This brief provides new information released from the U.S. Treasury regarding the Paycheck Protection Program (PPP) since our communication on Monday, March 30th.
As we noted in that communication, the information we provided was based on what we knew when the program was signed into law on Friday, March 27th. The updated information below is based on actual regulations and procedures drafted by the Treasury and Small Business Administration (SBA) and feedback we have received from lending institutions.
Given the high demand for this program, and volume of loans banks must process, we anticipate the potential for additional changes as the actual program is rolled out.
Banks will begin accepting applications on Friday, April 3rd.
As you move forward with your application, please be aware that some banks are interpreting the guidelines differently than others and are choosing to collect information in varying formats. Therefore, we highly encourage you to confirm not only the information requirements, but also the formats for the information, with your lending institution.
I. Important links to help you initiate the loan process sheet.
II. Updates and changes announced by the Treasury and SBA
Interest Rate: The interest has been reduced from a maximum of 4% to a fixed .5%.
Loan Term: The maximum loan term for unforgiven loan amounts has been reduced from 10 years to 2 years. There is no penalty to pay the loan off early.
Loan Forgiveness: No more than 25% of the forgiven amount can come from non-payroll costs.
III. Differences among banks in interpreting terms and processing loans
Loan Amount: Originally, the maximum loan amount was 2.5 times Monthly Average Payroll Cost. Some banks are interpreting the maximum loan amount to be 2.25 times Monthly Average Payroll Cost. At the current time, we believe the correct number is 2.5, but you will not have any input with your bank on their interpretation.
Payroll Cost Measuring Period: Some banks are electing to use 2019 data to determine monthly average payroll costs because it is ready availability. Other banks are using the most recent 52 weeks of payroll data.
IV. Ways you can help expedite the process
Assemble important information as you prepare to apply for the loan
- Payroll reports for a twelve-month period (ending on your most recent payroll date), which show the following information:
- Gross wages for each employee, including owners
- Paid time off for each employee
- Vacation pay for each employee
- Family medical leave pay for each employee
- State and local taxes assessed on an employee’s compensation
- 2019 IRS Quarterly 940, 941, or 944 payroll tax reports
- 2019 W-2’s and W-3’s
- 1099’s for independent contractors for 2019
- Documentation showing total of all health insurance premiums paid by the company owner(s) under a group health plan. Include all employees and the company owners
- Documentation of the sum of all employer funded retirement plan contributions
- Include all employees and the company owners
- Include profit sharing, 401K plans, Simple IRA, and SEP IRA’s
- Include data on pension plans, although it’s unclear at this time whether such contributions will be considered
Pursue a loan with a bank that knows you
If you have a good relationship with your bank, they would be best source to pursue a loan. You should confirm that they are an approved lender with the Small Business Administration 7(a) program or are participating in the PPP. While no one is guaranteed to be approved for a loan, your odds will go up dramatically with an existing banking relationship that is a SBA lender. If you need an introduction, we will do our best to connect you with a viable source.
As always, we will do our best to keep you updated on new developments. Please visit our website for these developments.
For informational purposes only. Not intended as legal or investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000.
Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.