Author: RBT CPAs

Municipal retirement incentives for employees in New York: What your local government needs to know

Municipal retirement incentives can be a solid strategy for a local government that seeks to generate revenues and cut expenses, but using this option requires research and planning to determine if it is right solution for financial circumstances.

Municipal retirement and separation incentives are making the news as county executives across the Mid Hudson region seek to trim budgets. In the wake of sales tax losses and delayed state aid during the COVID-19 crisis and shutdown, every dollar counts.

As an example, in late June, Dutchess County announced retirement incentives for employees who meet state pension system requirements, offering a bump to the county share of retiree health insurance premiums and either 10 years of fully covered vision and dental or a $10,000 incentive payment. Dutchess is also offering the option of a $20,000 lump-sum incentive to employees who retire, as well as to employees who opt for voluntary separation.

Dutchess expects the incentives to save the county between $8 million and $12 million.

The first step in determining whether a retirement incentive is right for a local municipality is to perform an analysis of your employee demographics. Once officials determine who is reaching or is at retirement age, they must consider the job and duties of the employees who might take an incentive. Is this a job where the employer will need to fill the vacancy, or it is a position that can be eliminated?

Whether a job’s duties are essential or non-essential factors into the decision. Police officers who retire, for example, may need to be replaced to maintain public safety. For other positions, departments may be able to combine duties to accommodate trimmed staffing, or find ways to automate services, such as online bill paying.

The analysis must be realistic and consider which retirees’ or open positions must be filled to continue providing needed services to taxpayers.

Local governments looking to offer incentives must also examine labor contracts and work out details with unions if bargaining-unit positions are affected.

Although retirement incentives are thought of as a near-term money-saving measure, their effects make them a longer-term measure.

Once officials have analyzed the workforce and weighed all of the information, they can then extrapolate potential savings versus the cost of incentives that will entice a sufficient number of employees to accept the offer.

Savings depends on the employee’s salary and when he or she accepts the incentive. For example, if workers retire effective July 1, the municipality will still have half of their annual salaries and benefits in the budget, helping to offset the cost of the incentives. Offering an incentive earlier in the year maximizes savings.

Officials must be sure that the savings created by the retirements or separations exceed the funds paid out to secure them.

The most obvious incentive is a cash payout. Orange County, for example, offered voluntary separation incentives of $10,000 for employees with 10-20 years of service, $12,500 for those with 20-30 years of service, and $15,000 for workers with more than 30 years. Orange coupled its separation incentives with a two-month voluntary layoff program that allows workers to collect unemployment.

Municipalities can also offer perks such as bonus payouts of unused sick or leave time, continuation of benefits, or reduced contributions towards benefits.

To offer incentives, the municipality must spend money. Optimally, a municipality will have cash savings from unexpended salaries and/or sufficient fund balance to pay out incentives. Otherwise, officials must take a hard look at the current budget, to look for efficiencies.

In determining the best course for using municipal employee retirement incentives, local officials must take a larger view of personnel and government functions. That assessment will determine how a government can most economically and efficiently provide the services constituents need and expect.

Safe Manufacturing During the COVID-19 Crisis

The coronavirus (COVID-19) pandemic has forced American businesses to adapt quickly to a radically new economic and operating landscape. If your company sells, manufactures, delivers, distributes or otherwise facilitates goods considered “essential” you may need to operate at full (or overtime) capacity. On the other hand, manufacturers whose goods aren’t deemed essential may be forced to idle their machines and close their doors indefinitely. (In many cases, state guidelines specify which businesses are essential and which ones aren’t.)

Both situations are challenging. But if you’re up and operating, here are four considerations to help you do so safely and productively:

1. Keep Workers Safe

The health and safety of workers has always been a priority for manufacturers. Now you must contend with the threat of COVID-19. If some of your employees can work from home, enable them to do so successfully by ensuring they have the technology and other resources they need. Even as states “open for business” again, consider keeping remote workers at home, if possible, until COVID-19 treatments or a vaccine are available.

For workers who must be on-site, consider scheduling skeleton crews in shifts and try to keep the same workers on individual crews to limit potential exposure. Also limit the number of managers working at any one time in production areas. Even if you normally operate nine to five, the transition to 24-hour operations may be easier than you think. Exercising flexibility helps lower the risk that the virus might spread. And if an employee does become sick, fewer coworkers will be required to self-quarantine.

Positive cases of COVID-19 exposure should be treated seriously. In addition to quarantining workers, you must thoroughly clean all production and office areas before allowing operations to resume.

2. Embrace Innovation

Doing things the way you always have may not be the best course right now. Instead, be ready to adapt and innovate whenever the situation calls for a different approach. For example, most manufacturing workers don’t work from home. But 3D printers may make it possible for some employees to produce goods while social distancing.

Or consider how your company might repurpose goods to meet new demands. As has been well-publicized, some companies are redeploying resources to produce ventilators and other needed medical equipment. In many cases, manufacturers may find it relatively easy to pivot to new production modes and goals. For instance, some distilleries are converting alcoholic beverages into disinfectants. Paper producers might ramp up production to meet increased demand for shipping boxes. And manufacturers already producing cardboard could redesign templates to make more “to-go” boxes for restaurants that have been forced to close dining areas.

Be sure you heed federal and state government mandates. Some companies may be asked to modify their operations so they can produce in-demand medical or cleaning products. Even if you aren’t required to change your operations, look for opportunities to address the current situation. Slight alterations could mean the difference between your products being deemed essential vs. non-essential. If you’re a link in an important supply chain, you may be able to make the case for continuing operations.

3. Plan for Financial Challenges

Your factory may be busy now, but there’s no guarantee that will be true in a few months. The financial ramifications of COVID-19 could be long-lived — and dire — for many businesses. Plan so that work slow-downs don’t sneak up on you.

Federal and state authorities have introduced various tax breaks, particularly for companies that keep workers on the payroll. The Families First Coronavirus Response Act made certain employers eligible for tax credits so long as they provide paid sick leave to COVID-19-positive employees or workers who have to stay home to care for sick family members.

The subsequent Coronavirus Aid, Relief, and Economic Security (CARES) Act authorized several provisions, including:

Delays for payroll tax obligations,
An employee retention credit,
Favorable tax provisions for businesses incurring losses, and
Expanded unemployment benefits for workers.

The CARES Act also launched the massive Paycheck Protection Program (PPP) that offers qualified businesses forgivable loans and other forms of relief for keeping employees on the payroll. After the available money ran out, Congress approved a second round of funding for the PPP in late April.

State and local support levels vary depending on the municipality. For example, your state may have removed some restrictions for businesses producing essential products.

4. Get Professional Advice

Your manufacturing management team doesn’t have to tackle the many challenges of the COVID-19 crisis alone. We have up-to-date information on federal and state benefits available to manufacturers. And we can help you navigate the lending landscape. For example, we can help identify appropriate lenders and prepare the calculations and statements required to apply for PPP loans. Don’t hesitate to contact us.

