Following last week’s webinar about the CARES Act, we wanted to follow up with responses to some of the top questions from our professional community. We will continue to update and add to this FAQ. 

Please keep in mind that the information below is not legal advice. For questions specific to your business, it’s advisable to consult with an accountant or attorney.

Note that as of May 4 2020, the SBA announced that only agricultural business applications for EIDL will be accepted due to limitations in funding availability and the unprecedented submission of applications already received.

What does the PPP’s “necessity” certification mean and why are some businesses repaying their PPP loans by May 14, 2020?   
The CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere. However, in late April, the Small Business Administration (SBA) emphasized that PPP borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” In making this certification, the SBA’s FAQs specified that borrowers must take “into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” 

Companies should be prepared to demonstrate to SBA, upon request, the basis for its certification. Public companies in particular may be scrutinized, and all recipients of PPP loans in an amount of $2 million or more will be reviewed by the SBA, in addition to “other loans as appropriate,” following the submission of the borrower’s loan forgiveness application.

Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 14, 2020 will be deemed by the SBA to have made the required certification in good faith. Note this deadline was extended from May 7, 2020 to May 14, 2020. The SBA also indicated that prior to May 14, 2020, it would provide further guidance regarding the “necessity” certification for PPP loans.

I’m a business owner with fewer than 500 employees. What am I eligible to apply for? Can you apply for both an EIDL and a PPP loan?
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) offers three main types of relief for small businesses: (1) forgivable loans under the Paycheck Protection Program (PPP) offered via its lenders or through any participating federally insured depository institution or federally insured credit union, (2) Economic Injury Disaster Loans (EIDLs) offered directly by the federal Small Business Administration (SBA), including an emergency grant advance and (3) business tax changes.  

Small businesses can take advantage of more than one type of relief, as long as that relief isn’t applied toward the same expense.  A detailed overview of each type of relief is available from the U.S. Chamber of Commerce, as well as the SBA.  Since most pros are interested in learning about obtaining additional funds, we’ll focus on PPP loans and EIDLs. 

– PPP loans are for up to 2½ months of average payroll costs (not to exceed $10 million dollars).  For non-forgivable amounts, the loans are at a 1% interest rate, with a two-year term and six months of repayment deferral.
 – Normally, EIDLs are for up to $2 million in working capital that has been negatively impacted by a disaster.  Due to high demand, however, the U.S. Chamber of Commerce has indicated that initial loan amounts are capped at $15,000 per company in addition to the $10,000 advance. The loans are at 3.75% interest, with up to a 30-year term and 12 months of repayment deferral. They are not forgivable (other than a $10,000 advance in the form of a grant).

I’m a business owner with no employees. What am I eligible to apply for?
Even if you have no employees, you are eligible for all three types of relief (PPP loans, EIDL, and business tax relief).  

How can I use funds from EIDL and PPP?  Can I use the EIDL to pay off an existing loan?  Does the loan funding provide any relief for equipment-related overhead?
A PPP loan can be applied toward payroll costs (capped at $100,000 on an annualized basis for each employee), mortgage interest payments, rent, utilities, and interest on loans obtained before February 15, 2020.  

A EIDL can be applied toward working capital, necessary expenditures to alleviate economic injury, sick leave due to COVID-19, payroll, higher supply costs, rent or mortgage payments, and repaying other amounts due to revenue losses (but not refinancing prior debt or repairing physical damage).  An EIDL can be used toward operational costs as working capital but cannot be used toward acquiring fixed assets.

How much of the PPP loan will be forgiven and under what conditions? 
The U.S. Treasury PPP FAQ says that “[y]ou will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.” In addition, “not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll.”

The FAQ states:
 – Number of staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
 – Level of payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
 – Rehiring: You have until June 30, 2020, to restore your full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.

The PPP interim final rule provides that “[p]ayroll 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.”

Payroll costs “for an independent contractor or sole proprietor, [consist of] wage, commissions, income, or net earnings from self-employment or similar compensation.” 

 

You can also find our editorial story on the CARES Act here. Please email editor@houzz.com if you have additional general questions. For tips on managing your business during COVID-19, check out other webinars and content from our Houzz Pro Resilience Initiative here.