PPP update: Application delays & foreign-owned businesses

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The Treasury Department recently released a revised PPP application on its website. With the exception of Bank of America, we’re not aware of other banks accepting applications today. It’s likely there will be a 2- or 3-day delay with other banks. We urge you to continue to prepare the necessary underlying documentation to facilitate the computations of the 2.5x monthly average payroll. This new application also removes troubling language related to companies that are more than 20% foreign-owned and/or are not permanent residents of the U.S. The recently released regulations may make the following non-immigrant categories eligible for SBA financial assistance

  • B-1 Business Visitor
  • F-1/OPT Optional Practical Training
  • H-1B Specialty Occupation
  • O-1A Extraordinary Ability and Achievement
  • E-2 Treaty Investor; or
  • L-1 Intracompany Transferee

In addition, businesses owned by Foreign Nationals or Foreign Entities may be eligible. The Lender and Development Company Loan Programs Guidelines issued April 1, 2020 states businesses listed in Appendix 1 are not eligible.

If you are an eligible business, there are additional requirements for businesses owned by non-citizens other than Legal Permanent Residents (LPRs), including foreign-owned businesses:

  • The application must contain assurance that management is expected to continue in place indefinitely and have U.S. citizenship or verified LPR status.
  • Management must have operated the business for at least 1 year prior to the application date. This requirement prevents financial assistance to “start-up” businesses owned by aliens who do not have LPR status.

Lender must require the personal guaranty from management
The Applicant must pledge collateral within the jurisdiction of the U.S. with a liquidation value equal to no less than the approved loan amount at the time of first disbursement and, to the extent that the value of collateral declines during the life of the loan, the Lender must require the Borrower to pledge additional collateral to ensure a sufficient collateral coverage amount. If the Applicant owned by foreign nationals, foreign entities or non-immigrant aliens residing in the U.S. does not have sufficient collateral, the Applicant IS NOT eligible for an SBA-guaranteed loan.

In order for a business not to be subject to these additional requirements, it must be at least 51% owned by individuals who are U.S. citizens and/or who have LPR Status from United States Citizenship and Immigration Services (USCIS) and control the management and daily operations of the business. This can only be waived by the Director of the Office of Financial Assistance (D/FA) or designee.

Development of the regulations is fluid and there may be additional modifications. It’s best to immediately contact your bank or banker for further clarification, but be prepared — they may not have all the answers as these guidelines were released late last evening April 2, 2020.

As always, if we can be of assistance please call (973) 301-2300 or contact us via email.

When disaster strikes, how thorough is your business continuity plan?

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Whether you operate a small company or helm a large corporation, every business is susceptible to events beyond its control. Whether it’s a data breach, a weather disaster or communicable disease outbreak, a solid business continuity plan can help minimize the impact on daily operations and help your organization come out on top.

Your business continuity plan is a dynamic tool that documents the procedures and processes to get back to business as quickly as possible. The time spent developing and maintaining a comprehensive plan is an investment in your company. So, from emergency communications to facilities management, make sure these five areas are covered:

#1. Emergency management. Do employees know who’s in charge in the event of an emergency? Are they aware of appropriate measures to take? Even the best employees won’t automatically know what to do without a plan in place. Appropriate emergency responses should be clearly outlined, and test runs and drills made part of your standard operating procedure.

#2. Crisis communications. When a disruption or threat arises, how do you notify your team, customers, vendors and the greater community? Your plan should specifically address notifications, communication channels and expectations regarding any change in business operations.

#3. Facilities maintenance.  Office space, storefronts, warehouses — are your facilities equipped to withstand nature’s elements? A continuity plan can help ensure that your facilities are resilient, with the ability to tolerate or recover from the potential damage.

#4. Security. Chances are your critical records and data are stored electronically, so can your IT systems hold up against tampering or hacking? Is company data regularly backed up, both on-site and remotely? Are measures in place to protect your inventory, merchandise or equipment? Keeping physical and intellectual property, data records and other valuable materials safe from harm, theft or loss is another vital function of your business continuity plan.