COVID-19 Scams Spreading

Crisis brings out the best — and worst — in people. Some dishonest people have already turned the coronavirus (COVID-19) pandemic to their advantage by preying on unsuspecting victims and exploiting their fears.

FTC Reports Rise in COVID-19 Scams

In the first quarter of 2020, the Federal Trade Commission (FTC) received more than 7,800 consumer complaints related to the coronavirus (COVID-19) crisis. That number is expected to surge, as the rate of complaints roughly doubled during the last week of March.

Top categories of COVID-19-related fraud complaints include:

Reports regarding cancellations and refunds for travel and vacation plans,
Problems with online shopping,
Mobile texting scams, and
Government and business imposter scams.

So far, the FTC reports that consumers have lost a total of $4.77 million from COVID-19-related frauds. The median loss is $598. If you encounter fraud related to the ongoing COVID-19 crisis, report it to the FTC.

“History has shown that criminals take every opportunity to perpetrate a fraud on unsuspecting victims, especially when a group of people is vulnerable or in a state of need,” said IRS Criminal Investigation Chief Don Fort.

Here’s an overview of six COVID-19-related scams and practical advice on how to avoid them.

1. Fake Charities

When a catastrophe like COVID-19 strikes, philanthropists flock to donate cash and other assets to help relieve the suffering. But, before making a donation, be aware that opportunistic scammers may set up fake charities to benefit from your generosity.

Fake charities often use names that are similar to legitimate charitable organizations. So, be sure to do your homework before making a contribution. Donors aren’t the only victims to these scams — those in need also lose out.

2. Stolen CARES Act Payments

The new Coronavirus Aid, Relief, and Economic Security (CARES) Act provides one-time direct “economic impact” payments to individuals and families. If you’re eligible, these payments are up to $1,200 for single people and $2,400 for joint filers, plus $500 per qualifying child under 17. They’re considered advances for a new federal income tax credit that’s subject to phaseout thresholds based on adjusted gross income (AGI).

People who are strapped for cash may be impatient to receive the money — and cyber-crooks know it. Scammers may, for instance, call or email you, pretending to be from a government agency like the IRS. Then they’ll ask for your Social Security number (SSN) in order to receive your check. Or they’ll say you must make a payment to qualify for the check.

The IRS warns that scammers may:

Use the words “Stimulus Check” or “Stimulus Payment.” (The official IRS term is economic impact payment.)
Ask the taxpayer to sign over their payment check to them.
Ask by phone, email, text or social media for verification of personal and/or banking information saying that the information is needed to receive or speed up their payment.
Suggest that they can get a tax refund or payment faster by working on a taxpayer’s behalf. This scam could be conducted by social media or even in person.
Mail the taxpayer a bogus check, perhaps in an odd amount, then tell the taxpayer to call a number or verify information online in order to cash it.

Don’t fall for these ploys! If you previously signed up to have your federal income tax refunds deposited into a bank account, your advance credit payment will come to you that way. If not, you may be entitled to receive a paper check through the mail. Either way, the U.S. Treasury won’t contact you over the phone or email you with a request for payment or sensitive personal data (such as a bank account or SSN).

3. Public Health Phishing

In a “phishing” scheme, victims are enticed to respond to a false email or other online communication. In COVID-19-related phishing scams, the perpetrator may impersonate a representative from a health care agency, such as the World Health Organization (WHO) or the Centers for Disease Control and Prevention (CDC). They may ask for personal information, such as your SSN or bank account, or instruct you to click on a link to a survey or an email.

If you receive a suspicious email, don’t respond or click on any links. The scammer might use ill-gotten data to gain access to your financial accounts or open new accounts in your name. In some cases, clicking a link might download malware to your computer. For updates on the COVID-19 crisis, go directly to the official websites of the WHO or CDC.

The IRS reports that its Criminal Investigation Division has seen a wave of new and evolving phishing schemes against taxpayers, and among the targets are retirees.

4. Retail Scams

In some parts of the United States, there’s little or no supply of certain consumable goods, such as toilet paper, hand sanitizer, antibacterial wipes, masks and paper goods. Scammers are exploiting these shortages by posing as retailers in order to obtain your personal information.

Con artists may, for example, claim to have the goods that you need and ask for your credit card number to complete a purchase transaction. Then they use the card number to run up charges while you never receive anything in return.

How can you avoid retail scams? Deal with outfits only if you know they’re legitimate. If a supplier offers a deal out of the blue that seems to be too good to be true, it probably is.

In other cases, online sellers are price gouging on limited items. If an item is selling online for many times more than the usual price, you probably want to avoid buying it.

5. Robo-Calls

Robo-calls may be increasing during the COVID-19 crisis. This scam has been tailored to fit the pandemic. For instance, callers may offer masks, testing kits and other COVID-19-related items at reduced rates. Then they’ll ask for your credit card number to “secure” your purchase.

A reputable company wouldn’t try to contact you this way. If you receive an unsolicited call from a phone number that’s blocked or that you don’t recognize, hang up or ignore it.

In addition, don’t buy into special offers for such items as COVID-19 treatments, vaccinations or home test kits. You’ll likely end up paying for something that doesn’t exist. There currently is no vaccine for COVID-19.

6. Bogus Business Emails

Businesses aren’t immune to COVID-19 frauds. Frequently, scams originate from emails instructing employees to remit goods, authorize transactions or provide proprietary data.

For example, an employee might receive an email that appears to be from the company’s president that directs the employee to transfer funds, wire money or take some other financial action. But the email is actually from a fraudster, hoping to steal money or gain access to the company’s computer system.

Under normal conditions, this type of phishing email might have raised some eyebrows. But COVID-19 has disrupted normal business operations and caused businesses to take extreme measures to protect assets and preserve cash flow. Companies may be especially vulnerable to these scams while employees work from home and don’t have the same access to management as they do during normal conditions.

Another type of phony business email appears to come from the company’s IT department. These messages might ask the recipient to provide his or her password — or to download software that turns out to be malware that infects the entire system. Employees who are stressed, overworked or sleep-deprived due to COVID-19 are easy targets for this scam — especially if an employee’s wireless home network is less secure than the company’s in-office network.

Education is the key to avoiding COVID-19-related frauds in the workplace. Remind employees about network security protocols and phishing scams during the pandemic. And provide tools that allow them to verify any communications that seem out of the ordinary and to report hoaxes as soon as possible.

Ongoing Team Effort

You’re not in this alone. The Federal Trade Commission (FTC) has ramped up efforts to protect consumers on matters relating to COVID-19. Visit the FTC’s website for more information about these types of scams and how to avoid them — or contact your financial advisors for additional guidance.

