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Last updated: April 3, 2020 at 3:30pm

It has only been a few days since our important article detailing options available to small businesses, churches, and nonprofits impacted by the coronavirus and related restrictions. As we expected, the situation has continued, and likely will continue, to rapidly evolve. Since the writing of our article, the U.S. Department of the Treasury, Small Business Administration, and the IRS have released further guidance on the implementation of the CARES Act. Importantly, the application for the Paycheck Protection Program has been released. These resources are described below. This article may be updated periodically as the situation develops.

A few highlights of the guidance and instructions: 

  1. For the Paycheck Protection Program (PPP)

UPDATE: Banks were directed to begin accepting applications April 3, 2020 for most organizations. Independent contractors and self-employed individuals can apply starting April 10th. Once opened, the available funds will probably go very quickly. However, banks have had little time to implement guidance and an Interim Final Rule from the Small Business Administration the evening of April 2.

We understand that as of Friday afternoon financial institutions had made almost 7000 loans worth almost $2.2 billion.[1] Major banks such as Bank of America and J.P. Morgan Chase have begun accepting applications, while many other banks are still ramping up their application and approval process, which will not likely be ready until Monday.[2]

Most banks are prioritizing their existing customers, particularly customers with existing lending relationships. If your bank is not participating or you otherwise need to locate a new bank to participate you may want to utilize the SBA’s tool for finding eligible lenders near youv.

According to recent guidance:

  • Forgiveness may be limited such that only 25% of the forgiven amount may be for non-payroll costs. Payroll costs are forgivable if employment and salaries are not reduced.
  • The Act specifies that the interest rate can be up to 4%. At one point this week the interest rate was set to 0.5%, but the SBA’s Interim Final Rule has set the interest rate for PPP loans at 1%.
  • The application instructions to the PPP clarify what we expected to be the case: though the portion of salaries over $100,000 per year must be excluded from “eligible payroll costs” the portion up to $100,000 remains eligible.
  • All applications will require any Owner/Authorized Signer to answer several qualification questions and sign the application. Owner is defined as an owner of 20% or greater of the business including sole proprietors, limited partners, and LLC members. It appears that general partners must answer the qualification questions even if they own less than 20% of the partnership’s equity. Nonprofits and churches obviously will not have owners but the authorized signer (president or treasurer usually) needs to initial and sign.
  • These qualification questions, listed on the application, include whether the signer or owner:
    • Is presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, on probation or parole?
    • Has been convicted of any felony in the last five years.
  • Applicants/owners will also have to make certain certifications:
    • about the economic situation of the business,
    • how you will use the money,
    • that the U.S. is “the principal place of residence for all employees of the Applicant included in the Applicant’s payroll calculation above,”
    • that “to the extent feasible” you will “purchase only American-made equipment and products”
    • and that you will not seek another PPP loan during 2020.
  • You will need to submit tax documents to the lender to support the financial information you supply. Some of these documents are listed in the application. Your bank will likely have a list of documents it will require you to submit.
  • Among other things the banks will likely be required by the SBA to verify (therefore prepare to provide evidence) that:
    • You were in operation on 2/15/20
    • You had employees for whom you paid salaries and payroll taxes
    • The exact dollar amount of average monthly payroll
  • Based on some summary guidance released, there is some question whether “interest on any other debt obligations that were covered before the covered period” will truly be forgiven as an allowable use, even though the Act states that it is eligible.

PPP Action Steps:  

  1. Review the Small Business Administration’s overview of its programs and resources including the PPP. Strategically decide which programs you want to apply for as some cannot be combined with each other (for instance the PPP and the CARES Act Employee Retention Tax Credits).
    1. If you have not already, you may find that the Treasury’s PPP information sheet, its Overview, and the Interim Final Rule are helpful.
  2. If you are proceeding with the PPP, review and assemble information for the newly released PPP Application Form. UPDATE: This application has been released in several forms throughout the week.
    1. If you prepared a prior version of the Application Form, you should probably copy over your information onto the new form to avoid any delay or unnecessary hurdle in having your loan approved.
  3. When you are ready to apply, complete and submit the application to your SBA Participating Lender. This may be a bank that you already utilize, or you may begin a new relationship with an approved lender.
  4. Because your approved lender is probably swamped with applications, you stand a much greater chance of success if you are able to submit all of the needed documentation and information at once. We know some banks are giving priority to the borrowers who have everything completed correctly and only circling back to the applications with issues after completing the others.
    1. Needed documentation will include your payroll expenses (salary, wages, commission, etc., further described in our previous article) for the 12 months prior to receiving the loan.

