Overview of Loan Options: CARES Act Loan Programs (Paycheck Protection Program) and SBA Economic Injury Disaster Loans (EIDL)
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Overview of Loan Options:
CARES Act Loan Programs (Paycheck Protection Program) and
SBA Economic Injury Disaster Loans (EIDL)
April 14, 2020
Terry O’Neil CPA, CVA
Beth Scott, CPA
The information presented herein is general in nature and
should not be acted upon without the advice of a professional. © 2020 KSM Business
ksmcpa.com/vet
Services, Inc.
Agenda
1 CARES Act signed into law March 27, 2020
2 Key Points and Differences
3 Paycheck Protection Loan Program
4 SBA Economic Injury Disaster Loans (EIDL)
5 Brief Summary of Other Tax Provisions
6 Questions via Chat Submission
7 Break Even Template and general business discussion
© 2020 KSM Business Services, Inc.
2 ksmcpa.com/vet
Team of Presenters
3 ksmcpa.com/vet
Terence O’Neil, CPA, CVA
Partner
T 317.580.2294
M 317.502.2724
E toneil@ksmcpa.com
Beth Scott, CPA
Partner
T 317.580.2085
M 317.464.9853
E bscott@ksmcpa.com
4 ksmcpa.com/vet
Coronavirus Aid, Relief, and Economic Security (CARES) Act
© 2020 KSM Business Services, Inc.
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Key Points and Differences Paycheck Protection v. EIDL
▪ Both loans require a business to demonstrate that they are financially impacted now, or in the near future,
because of COVID-19.
▪ SBA EIDL funding is issued by SBA, applicant applies directly to SBA.
▪ CARES Act (Paycheck Protection Program) funding is issued by banks/credit unions, applicant will work directly
with bank/credit unions.
▪ A business cannot receive funding from both programs for the same expenses. A business can apply for
SBA EIDL and choose to not accept funding once approved in order to take advantage of the CARES Act
(Paycheck Protection Program). There is no obligation to take the loan if offered.
▪ Business can get EIDL and PPP loan. Proceeds just can’t be used for the same expenses. PPP could be
used for 8 week period and EIDL proceeds can be used for post eight week period. This information was
published in U.S. Senate Committee on Small Business.
▪ The CARES Act (Paycheck Protection Program) carries a loan forgiveness provision but this loan focuses on
payroll, rent, utilities, and mortgage. The SBA EIDL does not carry a loan forgiveness provision.
▪ If a business has suffered with working capital but sales are still strong and they have not been impacted from a
payroll perspective, the SBA EIDL may be more appropriate based on review.
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Important Information / Considerations
▪ SBA &(A) Loan payments to be made by SBA for next six payments
▪ If additional loans are secured:
▫ Coordinate with current lenders
▫ Review loan covenants
▫ Suggest you start with current lender
▫ Be cautious with scams
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▪ The SBA will automatically pay the principal, interest, and fees of current 7(a),
504, and microloans for a period of six months.
▪ The SBA will also automatically pay the principal, interest, and fees of new
7(a), 504, and microloans issued prior to September 27, 2020.
▪ Additional Debt Relief
▪ For current SBA Serviced Disaster (Home and Business) Loans: If your
disaster loan was in “regular servicing” status on March 1, 2020, the SBA is
providing automatic deferments through December 31, 2020.
▪ What does an “automatic deferral” mean to borrowers?
▫ Interest will continue to accrue on the loan.
▫ 1201 monthly payment notices will continue to be mailed out which will reflect the
loan is deferred and no payment is due.
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Key Observations
1. Has widespread applicability
2. Significant portion of the loan may be forgiven.
3. Loan forgiveness under this provision is non-taxable.
4. Maximum loan amount is $10 million.
5. Loan is nonrecourse (personal guaranty not required), collateral is not required.
6. Interest rate will be 1%.
7. There is no prepayment penalty.
8. $349 billion is allocated for this program.
9. Many of the procedural aspects are still being established.
10. SBA will look at character of applicant (felonies, etc.).
© 2020 KSM Business Services, Inc.
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Good Faith Certification
▪ Applicants must make good faith certification:
▫ Uncertainty of current economic conditions supports the loan request and funds
needed to continue on going operations.
- Funds will be used to retain workers or
- Make mortgage payments, lease payments
- See KSM damage estimate calculator
▪ KSM’s understanding is that SBA within 30 days of enactment will issue
guidance and regulations that will guide lending institutions in implementing
the program.