10 Questions as Businesses Decide Whether and How to Reopen

Businesses across America that have been shut down due to the novel coronavirus (COVID-19) pandemic may now (or soon) have the option to reopen.

Since no two businesses are alike — even those in the same industry and location — what makes sense for one company could be a disaster for another. But many questions that business owners are asking could be applicable to all organizations. Here are 10 questions to keep in mind as you decide whether and how to open up.

How will customers respond if you open your doors now? You can only make an educated guess, but this is perhaps the most crucial question of all. Let’s say you go to a lot of trouble and expense opening up, while assuming financial and health-related risks. If nobody seems to notice, that’s a big problem.
Can you modify your business model to improve your chances of success when you reopen? As we all know, many restaurants have been able to reopen (or remain open) by going into the carryout business. How might you change your business to accommodate customers whose needs or behaviors are different today? For example, would adding a delivery service be productive? Could you bolster your web presence to increase merchandise sales?
Should you offer new products and services? The pandemic is sure to change certain customer preferences and increase demand for products or services you could offer. What might they be?
Will your supply chain be ready to accommodate your needs? If you’re in a retail or manufacturing industry, there’s little point in reopening if you won’t have enough inventory to meet demand.
Will you need to do special promotions to lure customers back? Holding a “going back into business sale” might work for some enterprises. It may take an ambitious marketing effort to let former and prospective customers know you’re ready to serve them. How can you get through to your former customers?
What physical changes will you need to make in your business to keep employees and customers safe? Clear Plexiglas barriers are sprouting up in businesses everywhere to impede the spread of COVID-19. So, too, are measures to enforce social distancing, as well as enhanced cleaning services. Are you able to make such workplace adaptations?
Will your employees feel safe returning to your workplace? Already, some employees who have been asked to return to their former jobsites are balking due to fears of becoming infected. Some, including older workers and those with health conditions that put them at extra risk, may have legitimate concerns. Some of those employees may be forfeiting their jobs in taking that stance if they’re collecting unemployment benefits. And some employees may have legally protected rights to keep their jobs if you can make a “reasonable accommodation” (under the Americans with Disabilities Act) that makes them comfortable to return to work. If you are facing these issues, consult with your employment attorney.
Are you prepared to accept the risk that employees may contract COVID-19 at work? In terms of legal liability, you might be protected by heeding the advice of the Centers for Disease Control and Prevention and implementing their recommended safety measures, plus your own common sense. Be sure to document your efforts. If after returning to work, someone becomes seriously ill and it appears to be due to an exposure at your workplace, you may need to provide this documentation. Of course, even if you don’t face legal challenges, the predominant concern is the health and safety of your employees.
What are other businesses, including competitors, doing in your area? If you’re on the fence about whether to reopen, but your competitors are doing just that, you need to consider the risk of a long-term or permanent loss of market share. This assumes that customers are ready to return to the marketplace for your products or services.
What’s the cost of delay? If you have a lot of ongoing fixed expenses, such as rent, insurance, taxes and borrowing costs, every day you take in zero revenue puts you deeper in the hole. If instead your fixed costs are minimal, the current prospects of a rapid return to your pre-pandemic pace of business are slim, and competitors aren’t nipping at your heels, the cost of holding off on reopening may be small.

Final Thoughts

In the end, the choice you face may not be an all-or-nothing proposition. That is, you can begin to open the doors to your business a crack and wait to see what happens, before ramping up to your pre-pandemic operating capacity. That would certainly be a more prudent approach than staying closed or fully reopening.

HIPAA Compliance and How it Pertains to Employees During COVID-19

Here’s a question from one employer about how the pandemic may affect HIPAA requirements.

Q. Due to COVID-19, our company is planning to take employees’ temperatures and ask them general health-related questions as they report to work each morning. Does HIPAA apply to the information we obtain from employees?

A. HIPAA’s requirements to safeguard protected health information (PHI) apply only to covered entities (health plans, health care clearinghouses, and most health care providers), not to employers acting in their capacity as employers. So, while the results of COVID-19-related temperature checks and health questions must be maintained confidentially, HIPAA doesn’t apply to the COVID-19 information that your company collects from employees. (If your company were a HIPAA covered entity, a similar analysis would apply to information maintained in the company’s employment records.)

Of course, HIPAA does apply to PHI related to COVID-19 that is created, maintained, received, or transmitted by your group health plan. This PHI generally cannot be disclosed to the plan sponsor unless the privacy rule’s prerequisites for such disclosures have been met. For example, in most cases, the PHI could be disclosed only to employees performing administration functions for the plan and couldn’t be used for employment-related actions. Therefore, it’s important to carefully document the source of employees’ COVID-19 information.

The effect of other laws should also be considered. For example, the Americans with Disabilities Act (ADA) prohibits an employer from subjecting employees to disability-related inquiries and medical examinations, except under limited circumstances. Although temperature checks are considered medical examinations, guidelines from the Equal Employment Opportunity Commission (EEOC) state that employers may screen employees entering the workplace by taking their temperatures and asking them about symptoms (such as fever and shortness of breath) that might indicate the presence of COVID-19.

The EEOC’s guidance is specific to COVID-19 and is based on a finding that the presence of someone with COVID-19 or related symptoms in the workplace would pose a substantial risk of harm to others. Although HIPAA doesn’t apply, the EEOC’s guidance notes that the ADA requires employers to safeguard the confidentiality of the medical information, which must be maintained in medical files separate from employees’ personnel files.

Plan for Employee Safety as Employees Return to Work

Chances are, employers don’t need the force of law to make them care about the health of their employees, especially during the novel coronavirus (COVID-19) pandemic. But it’s still important to know what the federal workplace safety agency — the Occupational Safety and Health Administration (OSHA) — has to say about employees returning to their jobs with a measure of confidence in their own safety.

OSHA’s recent “Guidance on Preparing Workplaces for COVID-19” report offers a helpful blueprint. However, the agency stresses it’s “only advisory in nature” and doesn’t set any new standards. Also, it falls under the underlying law’s overall requirement that employers “provide their employees with a workplace free from recognized hazards likely to cause death or serious physical harm.”

Below are some points from the OSHA blueprint to help you consider workplace safety through a new lens.

Assess Your Risk Profile

Step one in working toward a hazard-free workplace is to make an “infectious disease preparedness and response plan,” OSHA states. (You might need to recycle your plan at some future time when another aggressive virus makes the rounds.)

Consider the sources of COVID-19 that workers might be exposed to. Those include both sources at work — namely coworkers and other people who regularly come to your workplace — and workers’ potential exposure outside work.

For example, employees who commute to work via public transportation might face a higher risk of being exposed than those who drive their own cars. Similarly, employees with spouses or family members who work on the front lines, such as in a hospital clinical setting, could pose a greater risk than others.

