SBA Loans

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#1
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Pros, I hope you are well. Has anyone helped a client or applied yourself for the SBA disaster relief loan? https://www.sba.gov/disaster-assistance ... s-covid-19. I wanted to see how difficult it was, what is needed, and what are the approval rates? Any insight would be great? Thank you.
 

#2
dsocpa  
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Right there with you wwwcpa1biz. I'll be brushing up on this as several clients will need help to keep going.

Years ago we obtained a SBA loan. It was a very painful process. I immediately paid it off and we were able to get a LOC with favorable terms from our bank - becuase I repaid the SBA loan so quickly our credit score went way up. Hoping the process is easier due to these unusal circumstances.
 

#3
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Several years ago the SBA had an emergency loan program for farmers, due to a drought. The loan documentation was rather extensive, description of business activity, number of acres farmed, description of crops, what crops are planted with in the last year, which acres were currently planted, with what, maturity date, estimated sale value. Description of farm equipment and ages (send depr schedule). Last 3 year tax returns.
Budget for next 3 years.
Best I can remember the actual loan amount was some calculation of the prior 3 year expenses (less depr).
Generally the loans were approved rather quickly,(within 2-3 weeks) with very little requests for additional information, and the rates were much lower than bank rates, and a lot of banks at that time were not loaning to farmers.

The SBA took security interest in everything borrower owned, even second and third mortgages on any real estate, including home, and junior positions on all personal property. All equipment had liens, and in order to trade a piece of equipment, SBA release and approval had to be obtained (usually not a problem).

We were doing a couple of hundred of these and got pretty fast with standardized list of things the borrow had to assemble, and standardized budget formats and questions they had to answer.

Have no idea what is currently required.
 

#4
dsocpa  
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Similar situation when we obtained the SBA loan. 100% collateral, lien on property, etc. Very focused on our receiveables and cash flow forecast, plans to expaned, etc. The 100% collateral was my biggest reason to pay off the loan and do a rountine LOC with our bank. The rest is pretty standard.
I've been surprised the last 10 years banks aren't requiring the cash flow forecasts, budgets, etc. And they accept those horribly inaccurate garbage financials from QuickBooks.
 

#5
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dsocpa wrote: I've been surprised the last 10 years banks aren't requiring the cash flow forecasts, budgets, etc. And they accept those horribly inaccurate garbage financials from QuickBooks.


Really, how many small businesses do you know that have cash flow forecasts, budgets, and accurate financials? In my experience, it is only the ones that have CPAs and controllers involved in their routine affairs and they devote a sizable percentage of their revenue to accounting. If they are left to their own, they produce crap from Quickbooks and so banks are left with nothing better to rely on. Yet another reason lenders want CPA comfort letters. :roll:

I also blame lenders and what I still view as reckless lending practices. I know self-employed millionaires with tremendous income and liquid assets that cannot obtain reasonable loans, yet people with zero cash, zero assets, and only low W2 income are being qualified for zero collateral credit and still extremely low (or zero) down payment mortgages. Their logic, and true lack of understanding of income relative to tax returns and financials, astounds me.
 

#6
dsocpa  
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I agree with you! I just have no sympathy, are you serious about running a business or just playing around.
 

#7
Wiles  
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I know the bill was just passed today. I hear there are trillions of dollars available for business loans. I have no idea how much of that will trickle down to our clients.

But maybe, if they do, these loans will be easier to obtain than the SBA loans.

I suppose we will know soon.
 

#8
novacpa  
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House debates the Bill at 9:00am today - Disaster Relief for Business/Corporations/Self Employed has been proposed at $200,000 or $2-million thresholds - to cover payroll, rent and other operating expenses where the Company does not
layoff employees. The provision I want to have a better understanding about, is the conversion of the loan to a grant, and thus a forgiven loan (taxable income?).
 

#9
wel  
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@novacpa - read this article for a good explanation. - link - https://www.forbes.com/sites/anthonynit ... 825bef5f99
 

#10
Wiles  
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I had to share this. A client of mine is doing the Personal Financial Statement for the SBA loan. They sent me this question:

"Under liabilities, there is a total, Net worth and then Total Liabilities & Net worth. How do I establish Net Worth?"
 

#11
dsocpa  
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Wiles wrote:I had to share this. A client of mine is doing the Personal Financial Statement for the SBA loan. They sent me this question:

"Under liabilities, there is a total, Net worth and then Total Liabilities & Net worth. How do I establish Net Worth?"


Similar experience, client emails me she is applying for an SBA loan and they want 2 years financials as one document and she can't seem to upload 2 years worth of bank statements as one documents. :D
 

#12
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I’m wondering about my place in all this. I have a tax practice and am overwhelmed with trying to get tax returns out the door. Should I be putting tax returns aside and making sure my business clients are aware of these loans / grants?
 

#13
dsocpa  
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I have for a short time since a handful are in need of assistance immediately.
 

#14
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Is the starting point the SBA online loan application or should people be calling their banks?
 