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▪ What information is required to apply for a loan:
▫ Completed SBA Form 2483 (Borrower Application)
▫ Ownership information
▫ Listing of affiliates and relationship, if applicable
▫ 2019 payroll tax filings (IRS Quarterly 940, 941, or 944)
- Q1 2020 payroll, if required by lender
▫ 2019 payroll processer records that include gross wages, PTO, vacation pay,
FMLA, state and local taxes assessed (some payroll provider reports will also
show employer paid portion for group health and retirement funding).
- Q1 2020 records, if required by lender
▫ Documentation showing health insurance premiums paid by company
▫ Documentation on all retirement plan funding
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▪ What time period should be used to determine the number of
employees?
▫ The previous 12 months or calendar year 2019.
▫ For seasonal businesses, the period between February 15, 2019, or March 1,
2019, and June 30, 2019.
▫ For an applicant that was not in business from February 15, 2019 to June 30,
2019, the period January 1, 2020 through February 29, 2020.
▫ Alternatively, borrowers may elect to use SBA’s usual calculation: the average
number of employees per pay period in the 12 completed calendar months prior to
the date of the loan application (or the average number of employees for each of
the pay periods that the business has been operational, if it has not been
operational for 12 months).
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▫ LLC’s and Partnerships – Guaranteed Payments
▫ For Sole Proprietors, Independent Contractors, and Self-Employed Individuals:
The sum of payments of any compensation to or income of a sole proprietor or
independent contractor that is a:
- Wage, commission, income, net earnings from self-employment, or
- Similar compensation that is in an amount that is not more than $100,000 in one
year, as pro-rated for the covered period.
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Paycheck Protection Program
▪ If a business has already let employees go, this bill covers rehiring them.
▪ Loan needs to be made by June 30, 2020.
▪ Generally applies to businesses (and nonprofits) w/ less than 500 employees.
▪ Employee includes a full-time or part-time employee.
▪ Need to be aware of affiliated entities (common control – this is a broader
concept than traditional IRC common control rules), except: food service,
lodging, and restaurants.
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Maximum Loan Amount
▪ Recommend using a PLP (preferred lending partner of SBA)
▪ Capped at $10 million
▪ 100% loan guaranty by SBA through Dec. 31, 2020, then 85%
▪ Formula-driven: Payroll costs (average monthly) loan X 2.5
▪ Does not include payments to Independent Contractors
▪ Maximum annual wage capped at $100,000 per employee
▪ Need to look at each month payroll costs for past 12 months
▪ Average multiplied by 2.5
▪ Rough estimate: ~ 10 weeks of payroll costs [4 weeks/month X 2.5]
© 2020 KSM Business Services, Inc.
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Payroll Costs
• Salary, wage, commission
• Cash tips or equivalents
• Vacation or other leave
Includes • Allowance for dismissal or separation
• Payments for group health (insurance premiums)
• Retirement benefit
• Payment of state or local tax assessed on comp
• Compensation for employees > $100,000 (prorated over covered
period (2/15/20 - 6/30/20)
• Compensation to employee with a principal residence outside the
Excludes U.S.
• Qualified sick wages or family leave wages paid under Families First
Coronavirus Response Act for which the payroll tax credit is permitted
© 2020 KSM Business Services, Inc.
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▪ What are Included Payroll Costs?
▫ Under the Act, payroll costs are calculated on a gross basis without regard to (i.e.,
not including subtractions or additions based on) federal taxes imposed or
withheld, as a result, payroll costs are not reduced by taxes imposed on an
employee and required to be withheld by the employer, but payroll costs do not
include the employer’s share of payroll tax.
▫ The exclusion of compensation in excess of $100,000 does not include non-cash
benefits such as employer contributions to defined-benefit or defined-contribution
retirement plants; payment for the provision of employee benefits consisting of
group healthcare coverage, including insurance premiums; and payment of state
and local taxes assessed on compensation of employees.
© 2020 KSM Business Services, Inc.
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How can Loan Proceeds be used?
▪ Payroll costs
▪ Continuation of group health care benefits during periods of paid sick, medical,
or family leave
▪ Employee salaries, commissions, or similar compensation
▪ Interest on mortgage obligations
▪ Rent – need to get clarity on self rented property
▪ Utilities
▪ Interest on other debt (that was incurred before 02/15/20)
© 2020 KSM Business Services, Inc.