While you can’t discriminate against employees who might be at greater risk than others, having a complete risk exposure picture can guide your overall preparedness strategy. You might have considered that the chances of a viral outbreak at your workplace were minimal before thinking about potential indirect sources of exposure, and thus decide to take greater precautions than you otherwise would.

Workplace Control Categories

“Workplace controls” for infection prevention, as OSHA calls them, fall into four buckets:

Engineering controls. Physical measures include using high-efficiency filters, increasing ventilation, and installing physical barriers such as clear plastic sneeze guards.
Administrative controls. This involves HR policies, safety equipment and procedure training.
Safe work practices. Examples include “no-touch” trash cans, alcohol-based hand rubs and required handwashing.
Personal protective equipment (PPE). This includes gloves, goggles, face shields, etc. Note: While there’s no COVID-19-specific OSHA PPE standard, some regulations may apply here. One is general industry PPE standards laid out in 29 CFR 1910 subpart I, governing when the use of gloves, eye, face and respiratory protection is required.

As the above categories indicate, infection prevention measures highlighted by OSHA aren’t limited to frequent handwashing and disinfecting of workplaces. They cover work policies you might not already have in place, for example, when employees should work from home or call in sick.

And while this isn’t suggested by OSHA, you might review your paid sick leave policy to ensure that it doesn’t discourage sick employees (potentially with COVID-19) to report for duty to avoid forfeiting pay.

Other possible policy responses to consider include staggered work shifts to lower the density of employees at work at any given time, and other ways to allow workers to spread out more (“social distance”).

Employees’ Obligations

Employees should be informed of the right person or department to contact if any symptoms consistent with COVID-19 arise, and what will happen next. Ideally, you’ll have multiple options ranging from sending the employee home immediately to moving the employee’s workstation to a more remote site. “Although most worksites do not have specific isolation rooms, designated areas with doors may serve as isolation rooms until potentially sick people can be removed from the worksite,” OSHA suggests.

Not every respiratory infection is COVID-19 related, of course. But OSHA discourages employers from requiring every sick employee to obtain documentation from a healthcare professional before deciding how to handle the situation. Erring on the side of caution is the practical solution because swamped medical offices might not be able to generate such documentation.

“Risk Pyramid”

OSHA’s guidance also features a “risk pyramid” that classifies hazard levels for different kinds of jobs and workplaces. It’s encouraging to note that OSHA believes most workers “will likely fall into the lower or medium exposure risk levels.”

Jobs with “medium” exposure risk include those “that require frequent and/or close contact with people who may be infected but are not known or suspected” to be infected. The least risky (“lower exposure risk”) jobs “are those that do not require contact with people known to be, or suspected of being” infected, nor frequent contact with the general public.”

In contrast, jobs with “very high” exposure risk include healthcare workers and those who perform autopsies working with known or suspected COVID-19 patients. The next level down in the risk spectrum are jobs with just “high” exposure risk. This includes healthcare delivery personnel (for example, ambulance drivers) and medical support staff working around known or suspected COVID-19 patients.

Your infection minimization strategy and policies can be suited to the risk classification of the jobs your employees have. For example, for jobs in the “lower exposure risk” class, special engineering controls are “not recommended,” beyond any that may already be in place for risks not specifically associated with COVID-19. In contrast, some engineering controls are recommended for medium exposure risk jobs. Those include “physical barriers, such as clear plastic sneeze guards, where feasible.”

Final Thoughts

As noted, OSHA’s suggestions are merely that — suggestions and not strict requirements. It’s helpful to read the OSHA guidance to ensure you’re aware of how contagions spread. But for your company, you and your trusted managers and advisors are in the best position to evaluate the risks that exist in your workplace, and how to minimize them.

——————–

Update on Main Street Lending Program

The Federal Reserve Board’s Main Street Lending Program should be up and running by the end of May, Fed Chairman Jerome Powell told the Senate Banking Committee Tuesday.

The Main Street program is intended to provide support for small and mid-size businesses that were in good financial condition before the onset of the COVID-19 crisis. It will offer 4-year loans to companies employing up to 15,000 workers or with revenues up to $5 billion. Principal and interest payments will be deferred for one year.

The Main Street program is one of several loan initiatives introduced by the federal government in response to the dramatic slump in economic activity brought on by the pandemic.

Firms seeking Main Street loans must commit to make reasonable efforts to maintain payroll and retain workers. Borrowers must also follow compensation, stock repurchase, and dividend restrictions that apply to direct loan programs under the CARES Act. Firms that have applied for loans through the Small Business Administration’s Paycheck Protection Program may also take out Main Street loans.

Eligible banks may originate Main Street loans or use Main Street loans to increase the size of existing loans to businesses. Banks will retain a 5 percent to 15 percent share of the loans, selling the remainder to the Fed’s Main Street facility, which will purchase up to $600 billion of loans.

The minimum loan size to be offered through the program is $500,000. The maximum is $200 million. Those thresholds were adjusted in response to public input. Powell said further adjustments to the program may be made going forward.

RBT CPAs will provide updates regarding the Main Street program and other financial assistance programs as information becomes available. If you have any questions, please contact us.

SBA Announces Safe Harbor for PPP Borrowers with Loans for Less than $2M

Following the recent announcement that the Small Business Administration would review any Paycheck Protection Program loans made in amounts exceeding $2 million, the agency today issued guidance extending an automatic safe harbor to borrowers receiving PPP loans with an original principal amount of less than $2 million. These borrowers “will be deemed to have made the required certification concerning the necessity of the loan request in good faith,” SBA said in updates to its PPP FAQ today.

Borrowers that received PPP loans for amounts over $2 million will be subject to review by the SBA for compliance with program requirements, including the certification of economic need. “If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness,” SBA said.

The guidance comes shortly before a May 14 deadline for PPP borrowers who did have access to other sources of capital to return funds. SBA added that borrowers who repay their loans after receiving notification from the SBA will not be subject to administrative enforcement or referrals to other agencies. Additionally, SBA’s determination regarding the necessity of the loan request will not affect the SBA loan guarantee.

Loans: EIDL, Paycheck Protection Program and Main Street Lending

Updated 4/23/20 – Effective April 23, 2020, Congress has approved an additional $310 billion in funding for the Paycheck Protection Program, $50 billion for the EIDL program and $10 billion for emergency EIDL grants.

This reserves certain amounts for the loans to be made as follows (which may make it easier for smaller businesses to access funding):

$30 billion for loans made by Insured Depository Institutions and Credit Unions that have assets between $10 billion and $50 billion; and
$30 billion for loans made by Community Financial Institutions, Small Insured Depository Institutions, and Credit Unions with assets less than $10 billion

SBA has also clarified eligibility for large companies with adequate sources of liquidity (see FAQ).