#5. Health and safety. At the end of the day, what’s more important than the well-being of your employees and customers? If a workplace catastrophe occurs, your people are counting on you to protect them. Your business needs systems in place that offer a line of defense against any conceivable threat.

Room for improvement
Even if your business continuity plan is complete and in effect, your work isn’t done. As technology evolves and employees come and go, the plan should be regularly updated. Experts recommend meeting with key stakeholders annually to review and modify the plan. Then, share it across departments and business units, and gather feedback from the entire company to make sure nothing’s being overlooked. When everyone is on the same page, you can best ensure an organized, safe and timely recovery.

Preparing for the storm
There’s no better test of your organization’s resilience than the occurrence of an adverse event — but don’t wait for disaster to implement or evaluate your plan. Build your defense now, and make it a regular part of your strategic planning processes.

The latest guidance on economic impact payments for taxpayers

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You’ve probably heard that IRS will be making millions of economic impact payments (also called recovery rebates) in coming months to help people stay afloat during the economic uncertainty related to the COVID-19 crisis. Here’s what you need to know about this program:

How much will I receive?
IRS will soon begin making payments of up to $1,200 to eligible taxpayers or up to $2,400 to married couples filing joint returns. Parents will get an additional $500 for each dependent child under age 17. Thus, the payment for a married couple with two children under 17 would be $3,400.

Who is eligible?
U.S. citizens and residents are eligible for a full payment if their adjusted gross income (AGI) is under $75,000 (singles or marrieds filing separately), $122,500 (heads of household), and $150,000 (joint filers). The individual must not be the dependent of another taxpayer and must have a social security number that authorizes employment in the U.S.

Not everyone is eligible
For individuals whose AGI exceeds the above thresholds, the payment amount is phased out at the rate of $5 for each $100 of income. Thus, the payment is completely phased out for single filers with AGI over $99,000 and for joint filers with no children with AGI over $198,000. For a married couple with two children, the payment will be completely phased out if their AGI exceeds $218,000.

How will the IRS get me my payment?
The vast majority of people won’t have to do anything in order to get an economic impact payment. IRS will calculate and send the payment automatically to those who are eligible.

If you’ve already filed your 2019 tax return, IRS will use the AGI and dependents from that return to calculate the payment amount. If you haven’t filed for 2019 yet, information from your 2018 return will be used.

IRS will deposit the payment directly into the bank account reflected on the return. It plans to develop a web-based portal for individuals to provide their banking information, so payments can be received via direct deposit rather than by postal check.

People who are not otherwise required to file a tax return will need to file a simple return to receive an economic impact payment. IRS will soon provide instructions on how to do this.

Payments are nontaxable
Economic impact payments will not be included in the recipient’s income for tax purposes.

Have questions about the the relief available to individuals and families? Give the NJ CPAs at Magone & Company a call at (973) 301-2300, we’re here to help.

Interpreting the new CARES Act: What it means for your business

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The much-needed support for small businesses and non-profit organizations has been realized by the passage and signing on Friday March 27, 2020 by the President of The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which introduces the Paycheck Protection Program as a key provision in Title I — the Keeping American Workers Paid and Employed Act. In an effort to get our clients and friends information quickly, there may be revisions to the below as we take a deeper look into the law.

What is it?
The Paycheck Protection Program provides $349 billion in 100% federally guaranteed loans to small businesses and 501(c)(3) nonprofit organizations. Because many businesses have already laid off workers as a response to the pandemic, the program can be retroactive, with the covered loan period running from Feb. 15 to June 30, 2020, which allows previously laid off or furloughed employees to be returned to payrolls.

Who is eligible?
Any business or non-profit organization with not more than 500 employees is eligible, or otherwise qualifies as a “small business” under SBA size standards published in 13 part 121 of the CFR. More importantly, small business includes within its definition sole proprietorships, independent contractors and self-employed individuals.