#15
Wiles  
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I probably need to read SBA Loans for Dummies. I have seen 3 SBA loans referenced recently:
1. Economic Injury Disaster Loan
2. Paycheck Protection Program (I have also heard this called Payroll Protection Program)
3. Small Business Interruption Loans (prevents the new Employee Retention Credit in the CARES Act)

Are #2 & #3, the same?

I have heard that if you apply for #1, then you cannot get #2. I am on the SBA website. I only see the ability to apply for #1.

Anybody have any wisdom to help me distinguish between these 3? And how a business owner would go about determining which would be best for them?
 

#16
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I'm right there with you. I sent a client a link to the Economic Injury Disaster Loan which I thought was the 7a loan (i..e, the one they need) and ended up calling the client 15 minutes later telling them to hit the brakes. This sucks
 

#17
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Rockville Centre, NY 11570
This is the Paycheck Protection Program Information.
Most small business' will likely apply for this option.
You need to contact the potential lenders. There are many to choose from and they all have one thing in common. They are not responsive!

I will simply wait for the hysteria to abate at which time I will call my bank and hopefully obtain the assistance that we all need to perfect these loans.

Best of luck and be safe.

Paycheck Protection Program: Loan Information
SBA Paycheck Protection Program (PPP) Loan Information
Total Funds Available $349 Billion
Funding Period February 15, 2020 - June 30, 2020
Maximum Loan Amount
2.5x average monthly payroll costs

or

The outstanding amount of an Economic Injury Disaster Loan (EIDL) that was made during the period beginning on January 31, 2020 and ending on the date on which covered loans are made available to be refinanced under the covered loan.

or

$10 Million

Maximum SBA Guarantee 100%
SBA Guarantee Fees No Fee
Personal Guarantee None Required
Collateral None Required
Use of Proceeds Payroll and other operating expenses
Maximum Interest Rate 4%
Maximum Term 10 Years
Prepayment Penalty None
Payment Deferral Not less than 6 months, including payment of principal, interest, and fees, and not more than 1 year.
Turn Time ~36 Hours after approval
Where to Apply
Eligible entities may file applications with an SBA-approved lender. Lenders have been delegated authority to make loans without SBA review.





Paycheck Protection Program Eligibility


As of March 26, 2020 nearly 3.3 million Americans have filed for unemployment, which has put an enormous strain state governments, who are in charge of approving and funding unemployment claims. Additionally, businesses feeling the financial pinch are forced to let their staff go, taking with them years of experience and institutional knowledge, both of which are incredibly valuable to the employer.

The Paycheck Protection Program, part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides the crucial funding businesses need to which aims to keep employees workers paid during time of crisis and uncertainty.

Eligibility is rather simple and is clearly defined in the CARES Act, but is centered around small businesses with fewer than 500 employees that were in operation as of February 15, 2020.



You are eligible if you are:

A small business with fewer than 500 employees
This includes full time, part time, and any other status
A small business that otherwise meets the SBA’s size standard
A 501(c)(3) with fewer than 500 employees
An individual who operates as a sole proprietor
An individual who operates as an independent contractor
An individual who is self-employed who regularly carries on any trade or business
A Tribal business concern that meets the SBA size standard
A 501(c)(19) Veterans Organization that meets the SBA size standard

Additionally, some special rules may make you eligible:

If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis. This includes:
Hotels and Motels
Casino Hotels
Bed-and-Breakfast Inns
All Other Traveler Accommodation
RV Parks and Campgrounds
Recreational and Vacation Camps
Rooming and Boarding Houses, Dormitories, and Workers’ Camps
Food Service Contractors
Caterers
Mobile Food Services
Drinking Places (Alcoholic Beverages)
Full-Service Restaurants
Limited-Service Restaurants
Cafeterias, Grill Buffets, and Buffets
Snack and Non-Alcoholic Beverage Bars
If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply


You must also certify that:

The uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient
Acknowledge that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments
The eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan
During the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.


Many people have applied for an Economic Injury Disaster Loans (EIDL), however as of the fourth week of March, the SBA Disaster Loan Portal was overwhelmed, operating at a snail's pace (if at all), and applicants were forced to apply offline. When we (Accountingprose) filed for an EIDL, there was no notification that the loan documents were even received after being sent by email and uploaded to the SBA Box account. While #3 states that the borrower should not have a loan application pending, if you have applied and have not heard back from the SBA, it may be safe to assume that your application may be lost in the ether. However, we recommend that you speak to an SBA approved lender who can provide further guidance.

Also, it important to note that there is an opportunity to refinance the Economic Injury Disaster Loans (EIDL) made between Jan. 31, 2020 and the date this loan program becomes available into a new loan. We highly encourage you to speak to your lender about this potential if you apply for funding through this program.