Three options for middle market businesses

U.S. Small Business Administration (SBA) Economic Injury Disaster Loan Assistance (EIDL) – SBA program that existed before COVID-19 that offers up to $2 million in loans for eligible businesses.
Paycheck Protection Program – Created through the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act), the Paycheck Protection Program expands SBA support for businesses with loans of up to $10 million.
Updated 4/9/20 Main Street Lending Program – The Main Street Lending Program is intended to facilitate lending to small and medium-sized businesses. It contains two facilities. The Main Street New Loan Facility (MSNLF) offers new loans from a minimum of $1 million up to a maximum of $25 million, and it is the program that we believe most clients will access. The Main Street Expanded Loan Facility allows banks to add to the size of an outstanding loan issued prior to April 8, 2020, to a business customer, rather than initiate a new loan.

EIDL Program
The Coronavirus Preparedness and Response Supplemental Appropriations Act enacted on March 6, 2020, expanded the EIDL Program to provide SBA loans to qualified small businesses. Qualifying businesses can receive up to $2 million in loans to be used for working capital and ordinary expenditures. The actual amount available to any business is tied to its economic injury from COVID-19. EIDLs are applied for directly with the SBA and funded by the SBA.

Paycheck Protection Program
Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. This program provides federally guaranteed loans to small businesses. The program is administered by the SBA through its 7(a) lending program under which the SBA guarantees loans made by banks to qualifying borrowers. Loans can be as large as 2.5 times a borrower’s monthly payroll costs for its U.S. employees (cash compensation of any employee above $100,000 must be subtracted) as measured over the prior twelve months, or $10 million, whichever is smaller.

Loans under the Paycheck Protection Program are third-party loans with SBA guarantees.

Updated 4/9/20 Main Street Lending Program
The Main Street Lending Program includes two loan facilities, and most clients will apply under the Main Street New Loan Facility.

The Main Street New Loan Facility (MSNLF) is for new loans, and the maximum loan size is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times that borrower’s 2019 EBITDA. This is the facility the majority of our clients will access.
The Main Street Expanded Loan Facility (MSELF) allows banks to add to the size of an outstanding loan issued prior to April 8, 2020, to a business customer, rather than initiate a new loan. The maximum loan size is the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times that borrower’s 2019 EBITDA.

Rates and debt forgiveness

EIDL Program
Interest rates are 3.75% for small businesses and 2.75% for nonprofit organizations. EIDL loans are not forgivable.

Paycheck Protection Program
Loans shall bear interest at a rate of 1%. The maturity of the loans is 2 years. Payments of both principal and interest will be deferred for six months following the date of loan disbursement; however, interest will accrue during that period. Provided a company retains existing employees at or near current salary levels, the debt will be forgiven to the extent that 75% of proceeds are used in an eight-week period following loan origination for payroll costs, and the remaining 25% can be forgiven for mortgage interest, rent and utility payments during the same eight-week period. The amount forgiven will be reduced by a formula that takes into consideration any reduction of workforce. Any employee cuts or wage reductions will reduce forgiven amounts.

Updated 4/9/20 Main Street Lending Program
Loans shall bear interest at an adjustable rate of SOFR + 250-400 basis points. The term of the loan is four years. Amortization of principal and interest is deferred for one year. Prepayment is permitted without penalty. Loans are not forgivable.

Eligibility

EIDL Program
An eligible small business is determined by the number of employees and average annual sales with different standards per industry. Most manufacturing companies with 500 or fewer employees and most non-manufacturing businesses with average annual receipts under $7.5 million can qualify. There are exceptions by industry.

Loans under this program are only available to borrowers that can show they are unable to meet their existing financial obligations as a result of the COVID-19 crisis. Cannabis businesses, casinos and racetracks are among the businesses that are not eligible.

Paycheck Protection Program
Eligible recipients must have 500 or fewer employees whose principal place of residence is in the United States and have been in operation on February 15, 2020. The borrower must certify in good faith that current economic uncertainty makes this loan request necessary to support ongoing operations.

Businesses must meet one of the following requirements:

500 employees or fewer, or
Meet applicable employee size standards for their North American Industry Classification System (NAICS), or
500 employees or fewer by location for those in the accommodation and food service industry as defined by their NAICS code, or for any business acting as a franchise that is assigned a franchise identifier code by the Small Business Administration, or
Sole proprietors, independent contractors and other self-employed individuals, including gig economy workers, or
Charitable tax-exempt organizations (including religious organizations), described in section 501(c)(3) of the Internal Revenue Code, and veterans organizations, described in section 501(c)(19), are eligible to participate in the program. However, other tax-exempt organizations (e.g., those described in sections 501(c)(4), (5), and (6)) are not eligible to participate.

Household employers or businesses engaged in any activity that is illegal under federal, state, or local law are not eligible.

The SBA website offers a size standards tool to assist in determining whether a business is classified as small.

Updated 4/4/20 – 09:30 CT: The SBA published affiliation rules applicable to the Paycheck Protection Program on April 3, 2020.

Updated 4/20/20 The SBA published additional guidance for individuals with self-employment income who file a Form 1040, Schedule C. If you are a partner in a partnership, you may not submit a separate Paycheck Protection Program loan application for yourself as a self-employed individual. Instead, the self-employed income of general active partners may be reported as payroll cost, up to $100,000 annualized, on a Paycheck Protection Program loan application filed by on or on behalf of the partnership.
This guidance also provides additional eligibility for officers and key employees of a PPP Lender that own less than a 30% equity interest in another otherwise eligible business and eligibility for certain businesses that receive revenue from legal gaming. The additional guidance should be reviewed very carefully as there are limitations for both of these eligibility
items.

Updated 4/23/20 The SBA published FAQ to address businesses owned by large companies with adequate sources of liquidity.

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a Paycheck Protection Program loan under the standard established by the CARES Act and the Paycheck Protection Program regulations at the time of the loan application. Borrowers must certify in good faith that current economic uncertainty makes this loan necessary to support their ongoing operations, which includes taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their operations in a manner that is not significantly detrimental to their business. Companies must be prepared to demonstrate to SBA, upon request, the basis for their certification. Any borrower that applied for a PPP loan prior to the issuance of guidance on April 23, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

Updated 4/9/20 Main Street Lending Program

Businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues are eligible. The business must be created or organized in the United States with significant operations in and the majority of its employees in the United States. See FAQ for details on attestations and restrictions on compensation, stock repurchase and capital distribution.

How to apply

EIDL Program

The EIDL program is applied for directly with and administered by the SBA. An online application is available at https://www.sba.gov/disaster-assistance/coronavirus-covid-19.

Paycheck Protection Program

Applicants must submit SBA Form 2483 with payroll documentation to a participating lender. The Small Business Administration has a network of at least 1,800 approved lenders that process small business loans and intends to add more of them. If a client’s bank is not an SBA approved lender, they can contact the SBA to find one.

Updated 4/9/20 Main Street Lending Program

Applicants should connect directly with their lender.

