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On the evening of April 2, 2020, the U.S. Small Business Administration (SBA) issued an interim final rule for 7(a) loans under the CARES Act Paycheck Protection Program (PPP). As a reminder, this program offers $349 billion in loans to small businesses impacted by the COVID-19 crisis, and the funds can be used to cover many costs, including payroll and rent.
Things are changing quickly, and we are committed to keeping you informed. This blog will provide you a summary of these latest changes.
These are the key 7(a) loan updates and changes you need to know about:
1) Lenders are directed to begin taking applications today, April 3, 2020. You may experience delays from your lender, but it is not because the SBA has changed the start date. Banks are having challenges getting their on-line portals up and running. Also, banks are generally not taking new customers, so you will need to work with your existing bank to get your application filed.
2) It was confirmed that the 7(a) loans will be approved on a first-come, first-served basis. So, get your applications in as quickly as your bank allows.
3) The calculation of payroll costs is confirmed as gross payroll. However, if you are using the trailing 12 months as your calculation, employment taxes and federal income taxes withheld from employees from the dates February 15, 2020, through June 30, 2020, should be excluded in determining your average monthly payroll costs.
4) The SBA directed that independent contractors are not to be included in your calculation of payroll costs. Your independent contractors will need to file separately beginning April 10, 2020.
5) Loan forgiveness will now include both principal AND accrued interest on the forgiven principal amount.
6) The 7(a) loan payment deferral period is confirmed to be 6 months, and interest will accrue from the date of the loan disbursement. But remember, accrued interest on the forgiven portion or your 7(a) loan will also be forgiven.
7) Not more than 25% of your loan forgiveness can be for qualified expenses other than payroll. Therefore, at least 75% of your loan forgiveness calculation must be for payroll costs. You will provide that calculation immediately after the 8-week forgiveness period.
8) The interest rate on the non-forgiven portion of your 7(a) loan will be 1% (revised upward from 0.5%).
9) You can only apply once for a 7(a) loan under the Paycheck Protection Program. As advised, make sure you are getting the maximum amount allowed when calculating your 7(a) loan amount.
10) Your lender will be doing some underwriting. So along with the certifications required, they will want to see your payroll tax returns, your 7(a) loan amount calculation, payroll records for employees on the payroll on February 15, 2020, and documentation regarding any additions to gross payroll, such as health insurance.
We can help
We expect things to continue to change quickly, and we will continue to provide you with updates as they become available. If you need assistance with your 7(a) loan, the Moore Colson team can assist you and your team with the following:
- Calculating the 7(a) loan amount
- Helping your business apply for the 7(a) loan
- Calculating the forgiveness amount
- Assisting with the forgiveness application
- Helping with short and long-term cash flow projections
- Helping calculate the credits under FFCRA and CARES Act
Bert Mills, CPA, is the Managing Partner at Moore Colson. In his role, Bert sets the vision and mission of the Firm and works closely with the Firm’s leadership to drive and implement strategies.
Andy Starnes, CPA, is a Partner and Tax Services Practice Leader Moore Colson. Andy’s specialties include corporate tax compliance and planning, business consulting, and multi-generational planning with a focus on the construction, professional services and staffing industries.
Chris Arnone, CPA, is a Partner and Business Assurance Practice Leader at Moore Colson. Chris over 20 years of experience providing audit, accounting and consulting services for companies in the transportation, manufacturing, distribution, staffing, private equity and venture capital industries.
Steven Murphy, CPA, is a Partner in Moore Colson’s Tax Services Practice. He is the Practice Leader for the Transportation Industry and also serves as the Tax Practice Leader for the Retail Industry. Steven has over 20 years of experience leading tax engagements and implementing tax strategies.