BOLD Small Business Blog
I am not a tax professional. I am not a loan professional. I am not an attorney. My area of expertise is real estate. I am a small business owner trying to survive during these trying times.
I have many friends that own their own businesses. We are all confused. I have been reading up as much as I can to try to understand what our options are.
The information contained here is as best I understand it. If you have a different understanding of anything, please email me at firstname.lastname@example.org . I will update this blog as much as needed.
May 20, 2020 Get your PPP loan forgiven!
The second round of PPP funding has gone much more smoothly than the first. Many of us who were shut in the first round, received money in the second round. And as of right now, there are still funds remaining. So if you qualify for PPP funds but have not applied yet, now is the time to do so.
For those of us that have received a PPP loan, remember this is a loan, which typically means it needs to be repaid. However, the best part of this loan is the potential for it to be forgiven, at least partially, and potentially 100% forgiven. You know what I call forgiven loans: free money!
If you want your loan forgiven, you must follow the exact rules. A quick summary of which is, you must spend at least 75% of your loan amount on payroll, the other 25% is for rent and utilities. You must retain your employees at a level similar to before the crisis hit. If you do not, the amount of your loan forgiveness will decrease proportionally.
We hope your small business is surviving these difficult times. And we look forward to being able to frequent and support all our local small businesses!
April 24, 2020 – Small businesses are getting a second chance at PPP Funds!
President Trump just signed into law a $484 billion stimulus bill. Of those funds, $250 billion are allocated to the SBA PPP loans under the same program as before. In addition, there is another $60 billion for PPP loans that has been earmarked for small and community banks that focus on urban and rural areas that are largely ignored by the big banks. It will be interesting to see how exactly they define and administer this $60 billion piece.
The $250 billion means those of us who missed out on the first round of PPP loans will have a second chance. The first time through, the fund ran out of money on day 13. Given that the portals are all set up and applications are in hand with many clients, I expect this round to go much faster.
Bottom line, if you are a small business, and you did not get a PPP loan the first time around, get in contact with your bank NOW so make sure you are ready to go and high up on their application list. And if your bank isn’t responsive, don’t be afraid to apply through a second source. Last time, smaller banks (like community banks) had a much higher success rate with their clients because they don’t have tens of thousands of client to service. Now may be the time to switch your banking relationship over to a community bank.
In addition, some non-banks, like Paypal, have gotten into the PPP Loan business. With them, you don’t need a previously existing commercial bank account like the big banks are requiring. You don’t even need to have a PayPal account!
Good luck! And let’s get the economy back on track!
April 20, 2020 – How much more funding does the PPP program need?
Congress is currently considering a bill that would allocate an additional $250 – $300 billion for the PPP loans. But is that enough?
The SBA reported that the $349 billion funded 1.6 million companies. That works out to a little more than $218,000 per loan.
Updating my stats from my April 6th post (below), this means we are now tracking towards:
- 2.5 million estimated applicants x $218,000 = $545 billion +$40 billion (my estimate for independent contractors and self employed) = $585 billion.
If these numbers hold true, this would mean there would be a $236 billion more than current the $349 billion. So the $250 billion to $300 billion stands a chance of meeting the need. And if demand exceeded supply again, would Congress be willing to increase the loan amount a third time? Only time will tell.
Let’s hope Congress gets it act together and gets this loan program extended in the coming days.
Hang in there small businesses. I know there are many businesses that need these funds immediately.
April 17, 2020 – Contact your House Representative and Senator TODAY!
NOW is the time for Congress to act and add more funding to the PPP loan pool.
Millions of small businesses that were counting on PPP loans to make payroll and stay in business are now at risk of not getting any funds unless Congress allocates more funds.
We submitted our loan on Day 1 that our bank started taking applications 13 days ago. It was reviewed within days and said status is “being submitted to SBA.” It has said this for a week now. Yesterday, the SBA ran out of funds. If we did not receive an SBA loan number before the funds ran out, we are out of luck. We are not sure what our chances are of getting our funds. Our bank has no idea.
And if you are an Independent Contractor, the earliest you could submit to your bank was supposed to be April 10. The SBA just came out with their updated guidelines on April 14.
The SBA issued their guidance on the 14th and the program ran out of funds on the morning of the 16th. So unless additional funds are allocated to the PPP loan pool, it’s unlikely that any Independent Contractors are receiving funds.
Contact your House Representative and Senator today and let them know to allocate more funds to the PPP loan program.
Without additional funding, expect millions more to be laid off and don’t expect many of your favorite local businesses to re-open.
“Small acts, when multiplied by millions of people, can transform the world.” – Howard Zinn
April 16, 2020 – The PPP Loan Program is out of money!
As we predicted here, the PPP loan pool ran out of money. The SBA made this announcement earlier today. If you have been assigned a loan number from the SBA, then you are allocated for funding. If you are like me, you submitted your application on the first day. Then, it depends on what your bank did with your application. If they reviewed and did their internal review fairly quickly then submitted to the SBA, then you should have an SBA loan number. I have several companies that should have qualified. As of right now, some say they have been submitted to the SBA. And one says “submitting to the SBA.” It has said this for the better part of a week now. I hope it was submitted a week ago and it just hasn’t been updated. But if it sat in a line, either with the bank or the SBA, such that it wasn’t given an SBA number before this morning, then we are out of luck. Remember, the loans are first come, first serve.