Updated 4/23/20 – to reflect PPP update from SBA Q&A for EIDL, Paycheck Protection Program and Main Street Lending Program

Additional details on the loan programs are available in the subsequent Q&A.

What direct financial assistance programs for small and medium enterprises (SMEs) have become available as a result of the COVID-19 virus outbreak?

EIDL Program

The Coronavirus Preparedness and Response Supplemental Appropriations Act enacted on March 6, 2020, expanded the EIDL Program to provide SBA loans to qualified small businesses. Qualifying businesses can receive up to $2 million in loans to be used for working capital and ordinary expenditures. The actual amount available to any business is tied to its economic injury from COVID-19.

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. This program provides federally guaranteed loans to small businesses. This program is administered by the SBA through its 7(a) lending program under which the SBA guarantees loans made by banks to qualifying borrowers. Loans can be as large as 2.5 times a borrower’s monthly payroll costs for its U.S. employees (cash compensation of any employee above $100,000 must be subtracted) as measured over the prior twelve months, or $10 million, whichever is smaller.

Updated 4/9/20 Main Street Lending Program

The Main Street Lending Program includes two loan facilities.

The Main Street New Loan Facility (MSNLF) is for new loans, and the maximum loan size is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times that borrower’s 2019 EBITDA. This is the facility that the majority of our clients will access.
The Main Street Expanded Loan Facility (MSELF) allows banks to add to the size of an outstanding loan issued prior to April 8, 2020, to a business customer, rather than initiate a new loan. The maximum loan size is the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times that borrower’s 2019 EBITDA.

How much is available to SMEs through each program?

EIDL Program

Qualifying business can receive up to $2 million in loans to be used for working capital and ordinary expenditures. The actual amount available to any business is tied to their economic injury from COVID-19.

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. Eligible recipients may be able to receive up to $10 million. Businesses that have been in existence for at least a year can obtain the lesser of 2.5 times their average monthly payroll for U.S. employees for the previous 12 months (cash compensation of any employee above $100,000 must be subtracted), less the outstanding amount of any EIDL taken between January 31, 2020 and April 3, 2020 (exclusive of any advance under an EIDL COVID-19 loan that does not have to be repaid) or $10 million, whichever is smaller. Entities not in existence for the previous 12 months can use their average monthly payroll for the period from January 1, 2020, through February 29, 2020.

Updated 4/9/20 Main Street Lending Program

Loans are a minimum of $1 million.

The maximum loan size in the Main Street New Loan Facility (MSNLF) is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times that borrower’s 2019 EBITDA. This is the facility that the majority of our clients will access.
The maximum loan size in the Main Street Expanded Loan Facility (MSELF) is the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times that borrower’s 2019 EBITDA.

How do I calculate the maximum amount I can borrow?

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. The following methodology, which is one of the methodologies contained in the Act, will be most useful for many applicants.

Step 1: Aggregate payroll costs (defined in detail below) from the last twelve months for employees whose principal place of residence is the United States.
Step 2: Subtract any cash compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).

Updated 4/20/20 If you are eligible as an individual with self-employment income and file a Form 1040, Schedule C, with no employees, 2019 Form 1040 Schedule C line 31 net profit amount should be used in the same methodology above in place of aggregate payroll costs. If the net profit amount is over $100,000, reduce it to $100,000. If this amount is zero or less, you are not eligible for a Paycheck Protection Program loan. Steps 3 – 5 would then be followed.

If you are eligible as an individual with self-employment income and file a Form 1040, Schedule C, with employees, 2019 Form 1040 Schedule C line 31 net profit amount should be used in the same methodology above in place of aggregate payroll costs. If the net profit amount is over $100,000, reduce it to $100,000. Also, include the 2019 eligible gross wages and tips paid to your employees plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages and tips, subtracting any amounts paid to any individual employee in excess of $100,000 annualized. Finally, include the 2019 eligible employer health insurance contributions, retirement contributions, and state and local taxes assessed on employee compensation. Steps 3 – 5 would then be followed.

Updated 4/9/20 Main Street Lending Program

The maximum loan size in the Main Street New Loan Facility (MSNLF) is the lesser of $25 million or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed four times that borrower’s 2019 EBITDA. This is the facility that the majority of our clients will access.

The maximum loan size in the Main Street Expanded Loan Facility (MSELF) is the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the borrower’s existing outstanding and committed but undrawn debt, does not exceed six times that borrower’s 2019 EBITDA.

What qualifies as “payroll costs?”

Paycheck Protection Program

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of:

Salary, wages, commissions, or similar compensation;
Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
Payment for vacation, parental, family, medical, or sick leave;
Allowance for separation or dismissal;
Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
Payment of state and local taxes assessed on compensation of employees; and
For an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

Is there anything that is expressly excluded from the definition of payroll costs?

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. Yes. The Act expressly excludes the following:

Any compensation of an employee whose principal place of residence is outside of the United States;
The cash compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary;
Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).

Do independent contractors count as employees for purposes of Paycheck Protection Program loan calculations?

No, independent contractors have the ability to apply for a Paycheck Protection Program loan on their own so they do not count for purposes of a borrower’s loan calculation.

What are the approved uses for the funds?

EIDL Program

Can be used for working capital and ordinary expenditures. Page 10 Last updated April 23, 2020

Paycheck Protection Program

Updated: 4/7/20 – 12:00 CT to reflect $100,000 applies to cash compensation. Funds can be used to cover payroll costs or employee benefits, certain operating costs described below and interest on debt obligations.

Allowable uses of the funds include:

Payroll costs (cash compensation of any employee above $100,000 must be subtracted);
Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums;
Mortgage interest payments (but not mortgage prepayments or principal payments);
Rent (including rent under a lease agreement);
Utilities; and f. Interest on any other debt obligations that were before February 15, 2020;
Refinancing an SBA EDIL loan made between January 31, 2020 and April 3, 2020 (see separate FAQ on refinancing an EIDL).

Additional information related to loan forgiveness is available below (See FAQ on loan forgiveness).

Updated 4/20/20 For individuals with income from self-employment who file a 2019 Form 1040, Schedule C, funds from a Paycheck Protection Program loan can be used for owner compensation replacement calculated based on 2019 net profit in place of payroll costs.

Updated 4/9/20 Main Street New Loan Program

Specific use of funds is not defined for loans through the Main Street Lending Program. Attestations and restrictions are listed in the eligibility FAQ.

Who is an Eligible Recipient?

EIDL Program

An eligible small business is determined by the number of employees and average annual sales with different standards per industry. Most manufacturing companies with 500 or fewer employees and most non-manufacturing businesses with average annual receipts under $7.5 million can qualify. There are exceptions by industry.

Loans under this program are only available to borrowers that can show that they are unable to meet their existing financial obligations as a result of the COVID-19 crisis. Cannabis businesses, casinos and racetracks are among the businesses that are not eligible.