Calculating the Paycheck Protection Program Maximum Loan Amount


Employer Information Maximum Loan
If qualified business was in operation for one year prior to loan date 2.5 x the average total monthly payroll costs incurred during the year prior to the loan date
If qualified business was not operational in 2019 2.5 x the average total monthly payroll costs incurred for January and February 2020
Seasonal Employers 2.5 x the average total monthly payments for payroll costs for the 12-week period beginning February 15, 2019 or March 1, 2019 (decided by the borrower) and ending June 30, 2019.


Essentially, the maximum loan amounts are calculated by averaging your monthly payroll costs and multiplying that by 250%. Those businesses who were not operational as of 2019, but have payroll costs in January 2020 and February 2020 are still eligible to apply and will use the payroll costs in those two months to find their average.

Not every single payroll costs will be eligible to be included in this monthly average, so it is important to understand what to use to calculate the average.



What is included in payroll costs?
Employers
Payments to Sole Proprietors, Independent Contractors, & Self Employed Individuals

Salary, wage, commission, or similar compensation
Payment of cash tip or equivalent
Payment for vacation, parental, family, medical, or sick leave
Allowance for dismissal or separation
Payment required for the provisions of group health care benefits, including insurance premiums
Payment of any retirement benefit
Payment of state or local tax assessed on the compensation of the employee


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 and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.





What is excluded from payroll costs?
Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, 2020 to June 30, 2020.
Federal payroll taxes, railroad retirement taxes, and income taxes
Any compensation of an employee whose principal place of residence is outside of the United States
Qualified sick leave wages for which a credit is allowed via HR 6201, the Families First Coronavirus Response Act
Qualified family leave wages for which a credit is allowed via HR 6201, the Families First Coronavirus Response Act
The exclusion of the qualified sick and family leave wages paid/credited via HR 6201, is put in place so that the employer doesn't "double dip", essentially getting two benefits applied for the same wages paid.



Example Payroll Costs Calculation
Cost Amounts Paid From 03/01/19 to 03/31/20
Payroll Wages $1,000,000
Federal Employer Payroll Taxes

Wages x 6.2%

$62,000
State Employer Payroll Taxes (varies by state)

Wages x 1.7%

$17,000
Simple IRA

Wages x 3% Employer Match

$30,000
Health Insurance $60,000
Total Payroll Cost $1,169,000
Minus Excluded Costs

Federal Payroll Taxes

$62,000
Adjusted Payroll Costs

$1,107,000
Average Monthly Payroll Costs

Adjusted Payroll Costs / 12 months

$92,250
Max Loan Amount

Average Payroll Costs x 2.5

$230,625


We recommend that you set up a grouped Income Statement in Xero, our accounting software of choice, to calculate the total wages paid, average those wages, and see your max loan amount.


>>>Click to Download our Payroll Costs Spreadsheet<<<


Paycheck Protection Program Fund Usage


The Paycheck Protection Program is intended for small businesses to cover the following costs:

Payroll, commissions, and similar compensation (as noted in the allowable payroll costs above)
Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
Mortgage Interest
Principal payments and prepayments are excluded
Mortgage must have been in place prior to February 15, 2020
Rent
Rent agreement must have been in place prior to February 15, 2020
Utilities
Utilities must have been in place prior to February 15, 2020
Interest on any other debt obligations
For debt obligations in place prior to February 15, 2020
By limiting the usage to these types of expenses, it insures that the funds are being used for what the CARES Act intended- keeping employees paid and employed.



Paycheck Protection Program Forgiveness


Borrowers are eligible for loan forgiveness equal to the amount spent on the following expenses during the 8-week period beginning on the date the loan was originated:
Payroll costs (as outlined above)
For borrowers with tipped employees, additional wages paid to those employees
Mortgage Interest
Mortgage must have been in place prior to February 15, 2020
Rent
Rent agreement must have been in place prior to February 15, 2020
Utilities, including: Electricity, gas, water, transportation, telephone, or internet
Utilities must have been in place prior to February 15, 2020
Interest on any other debt obligations
For debt obligations in place prior to February 15, 2020
The CARE Act also states that the loan forgiveness cannot exceed the principal of the loan, so keep that in mind when you are making it rain.
 

#18
Keyad22  
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mdubincpa wrote:What is included in payroll costs?
Employers
Payments to Sole Proprietors, Independent Contractors, & Self Employed Individuals

Salary, wage, commission, or similar compensation
Payment of cash tip or equivalent
Payment for vacation, parental, family, medical, or sick leave
Allowance for dismissal or separation
Payment required for the provisions of group health care benefits, including insurance premiums
Payment of any retirement benefit
Payment of state or local tax assessed on the compensation of the employee


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 and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.


Independent contractor is a corporation, not an individual. Does the payments be count as payroll cost?
 

#19
Nilodop  
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Independent contractor is a corporation, not an individual. Does the payments be count as payroll cost?. A good question. A corporation is clearly an eligible person for purposes of qualifying to get a loan. It's not as clear for purposes of inclusion in payroll costs. Surely many ICs are incorporated, so I don't see why not.
 

#20
Wiles  
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The US Chamber of Commerce has a nice guide to the PPP loan
https://www.uschamber.com/sites/default ... _final.pdf
 

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