum loan amount is the lesser of:

  • the average total monthly payments by the business for payroll costs incurred during the one-year period before the date the loan is made multiplied by 2.5; or
  • $10 million.

Will PPP loans be forgiven?

PPP loans can be forgiven to the extent that the loan proceeds have been used for payroll costs and the following:

  • Certain utilities, including electricity, gas, water, transportation, and phone and Internet access for service that began before February 15, 2020; and
  • Additional wages paid to tipped employees.

These costs must be incurred and paid during the eight weeks after the loan is made.

The amount forgiven will be reduced based on failure to maintain the average number of full-time equivalent employees versus the period from either February 15, 2019, through June 30, 2019, or January 1, 2020, through February 29, 2020, as selected by the borrower.

The amount forgiven is also reduced to the extent that compensation for any individual making less than $100,000 per year is reduced by more than 25 percent measured against the most recent full quarter. But, it appears that if you rehire theses employees once the loan is granted that there is no reduction in forgiveness for each such employee re-hired after the loan is granted.

Reductions in the number of employees or compensation occurring between February 15, 2020, and 30 days after enactment of the CARES Act will generally be ignored if the action (layoff or salary reduction) is reversed by June 30, 2020.

Will the borrower have to pay taxes on the forgiven debt?

NO! Forgiven amounts will not be considered cancellation of indebtedness income for federal tax purposes.

What underwriting standards will the bank use?

PPP lenders will only be required to consider whether an applicant was in operation on February 15, 2020, and either had employees for whom it paid salaries and payroll taxes or paid independent contractors. Applicants will not be required to demonstrate repayment ability.

Do PPP loans have collateral or personal guaranty requirements?

PPP loans have no collateral or personal-guarantee requirements. There will be no recourse to owners of borrowers for nonpayment, except to the extent proceeds are used for an unauthorized purpose.

 Are PPP loans guaranteed by the government?

PPP loans are backed by a 100 percent guaranty from SBA.

What are the primary terms of the PPP loans?

Any amount not forgiven as described above will bear interest at a maximum rate of 4 percent and mature no later than 10 years after the amount of forgiveness is applied.

When will payments begin on PPP loans?

Payments on PPP loans will be deferred for 6 to 12 months.

What should you be doing now?

This is a loan and you are dealing with a bank. Accordingly, you should be gathering the following information as soon as possible:

  • your company’s tax return for 2018 and 2019
  • your company’s payroll tax returns for 2018, 2019 and the first quarter of 2020.
  • If the company has someone who owns more than 20% of the company, then we recommend you also gather the following for each person that owns more than 20%
    • A current personal financial statement; and
    • Tax return for 2018 and 2019;

 

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