As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, 501(c)(3)’s with fewer than 500 employees are eligible to apply for a small business loan via the Paycheck Protection Program, up to $10 million. This program will most likely be the loan utilized by our clients.

Background

What

Clients may qualify for a loan up to $10 million determined by 2019 average payroll plus an additional 25% of that amount for mortgage interest, rent, and utility costs.

When

Clients can apply for the loan starting Friday, April 3rd 2020

Why

To help small businesses and non-profits keep workers employed amid the pandemic and economic downturn.

How

Clients will need to apply through their bank and credit unions. See “Application Instructions” on page 4 for detailed application instructions.

SKC’s Role

We will assist our clients by preparing necessary information and calculations to obtain the loans. We will answer client questions to the extent of our capabilities. *Please see disclosure at the bottom of document.

Best Practices/Suggestions

Obtain approval for loan amount from board of directors before applying, if feasible. Ensure your bylaws allow for loans to be taken out. Be sure to have a complete understanding of the requirements, and estimate the requested loan amount based on actuals for the 8 week period if you intend to have all funds forgiven.

Frequently Asked Questions

Q: Is there a fee to obtain the loan?
A: No. You are also not required to first exhaust other financing options.

Q: How long will it take to get the money?
A: The US Treasurer Secretary has stated he expects the loans to be disbursed by the end of next week.

Q: What expenses does the loan cover?
A: Payroll expenses (salaries, wages, commissions, tips, vacation, parental/family/medical/sick leave, allowance for dismissal or separation, health care benefits, retirement benefits, payroll taxes), mortgage interest, rent and utility costs.

Q: Can I use this loan for other expenses?
A: You can, but only the above, approved expenses will be forgiven. Any loan payments will be repaid at 4% interest with a 10 year term.

Q: Are you confident that the loan will actually be forgiven?
A: The loan amounts will be forgiven as long as:

• Loan proceeds are used to cover payroll costs, mortgage interest, rent and utility costs over the 8 week period the loan is made. (Mortgage interest, rent, and utility costs cannot exceed 25% of the loan amount)
• Employee and compensation levels are maintained
  If the loan amount requested exceeds actual approved costs during the 8 week period, the portion above actual expenses in not forgivable.

Q: What must be done to get the loan forgiveness?
A: The client has to show evidence they actually spent money on eligible items by submitting an application to the bank that includes:

• Documentation verifying the number of employees on payroll during the 8-week period of eligible loan forgiveness, including payroll tax filings reported to the IRS as well as state income, payroll, and unemployment insurance filings
• Documentation, including cancelled checks, payment receipts, accounting reports, etc. verifying payments on business debts, rent and utility payments
• A certification from an officer or owner of the borrower that the information being submitted is true and that the amount for which forgiveness is being requested was used to retain employees, make interest payments on business debts, lease payments, and utilities.

Q: What happens to the portion of the loan that is not forgiven?
A: The remaining balance will continue to be guaranteed by the SBA, have a maximum maturity of 10 years, and bear interest at the rate of 4% or less.

Application Instructions

1.) Gather Required Documentation

• Employee wages for 2019
  • This includes salaries, wages, commissions, tips, vacation, parental/family/medical/sick leave, and allowance for dismissal or separation.
  • Excluded costs: Compensation of an individual employee in excess of $100,000 annual salary, payroll taxes, compensation of employee who lives outside the US.
• Withholding for state and local taxes on employee compensation
• Documentation showing how much, you, the employer paid in employee group health insurance premiums for the past 12 months.
• Documentation showing the amount of retirement plan funding the employer made for employees over the past 12 months (profit sharing 401(k) plans, cash balance plans, SIMPLE and SEP IRAs). (Employees’ own 401(k) salary deferrals won’t count for these purposes).

*Payroll documentation = W2’s or 941’s, cumulative payroll detail report from IOP or Paycor[/vc_column_text][vc_empty_space height=”10px”][vc_column_text]

2.) Calculate loan amount

• Use “PPP Loan Calculation Template” to calculate the loan amount
  • 2019 average monthly payroll costs x 2.5
    • 1. 2 = covers 8 weeks of payroll, 0.5 = portion for mortgage interest, rent, utilities
• If actual payroll, mortgage interest, rent, and utility costs are less than requested loan amount, that portion of the loan will NOT be forgiven, and has to be paid back

3.) Complete application and submit to lender

4. Show evidence that money was spent for items eligible for loan forgiveness by submitting a second application (unclear so far when this will be required)

• Documentation verifying the number of employees on payroll during the 8-week period of eligible loan forgiveness, including payroll tax filings reported to the IRS as well as state income, payroll, and unemployment insurance filings
• Documentation, including cancelled checks, payment receipts, accounting reports, etc. verifying payments on business debts, rent and utility payments
• A certification from an officer or owner of the borrower that the information being submitted is true and that the amount for which forgiveness is being requested was used to retain employees, make interest payments on business debts, lease payments, and utilities.

* The material contained in this document is for general information purposes only. All information is provided in good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, reliability or completeness of the information. Support KC makes no warranties or guarantees as to the client’s liability with regard to SBA or other COVID-19 emergency related loans or funding. Support KC makes no assurances as to the loan terms, interest rate, payment schedule or forgiveness qualification of any such loans or funding. This guide should not be used as a substitute for competent legal advice and/or guidance from your bank, financial institution, loan advisor, or other financial professional.