UPDATE: The Interim Final Rule suggests you use the following methodology to calculate the amount you are eligible for in PPP funding.

Step 1: Aggregate payroll costs (defined in detail below in f.) from the last twelve months for employees whose principal place of residence is the United States.

Step 2: Subtract any 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).

There are several examples of how this calculation can be done in different circumstances on pages 9 and 10 of the Interim Final Rule.

UPDATE: Independent Contractors? The new guidance casts doubt on whether compensation issued to independent contractors through 1099 forms is considered “eligible payroll costs” for which an employer can receive forgivable funding, even though the Act seemed to indicate it would be covered. This is on the grounds that independent contractors typically can apply in their own right. We expect that further guidance will make this clearer.

If you need advice or strategy on whether to include such amounts in your application in the meantime give us a call and we would be happy to consult with you.

UPDATE: Can my church or nonprofit apply without sacrificing First Amendment liberties?

There are always strings attached with federal funding. In this case, there is a certification on the Application that recipient businesses will not discriminate on the basis of federally protected classes such as race or sex. There has been some disagreement on whether the federal protected class of “sex” includes “sexual orientation” or “gender identity.” That issue is pending before the Supreme Court but is not yet resolved.

However, the new guidance and new application form have clarified that this provision somewhat and side steps that issue. The latest Application requires certifications that “I will comply, whenever applicable, with the civil rights and other limitations in this form.” And under the civil rights section the Application states that “All businesses receiving SBA financial assistance” must agree to operate consistent with federal nondiscrimination provisions. These statements appear to apply to businesses, but not churches and religious entities. By contrast, “all borrowers” will be required to display the “Equal Employment Opportunity Poster.”

The Interim Final Rule also announced:

All loans guaranteed by the SBA pursuant to the CARES Act will be made consistent with constitutional, statutory, and regulatory protections for religious liberty, including the First Amendment to the Constitution, the Religious Freedom Restoration Act, 42 U.S.C. 2000bb-1 and bb-3, and SBA regulation at 13 C.F.R. 113.3-1h, which provides: 28 “Nothing in [SBA nondiscrimination regulations] shall apply to a religious corporation, association, educational institution or society with respect to the membership or the employment of individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution or society of its religious activities.” SBA intends to promptly issue additional guidance with regard to religious liberty protections under this program.

  1. Economic Injury Disaster Loans/Grants

If you are seeking a disaster loan you can apply through the SBA.

  1. Tax Credits

If you are seeking to utilize the employee retention tax credits from the CARES Act, you can see additional information released by the Treasury and the IRS.

For information on the tax credits program under the Families First Coronavirus Response Act see IRS answers in Frequently Asked Questions for Required Paid Leave.

  1. Additional Programs

The SBA has additional programs that small businesses may want to consider in addition to the Paycheck Protection Program, Economic Injury Disaster Loans/Grants, and tax credits described in our previous article.

For instance, the SBA is offering Express Bridge Loans for small businesses that already have a relationship with an SBA Express Lender to access small loans (up to $25,000) with less paperwork. These loans are intended to bridge the gap while awaiting decision on full EID Loans.

Additionally, the SBA is offering a Debt Relief Program.

For more details on these two programs see the SBA’s resources here: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources


Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum. Please contact Robert Showers at hrs@simmsshowerslaw.com or Will Thetford at wrt@simmsshowerslaw.com  or call at 703.771.4671 for legal advice that will meet your specific needs.

[1] Announcement from Jovita Carranza, Administrator of the Small Business Administration via Twitter (Apr. 3, 2020): https://twitter.com/SBAJovita/status/1246152086632509440

[2]Greg Iacurci, Coronavirus loan program delayed for independent contractors and self-employed workers, CNBC, Apr. 3, 2020, https://www.cnbc.com/2020/04/03/delays-in-sba-loans-for-independent-contractors-self-employed-workers.html

Bank of America says 58000 small businesses have asked for $6 billion in loans since 9am, CNBC, Apr 3, 2020, https://www.cnbc.com/2020/04/03/bank-of-americas-small-business-loan-portal-is-up-making-it-the-first-bank-to-accept-applications.html

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