How are the number of employees determined?
Generally speaking, the normal rules of attribution apply. Meaning any business that is controlled through voting, managerial, economic or influence would be counted toward the 500-employee cut-off for this program. The only exception is for hotels and restaurants as long as the number of employees is less than 500 per physical location.

How is the loan amount determined?
The loan amount is determined by reference to monthly payroll costs for the one year period prior to the loan. Payroll costs include:
1. Salaries, wages, commissions or similar compensation, up to $100,000 per employee
2. Cash tips
3. Payment for vacation, parental, family, medical or sick leave
4. Healthcare and retirement benefits
5. State and local taxes on wages
6. Payments of any compensation to or income of a sole proprietor or independent contractor that is wage, commission, income, net earnings from self-employment or similar that is not more than $100,000 in 1 year, as prorated for the covered period

Any compensation paid to employees outside the U.S. is excluded.

Once the monthly average of the above is determined, it is multiplied by 2.5. The business receives the lesser of 2.5x the monthly average payroll or $10,000,000.

I’m self-employed or an independent contractor and have no employees. How do I compute the loan amount?
If you are self-employed, or an independent contractor the rules above apply to you, except you will use your first $100,000 of self-employed income to determine the average monthly payroll. The law specifically states “the sum of payments to 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 1 year, as pro-rated for the covered period.”

Although not clear, we imagine your self-employed health insurance can also be included in the computation. In addition, self-employed and independent contractors will be required to submit documentation substantiating such classification such as payroll tax filings, 1099-MISC and other information.

What expenses can I pay?
The money received can be used to pay the following:
1. Payroll costs
2. Payments for the continuation of group health care benefits, which includes paid sick, medical and family leave and insurance premiums
3. Employee salaries, commissions or similar compensations
4. Payments of interest on any mortgage obligation. However, the payment cannot be used for prepayment of or payments for principal.
5. Rent
6. Utilities
7. Interest on any other debt obligations that were incurred before the covered period.

How do I apply and what are terms?
Application for the loan will be made with your local banker who is an authorized SBA lender. The federal government is pushing for rapid adoption and expects to have numerous additional lenders in place in the weeks to come. We still don’t have clarity as to how the application process will work or when an application can be submitted. However, the normal requirements of the SBA will not be enforced such as personal guarantees, collateral, and unable to obtain credit elsewhere. Normal fees of the SBA will also be waived.

What we do know is there is a loan forgiveness provision, provided the funds are used as follows:
1. Payroll costs
2. Interest on certain mortgage obligations
3. Rent and utilities
In addition to using the funds on the costs above, there are provisions to maintain the ratio of employees during February 15, 2020 through June 30, 2020 to the number of employees for the same period in 2019, or for the period January 1, 2020 to February 29, 2020. The amount of forgiveness is also reduced by the amount that total salary or wages of any employee is reduced by more than 25 percent. However, anyone who makes more than $100,000 is not subject to this limitation as the wages above $100,000 were not included in the computation.

The amounts forgiven are excluded from gross income for federal income tax purposes.

To the extent the funds remain or are not used for the expenses above, the funds are required to be repaid over a maximum maturity of 10 years with an interest rate not to exceed 4%.

Other considerations
We have received many calls from our clients and colleagues regarding paying employees who are paid by person seen (in the case of non-profit organizations in behavior health) or commission. The question is how is the rate of pay determined? Our recommendation is to set the rate of pay based on a historical average of commission or persons usually seen based on prior year records for the employee. Remember, the funding is to allow a business or non-profit organization to retain their employees.

We understand these are uncertain times and we are committed to keeping our clients and friends informed as information becomes available.