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Loan Forgiveness Amount
▪ Entitled for forgiveness equal to the sum of the following (paid during the 8-
week period beginning on the loan origination date).
▫ Payroll costs
▫ Covered mortgage interest obligation (mortgage on real or personal property
incurred prior to 02/15/20)
▫ Covered rent obligation (rent obligated under a leasing arrangement in force
before 02/15/20)
▫ Covered utility payment (electric, gas, water, transportation, telephone, internet
access which service began before 02/15/20)
▫ Loan forgiveness amount will not exceed amount of the loan
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At least 75% of the PPP loan proceeds shall be used for payroll costs (only
25% of the loan may be used on non-payroll costs, such as mortgage
interest, rent, and utilities).
© 2020 KSM Business Services, Inc.
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Reduction of Forgiveness Amount – see KSM calculator
▪ Reduction in FTEs:
Loan Forgiveness Amount (X) Avg. # of FTEs per month (over 8-week period)
Avg. # of FTEs (02/15/19 - 06/30/19)
OR
Avg. # of FTEs per month (over 8-week period)
Avg. # of FTEs (01/01/20 - 02/29/20)
AND
© 2020 KSM Business Services, Inc.
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AND (continued)
▪ Reduction in Salary/Wages:
▫ Forgiveness reduced by any reduction in total salary of any employee that is in
excess of 25% of the total wages for the employee during the most recent full
quarter before the covered period.
- Applies only to employees that received 2019 annualized salary of less than $100,000
- Omits special rule for seasonal employees omitted
▪ Employers can mitigate – or eliminate these reductions – if they eliminate the
reduction in EE’s (the number of FTEs) or reduction in wages – awaiting
clarification on rehire provisions
© 2020 KSM Business Services, Inc.
22 ksmcpa.com/vetCARES ACT – FTE Definition
For this calculation, an FTE will be a combination of employees, each of whom
individually if not a full-time employee (employee on average worked at least 30
hours per week), but who, in combination, are counted as equivalent of a full-
time employee.
For example, two employees, each of whom works 15 hours per week, are the
equivalent of one full-time employee.
30-40 hours = 1 FTE
> 40 = 1 FTE
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Loan Forgiveness Application
▪ Submission to lender:
▫ Verification of FTEs and pay-rates
▫ Payroll tax filings
▫ State income, payroll, and unemployment insurance filings
▫ Documentation that covered mortgage, rent, and utility obligations were made
▫ Certified statement that the amount of forgiveness was required to retain
employees or meet the covered obligations.
▪ Lender has 60 days to render a forgiveness determination – Lenders still
awaiting guidance from SBA
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Maturity
▪ If balance remains after loan forgiveness:
▫ Maximum maturity = 2 years (from forgiveness application)
▫ Principal and Interest Deferred six months
▫ Interest rate not to exceed 1%
▫ Appears to have a 6-month deferment once the repayment begins
Good Faith Certification
▪ Uncertainty of economic circumstances makes necessary the loan request to
support ongoing operations
▪ Funds will be used to retain workers and maintain payroll (or make
mortgage/rent/utility payments)
© 2020 KSM Business Services, Inc.
25 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
SBA’s Economic Injury Disaster Loans (EIDL) Guidance
▪ The SBA is offering states and territories low-interest federal disaster loans for
working capital issued in amounts ranging from $25,000 up to $2 million to small
businesses and not-for-profit organizations suffering substantial economic injury as a
result of the coronavirus (COVID-19) outbreak.
▪ The overall goal of this program is to provide working capital to businesses in need.
Eligible versus Ineligible
▪ Industries specifically identified as ineligible are:
▫ Religious
▫ Agricultural
▫ Charitable
▫ Gambling
© 2020 KSM Business Services, Inc.
26 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
How Does a Business Qualify?
▪ While many factors go into qualifying for an Economic Injury Disaster Loan
(EIDL), a primary one is that a small business (less than 500 employees) has
to show they have a financial impact or loss directly associated to COVID-19
and as a result are unable to pay their ordinary and necessary operating
expenses.
▪ In discussions held, as the entire nation has been declared a state of disaster,
there are no disqualifications of other financing means that typically exist with
this type of loan (when in doubt, apply philosophy).
© 2020 KSM Business Services, Inc.