Paycheck Protection Program

Eligible recipients must have 500 or fewer employees whose principal place of residence is in the United States and have been in operation on February 15, 2020. The borrower must certify in good faith that current economic uncertainty makes this loan request necessary to support ongoing operations.

Businesses must meet one of the following requirements:

500 employees or fewer, or
Meet applicable employee size standards for their North American Industry Classification System (NAICS), or
500 employees or fewer by location for those in the accommodation and food service industry as defined by their NAICS code, or for any business acting as a franchise that is assigned a franchise identifier code by the Small Business Administration
Sole proprietors, independent contractors and other self-employed individuals, including gig economy workers.
Charitable tax-exempt organizations (including religious organizations), described in section 501(c)(3) of the Internal Revenue Code, and veterans organizations, described in section 501(c)(19), are eligible to participate in the program. However, other tax-exempt organizations (e.g., those described in sections 501(c)(4), (5), and (6)) are not eligible to participate.

Household employers or businesses engaged in any activity that is illegal under federal, state, or local law are not eligible.

The SBA website offers a size standards tool to assist in determining whether a business is classified as small.

Updated 4/4/20 – 09:30 CT: The SBA published affiliation rules applicable to the Paycheck Protection Program on April 3, 2020.

Updated 4/9/20 Main Street Lending Program

In addition to certifications required by applicable statutes and regulations, the following attestations will be required with respect to each eligible loan:

The lender must attest that the proceeds of the loan (or the upsized tranche of the loan under MSELF) will not be used to repay or refinance pre-existing loans or lines of credit made by the lender to the borrower.
The borrower must commit to refrain from using the proceeds of the Main Street Lending Program loan (or the upsized tranche of the loan under MSELF) to repay other loan Page 12 Last updated April 23, 2020 balances. The borrower must commit to refrain from repaying other debt of equal or lower priority, with the exception of mandatory principal payments, unless the borrower has first repaid the Main Street Lending Program loan in full.
The lender must attest that it will not cancel or reduce any existing lines of credit outstanding to the borrower. The borrower must attest that it will not seek to cancel or reduce any of its outstanding lines of credit with the Main Street lender or any other lender.
The borrower must attest that it requires financing due to the exigent circumstances presented by the coronavirus disease 2019 (“COVID-19”) pandemic, and that, using the proceeds of the loan (or the upsized tranche of the loan under MSELF), it will make reasonable efforts to maintain its payroll and retain its employees during the term of the loan.
The borrower must attest that it meets the EBITDA leverage condition (existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA for MSNLR and six times the borrower’s 2019 EBITDA).
The borrower must attest that it will follow compensation, stock repurchase, and capital distribution restrictions that apply to direct loan programs under section 4003(c)(3)(A)(ii) of the CARES Act. These conditions, which are summarized below, apply through the duration of the loan and for 12 months after the date on which the loan is no longer outstanding.
- May not repurchase an equity security that is listed on a national securities exchange of the business of any parent company of the business, except to the extent required under a contractual obligation that was in effect on the date of enactment of the CARES Act (March 27, 2020).
- May not pay dividends or make other capital distributions with respect to the common stock of the business.
- Comply with limitations on compensation under section 4004 of the CARES Act, which are summarized below:
  - Officers or employees with total compensation over $425,000 in calendar year 2019 shall not receive total compensation in excess of what was received by the officer or employee in calendar year 2019. Severance pay or other benefits received upon termination shall not exceed twice the total compensation received by the officer or employee in calendar year 2019.
  - Officers or employees with total compensation over $3 million in calendar year 2019 shall not receive total compensation over $3 million and 50% of the excess over $3 million of what was received in calendar year 2019. Page 13 Last updated April 23, 2020
Lenders and borrowers will each be required to certify that the entity is eligible to participate in the program, including in light of the conflicts of interest prohibition in section 4019(b) of the CARES Act.

What do I need to provide to obtain funds?

Paycheck Protection Program

Updated 4/12/20 The statute of the CARES Act will require payroll tax forms, withholdings, paystubs, etc. to substantiate the payroll amounts.

How long does it take to obtain funds?

EIDL Program

The typical time frame for approval is two to three weeks with funds disbursed within five to seven days thereafter. Timelines may be extended given the increased applications.

Paycheck Protection Program

It is worth noting that loans under the Paycheck Protection Program are third-party loans with SBA guarantees, which may contribute to the speed at which funds will be accessible.

Applicants must submit SBA Form 2483 with payroll documentation to a participating lender.

Updated 4/9/20 Main Street Lending Program

Applicants should connect directly with their lender.

What are interest rates and payment terms?

EIDL Program

Interest rates are 3.75% for small businesses and 2.75% for nonprofit organizations. Payment terms are determined by whether there is partial or full refinancing of an existing loan.

Paycheck Protection Program

Loans shall bear interest at a rate of 1%. The maturity of the loans is two years. Payments of both principal and interest will be deferred for six months following the date of loan disbursement; however, interest will accrue during that period.

Updated 4/9/20 Main Street Lending Program

Loans shall bear interest at an adjustable rate of SOFR + 250-400 basis points. The maturity of the loan is four years. Amortization of principal and interest is deferred for one year. Prepayment is permitted without penalty. Loans are not forgivable.

Is the loan forgivable?

EIDL Program

Loans under the EIDL program are not forgivable.

Paycheck Protection Program

Yes. Provided a company retains existing employees at or near current salary levels, the debt will be forgiven to the extent that proceeds are used in an eight-week period following loan origination for the following:

Payroll costs;
Interest payments made on any mortgage incurred prior to February 15, 2020;
Payment of any lease in force prior to February 15, 2020; and
Payment on any utility for which service before February 15, 2020.

With respect to the items above, not more than 25% of the loan forgiveness may be attributable to non-payroll costs.

The amount forgiven will be reduced by a formula that takes into consideration any reduction of workforce. Any employee cuts or wage reductions will reduce forgiven amounts. Employers are allowed to rehire any employees previously let go before the application without penalty. The loan program is designed to encourage companies to retain as many employees as possible. If companies reduce headcount or payroll below certain thresholds, they may be ineligible for the full forgiveness.

Certain documentation is required to be retained, provided as proof and certified to include with an application for loan forgiveness as detailed in Section 1106(e).

Proceeds from any advance up to $10,000 on an EIDL loan will be deducted from the loan forgiveness amount.

Any amount of the loan that is forgiven is not includible as taxable income.

Updated 4/20/20 For individuals with income from self-employment who file a 2019 Form 1040, Schedule C, owner compensation replacement calculated based on 2019 net profit limited to eight weeks’ worth is also eligible for inclusion in proceeds used above.

Updated 4/9/20 Main Street Lending Program

Loans under the Main Street Lending Program are not forgivable.