Paycheck Protection Program just passed by Congress

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The Paycheck Protection Program (PPP) is now awaiting sign-off by President Trump. Below are some key provisions in anticipation of its signing. All details need to be vetted and changes can occur. We’re watching this closely. Here’s what we currently anticipate:

A completely new, temporary lending program to aid small business. The bill will provide roughly $350 billion to support loans through the new “Paycheck Protection Program,” which Congress designed to keep employees on the payroll and save small businesses. The Small Business Administration (SBA) will stand up a completely new program that will only nominally be part of the existing SBA Section 7(a) loan program. To expedite the funding of the new loans, the Treasury Department and SBA will expand the number of participating banks and credit unions; captive finance companies may also be included.

Minimal eligibility requirements. Any business operational on February 15, 2020, that paid salaries and payroll taxes will be eligible, but there is a limit of no more than 500 employees. Fortunately, the bill includes provisions to waive normal affiliation rules which should be applicable to many dealers. For dealers, there will be no test for total revenue.

Borrower certification to obtain loan. Borrowers will be required to make a good-faith certification that the loan is necessary due to economic conditions caused by COVID-19 and that it will use the funds to retain workers and maintain payroll, lease and utility payments.

Loans with terms NOT found in traditional bank loans. Lenders will not require application fees, closing costs, collateral or personal guarantees. The maximum interest rate will be 4%, and the first six months’ payments (principal and interest) will be automatically deferred. Finally, the lenders are not expected to perform credit analysis, because the loans will be 100% guaranteed by the SBA.

Maximum loan amount. The maximum amount will be 250% of an employer’s average monthly payroll (based on a 12-month look back from the date of the loan), but NOT MORE than $10 million.

Permitted uses of the loan. The loan can be used for “payroll costs,” which include salary, commission, or similar compensation (up to an annual rate of pay of $100,000 per employee); employee group health care benefits, including insurance premiums; retirement contributions; and covered leave from February 15, 2020, to June 30, 2020. Permitted uses also include payments of interest on mortgages, rent, utilities and interest on any other debt obligations that were incurred before February 15, 2020.

Loans may be forgiven. In general, borrowers will be eligible for loan forgiveness equal to the amount of certain expenses spent during an eight-week period after the origination date of the loan. These expenses are payroll costs, interest payments on any secured debt incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.

Percentage of employee retention related to amount of loan forgiveness. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year, and by the reduction in pay of any employee in excess of 25% of the employee’s prior-year compensation. However, to encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire previously laid-off workers by June 30, 2020, will still qualify and not be penalized for having a reduced payroll during the loan period.

No effect on Federal Income tax. Canceled indebtedness under this program will not be included in the borrower’s taxable income.

Loan amounts not forgiven. Any loan amounts not forgiven at the end of one year will be carried forward as an ongoing loan with terms of a maximum of 10 years at 4% interest or less.

We hope you’re finding these posts of value, and will keep you informed as new information becomes available.

 

SBA disaster relief for small businesses & nonprofits in NJ and other states

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Small business owners and nonprofit agencies may have been tossed a lifeline from the U.S. Small Business Administration, which just named New Jersey and several other states a declared disaster state in the wake of the Coronavirus pandemic.

This declaration will allow New Jersey small business owners and non-profit organizations impacted by COVID-19 to apply for SBA Economic Injury Disaster Loans (EIDLs) that provide financial assistance to help support their businesses.

EIDLs are secured loans up to $2,000,000 as determined by the SBA, with a maximum interest rate of 3.75% for small businesses — less if you are a non-profit organization. These working capital loans are designed to help small businesses and most private, non-profit organizations of all sizes meet their ordinary and necessary financial obligations like payroll and vendor payments that cannot be met as a direct result of a disaster.

These loans are intended to assist through the disaster recovery period, so we encourage every small business and nonprofit that qualifies to register and apply ASAP whether or not you ultimately end up requiring assistance. Note that these loans cannot be used to refinance long-term debt of a business.

Questions? The Magone & Company team of business advisors is here to help. Contact us if we can be of assistance.