27 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
How Can the Loans Be Used?
▪ These loans may be used to pay fixed debts, payroll, accounts payable, and
other bills that otherwise could not be paid due to COVID-19.
▪ The loans cannot be used for dividends, bonuses, distributions, repayment of
stockholder loans (unless stockholder injected funds on interim basis and
would face hardship if not repaid), or expansion of facilities or acquisition of
fixed assets, refinancing long term debt.
© 2020 KSM Business Services, Inc.
28 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
What Is the Interest Rate and Terms of the Loan?
▪ The interest rate is 3.75% for small businesses and 2.75% for not-for-profit
organizations. Loan terms are for up to 30 years, structured with a 12-month
principal and interest deferral. There are no prepayment penalties.
▪ The EIDL does not allow for loan forgiveness.
▪ Currently, we are hearing that loans are taking 3-4 weeks for approval from
submission date. Initial disbursement of $25,000 will be made within five (5)
days following approval. Please note there is some language in CARES act to
expedite the process for EIDL loan approvals, but not yet defined.
© 2020 KSM Business Services, Inc.
29 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
▪ It allows a borrower who has an EIDL loan related to COVID-19 to apply for a
PPP loan, with an option to refinance that loan into the PPP loan. However, the
emergency EIDL grant award of up to $10,000 would be subtracted from the
amount forgiven under the Paycheck Protection Program.
▪ CARES Act provides from 1/1/20-12/31/20 SBA can advance $10,000 grant to
each applicant, paid within three days after completing loan application.
▪ Existing EIDL borrowers not related to COVID-19 are also eligible to apply for
PPP for payroll assistance but they cannot refinance into a PPP.
© 2020 KSM Business Services, Inc.
30 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
▪ There is the EIDL which you can apply for and covers XYZ expenses and the
loan is not forgivable.
▪ As part of CARES Act, there is an advance element of $10,000 with EIDL that
can be financed into PPP but reduces the forgivable portion of the loan by the
advance.
▪ As part of the CARES Act, there is the PPP loan which covers XYZ expenses
and is forgivable based on ABC.
▪ Within the CARES Act, there is an opportunity to apply for EIDL and then
subsequently for PPP. It is unclear at this point what options are available for
those applicants who obtain the EIDL and also qualify for the PPP loan. The
applicants SBA lender for the PPP should be able to help navigate as more
details emerge.
© 2020 KSM Business Services, Inc.
31 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
What Information Is Required to Apply for a Loan?
▪ Completed application (SBA Form 5)
▪ Tax Information Authorization (IRS Form 4506T)
▪ Most Recent Federal Income Tax Returns for the Application Business (or an
explanation if not available)
▪ Personal Financial Statement (SBA Form 413)
▫ NOTE: If the applicant has this information in a different format, they can note it on
the form and attach with the signed form.
▪ Schedule of Liabilities (SBA Form 2202)
▪ Acceptable credit history
© 2020 KSM Business Services, Inc.
32 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
Additional information that may be requested by the SBA:
▪ Federal tax returns for principals owning 20% or more of the business, for
partners/managing members or affiliates (when owner has more than 50%
ownership)
▪ Year-end financial statements for applicant if federal tax return has not been
filed
▪ Interim financial statements
▪ Monthly sales figures (SBA Form 1368)
▪ Additional information may be required
© 2020 KSM Business Services, Inc.
33 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
Filing Notes
▪ If the loan is denied, the applicant will be given up to six (6) months to
provide new information and submit a written request for reconsideration.
▪ Ignore the credit elsewhere statement.
▪ Articles we have read indicate that the applicant should put together a
letter to go with the application and it should include:
▫ Amount of loan requested
▫ A brief overview of what the business is and what it does
▫ A description of how the business handles its cash flow
▫ A description of “the injury”
- As part of this, if a business already knows they had to reduce payroll or if their
working capital is reduced, or if they expect it to in April/May, any data they can
provide to support will help the request.
© 2020 KSM Business Services, Inc.
34 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
Website for application: https://disasterloan.sba.gov/ela/
© 2020 KSM Business Services, Inc.
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1. Click on Apply Online and the screen below appears.
© 2020 KSM Business Services, Inc.
36 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
2. Scroll down until you see the screen below. The user will complete the applicable
forms and attach them in this area. The user will then be required to input a
description and email address. This appears to be the new process to submit
information.