Updated 4/9/20

Does applying for other programs or having existing funding under other programs preclude an organization from applying for funding under the Paycheck Protection Program? Can an EIDL be rolled over? Can a company take a Paycheck Protection Program loan and a Main Street Lending Program Loan?

Borrowers are precluded from receiving SBA funding under the Paycheck Protection Program and an Economic Injury Disaster Loan (EIDL) for the same purpose (i.e., double dipping). Updated 4/9/20 – Borrowers who have taken a Paycheck Protection Program loan may also take out a loan under the Main Street Lending Program. A company cannot participate in both Main Street New Loan Facility and the Main Street Expanded Loan Facility.

Borrowers who received an SBA EIDL loan from January 31, 2020 through April 3, 2020 may apply for a Paycheck Protection Program loan. If an EIDL loan was not used for payroll costs, it does not affect eligibility for a Paycheck Protection Program loan. If an EIDL loan was used for payroll costs, the Paycheck Protection Program loan must be used to refinance the EIDL loan.

Proceeds from any advance up to $10,000 on an EIDL loan will be deducted from the loan forgiveness amount for the Paycheck Protection Program loan.

A Paycheck Protection Program loan may affect a company’s ability to qualify for other tax credits and incentives outlined in the CARES Act.

How are private equity-backed companies and sponsors impacted by the CARES Act? What about venture capital backed companies?

Updated 4/4/20 – 09:30 CT: The SBA published affiliation rules applicable to the Paycheck Protection Program on April 3, 2020. Summary details are below, but the full rules linked in Page 16 Last updated April 23, 2020 the prior sentence should be reviewed and companies should consult with their attorney and lender on ultimate eligibility.

The SBA requires applicants to aggregate their operations with those of any affiliates as defined by the SBA. The aggregated company for purposes of the SBA must not exceed the small business standards. An affiliate exists when one business controls or has the power to control another, or when a third party controls or has the power to control both businesses.

Private equity-owned companies may be considered affiliated when all of the other portfolio companies and employee numbers are combined. This is a very specific analysis that must be done on a case by case basis. If the total employee threshold is exceeded, a company does not qualify. See above (FAQ on eligibility) for more information.

This also applies for venture capital firms that control more than 50% of voting stock or when two or more venture capital firms hold the largest stake, compared to that of other investors.

Rules are also in place for affiliations arising under stock options, convertible securities and agreements to merge.

Affiliation may also arise when there is an identity of interest between close relatives with identical or substantially identical business or economic interests.

The affiliation rules are waived for:

Any business with less than 500 employees that is assigned a NAICS 72 code
Any business that operates as a franchise and is assigned an SBA franchise identifier code
Businesses that receive financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (note that further clarification is needed to determine if SBIC small businesses that also have investment from conventional private equity still qualify for the waiver)

The affiliation of a faith-based organization to another organization is not considered an affiliation if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.

What are the tax changes in the bill?

See tax alert issued on March 26, 2019 for details on tax changes resulting from the CARES Act.

How do I apply?

EIDL Program

The EIDL program is applied for directly with and administered by the SBA. An online application is available at https://www.sba.gov/disaster-assistance/coronavirus-covid-19.

Paycheck Protection Program

Updated 4/9/20 Main Street Lending Program

Applicants should connect directly with their lender.

Added 4/4/20 – 17:00 CT:

Is there guidance available on services we can provide to clients around the CARES Act?

Yes. Our NORM group has published CARES Act Services Guidance, and it is available on our Client Response Center.

Added 4/23/20 – 18:30 CT:

Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a Paycheck Protection Program loan?

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a Paycheck Protection Program loan under the standard established by the CARES Act and the Paycheck Protection Program regulations at the time of the loan application. Borrowers must certify in good faith that current economic uncertainty makes this loan necessary to support their ongoing operations, which includes taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their operations in a manner that is not significantly detrimental to their business. Companies must be prepared to demonstrate to SBA, upon request, the basis for their certification. Any borrower that applied for a Paycheck Protection Program loan prior to the issuance of guidance on April 23, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

Download this information with the link below.

https://www.rbtcpas.com/wp-content/uploads/2020/04/Stimulus-Details-and-FAQ.pdf

Answers to questions you may have about Economic Impact Payments

Millions of eligible Americans have already received their Economic Impact Payments (EIPs) via direct deposit or paper checks, according to the IRS. Others are still waiting. The payments are part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here are some answers to questions you may have about EIPs.

Who’s eligible to get an EIP?

Eligible taxpayers who filed their 2018 or 2019 returns and chose direct deposit of their refunds automatically receive an Economic Impact Payment. You must be a U.S. citizen or U.S. resident alien and you can’t be claimed as a dependent on someone else’s tax return. In general, you must also have a valid Social Security number and have adjusted gross income (AGI) under a certain threshold.

The IRS also says that automatic payments will go to people receiving Social Security retirement or disability benefits and Railroad Retirement benefits.

How much are the payments?

EIPs can be up to $1,200 for individuals, or $2,400 for married couples, plus $500 for each qualifying child.

How much income must I have to receive a payment?

You don’t need to have any income to receive a payment. But for higher income people, the payments phase out. The EIP is reduced by 5% of the amount that your AGI exceeds $75,000 ($112,500 for heads of household or $150,000 for married joint filers), until it’s $0.

The payment for eligible individuals with no qualifying children is reduced to $0 once AGI reaches:

$198,000 for married joint filers,
$136,500 for heads of household, and
$99,000 for all others

Each of these threshold amounts increases by $10,000 for each additional qualifying child. For example, because families with one qualifying child receive an additional $500 Payment, their $1,700 Payment ($2,900 for married joint filers) is reduced to $0 once adjusted gross income reaches:

$208,000 for married joint filers,
$146,500 for heads of household,
$109,000 for all others

How will I know if money has been deposited into my bank account?

The IRS stated that it will send letters to EIP recipients about the payment within 15 days after they’re made. A letter will be sent to a recipient’s last known address and will provide information on how the payment was made and how to report any failure to receive it.

Is there a way to check on the status of a payment?

The IRS has introduced a new “Get My Payment” web-based tool that will: show taxpayers either their EIP amount and the scheduled delivery date by direct deposit or paper check, or that a payment hasn’t been scheduled. It also allows taxpayers who didn’t use direct deposit on their last filed return to provide bank account information. In order to use the tool, you must enter information such as your Social Security number and birthdate. You can access it here: https://bit.ly/2ykLSwa

I tried the tool and I got the message “payment status not available.” Why?

Many people report that they’re getting this message. The IRS states there are many reasons why you may see this. For example, you’re not eligible for a payment or you’re required to file a tax return and haven’t filed yet. In some cases, people are eligible but are still getting this message. Hopefully, the IRS will have it running seamlessly soon.

Download this page as a PDF with the link below.

https://www.rbtcpas.com/wp-content/uploads/2020/04/Economic-Impact-Payments-QandA-1.pdf