© 2020 KSM Business Services, Inc.
37 ksmcpa.com/vetEconomic Injury Disaster Loan (EIDL)
KSM Contact for EIDL application assistance:
▪ Fill out our form:
▫ https://www.ksmcpa.com/blog/accessing-sba-s-disaster-relief-loans-as-a-result-of-
covid-19-ksm-can-help
▪ Contact Terry:
Terence O’Neil, CPA, CVA
Partner
T 317.580.2294
E toneil@ksmcpa.com
© 2020 KSM Business Services, Inc.
38 ksmcpa.com/vetCARES Act – Brief Summary
▪ $2 trillion - Largest spending bill passed in history of nation
▪ Provisions include: (Further information from KSM will be made available)
▫ SBA loan options for small business – today main meeting agenda
▫ Many tax law changes (some that modify December 2017 laws)
▪ Tax law changes include:
▫ Delay in filing deadline from 4/15/2020 to 7/15/2020 including payment of 2019 tax liability and 1st and 2nd quarter
estimated tax payment – need to check each state.
▫ Net operating losses – allow five year carryback for 2018, 2019, and 2020, previously limited and to taxable income
limitation and could not be carried back.
▫ Delay of Employer Payroll Taxes – Eligible Employers share 6.2%, to be paid 50% by 12/31/2021, and remainder
half by 12/31/2022 – Does not apply to Employers that have debt forgiven under CARES Act. A taxpayer can delay
these employer taxes up until the taxpayer receives a decision from its lender that its PPP loan is forgiven. Once the
decision has been received from the lender, the taxpayer cannot delay any further employer tax payments.
▪ Benefits for individuals:
▫ $1,200 rebate for single filers with gross income up to $75,000.
▫ $2,400 rebate for married filing jointly with gross income up to $150,000.
▫ Qualifying children will add $500 per child
▫ Unemployment, supplement tradition unemployment insurance of additional $600 per week for up to four
months.
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39 ksmcpa.com/vetSBA – Loan Options Presentation
▪ Eliminates the 10% early withdrawal penalty for qualified distributions up to
$100,000 for coronavirus-related purposes if made on or after 1/1/2020 and
before 12/31/2020
▪ Employee Retention Credit for Employers Subject to Closure Due to
COVID-19: Eligible employers may be able to claim a refundable payroll tax
credit for 50% of qualified wages paid to employees during the COVID-19
crisis. This credit is capped at $5,000 per EE and available to those whose
business operations were fully or partially suspended due to a COVID-19-
related shutdown order or whose gross receipts declined by more than 50% as
compared to prior year metrics.
▪ Exclusion for Certain Employer Payments of Student Loans: Under the
Act, employers can contribute up to $5,250 annually toward an employee’s
student loans through January 2021.
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▪ Families First act provides new leave requirements 4/1/2020 – 12/31/2020.*
▫ The Act requires certain employers to provide 80 hours of paid sick leave at full
wages (pro-rated for part-time employees) and up to three months of paid
emergency family and medical leave at two-thirds of normal wages.
▫ Sick leave attributable to an employee caring for themselves is paid at their full
wage up to a maximum of $511 per day.
▫ Sick leave attributable to an employee caring for another individual is paid at two-
thirds of their normal wage up to a maximum of $200 per day.
▫ Emergency family and medical leave is paid at two-thirds of their normal wage up
to a maximum of $200 per day and $10,000 in aggregate.
▫ The Act provides employers with payroll tax credits designed to offset the cost of
providing additional paid leave.
*KSM defers all eligibility and interpretation of applicability to each company legal advisors.
© 2020 KSM Business Services, Inc.
41 ksmcpa.com/vetQuestions?
KSM Link to COVID-19 Latest Information
https://www.ksmcpa.com/covid-19
INDIANAPOLIS NEW YORK
800 East 96th Street, Suite 500 7 Penn Plaza, Suite 1500
Indianapolis, IN 46240 New York, NY 10001
TEL 317.580.2000 TEL 212.557.9800
FORT WAYNE OKLAHOMA CITY
202 East Berry Street, Suite 600 12316 St. Andrews Drive, Suite B
Fort Wayne, IN 46802 Oklahoma City, OK 73120
TEL 260.496.8297 TEL 317.580.2400
The information presented herein is general in nature and
should not be acted upon without the advice of a professional.
© 2020 KSM Business Services, Inc.
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