Reach out to your banker, or log into your online PPP portal, to see if your loan has been assigned an SBA loan number.
There is talk of passing new legislation to add $250 billion to the PPP loan pool. However, both sides seems to be angling for more to be added to this. If, and more importantly when, this gets resolved is critically important as there are millions of small businesses waiting on this money to fund their business. If the money doesn’t get there soon enough, expect even more of your favorite local businesses to be gone forever.
I hope Congress is able to do the right thing and increase the loan funding ASAP.
April 14, 2020 – Updates on Independent Contractors PPP Loans, Funding Shortfall and Changes to the EIDL Advance
- Independent Contractors were able to start applying for PPP loans on Friday, April 10. However, many banks are requiring that Independent Contractors have a business checking account that was open as of February 15, 2020. Many independent contractors legally operate under their own personal name, using the social security number as the EIN, and did not need to have a business checking account. This is a major hurdle. We hope banks shift gears on this approach ASAP.
- Update: BB&T/Suntrust/Truist has issued the following policy: Clients without a BB&T or SunTrust business account will need to provide proof that their BB&T or SunTrust personal account is used for trade or business purposes. Hopefully other banks will adopt a similar policy.
- As of April 13, the SBA reported that it has approved 880,000 applications for $217 billion, which is an average of more than $246,000 per loan. This means the current funding allotment of $349 billion is not going to be sufficient. According to my calculations below, using this new average loan amount, I am now projecting there will be closer to $650 billion in funding needed. However, I do expect the average amount per loan to decrease moving forward as more smaller businesses get in line. Congress is considering adding $250 billion to the allotment. This requires passage by the House, Senate and President.
- The SBA sent out notices that the EIDL Advance, originally $10,0000 to everybody, has been changed to $1,000 per employee with a $10,000 cap. The loans were supposed to be funded in 3 days. Those loans were applied for about 2 weeks ago. As of now, these advances have not been paid out yet.
April 10, 2020 – Independent Contractors & Self Employed Individuals can start applying for PPP Loans today
There is little new information out there on exactly how the PPP Loans for Independent Contractors is going to work. Banks are supposed to start taking applications from Independent Contractors today. So I would start by contacting your bank and see if they are ready to start taking applications today.
In general, the loans will follow the same guidelines as PPP Loans for Small Businesses (see below for further explanation). However, one key difference is that these types of business do not have employees. So instead of reporting payroll records, one will use their Schedule C net income (capped at $100k). Like the other PPP loans, the loan amount will be 2.5 times “payroll”, which in this case will mean net earnings. Then, up to 8 weeks worth of actual expenses can later be forgiven. It will make more sense with some examples…
Example 1: An Uber driver showed a Schedule C income of $36,000 last year, or $3,000 per month. This means that he can apply for a loan of 2.5 times that net income, or $7,500. Then, he can later show 8 weeks of actual expenses to be forgiven. These expenses include payment of the monthly income to self, utilities and interest on loans. Unless you routinely have rent or utilities specific to your business, it’s unlikely that you’ll be able to have anything more than the income forgiven. In this case, lease payments or interest on the car loan used for Uber-ing may be allowed and perhaps gas could be considered a utility expense – there is a lack of guidance. My guess is this information will be clarified at a later date when you apply for forgiveness. At the very least, 8 weeks of expenses, in this case would be $6,000 in earnings, would be forgiven. One would only have to repay the remaining $1,500 over 2 years at 1% after the 6 month deferment period.
Example 2: A Real Estate Agent showed a Schedule C income of $175,000 last year (income is capped at $100,000 per individual). So this equates to a net income of $8,333 per month (the max that would be allowed for a single person entity). This means that she can apply for a loan of 2.5 times that net income, or $20,000. Then, she can later show 8 weeks of actual expenses to be forgiven. These expenses include payment of the monthly income to self, utilities and interest on loans. Unless you routinely have rent or utilities specific to your business, it’s unlikely that you’ll be able to have anything more than the earnings forgiven. So 8 week of pay would be $16,666 in this case. One would only have to repay the remaining $3,333 over 2 years at 1% after the 6 month deferment period.
Confusing, isn’t it? This as I best currently understand how the program works. Again, I will update as more details are released and clarified.
April 7, 2020 – Updated statistics on when the PPP loan funds will run out…
Bank of America reported as of Monday morning that it had processed 177,000 applications for $32.6 billion in funds. This equates to $184,000 per loan. This is less than the per loan application data from Friday. This is good. This means the pool is less likely to run out of money.
Updating my stats from the post from yesterday (below), this means we are now tracking towards :
- 2.5 million x $184,000 = $460 billion +$40 billion (my estimate for independent contractors and self employed) = $500 billion
If these numbers hold true, this would mean there would be a $150 billion shortfall.
These PPP loans are first come, first serve. So please apply ASAP before this opportunity closes!
April 6, 2020 – When will the CARES Act money run out?
The Payroll Protection Program loan application process rolled out on Friday, April 3. Community banks were first to get theirs going. Bank of America was the first major bank to start the application program. Other banks implemented over the weekend while some banks still do not have their applications available.
According to Bank of America, they had 85,000 applications for $22.2 billion in loan by Friday at 5 pm. That’s an average of $261,000 per applicant. If those numbers hold up, that would mean the $349 billion will be able to provide loans for approximately 1.5 million small businesses.
According to the Small Business Administration, as of 2018, there were 30.2 million small businesses in the United States. However, according to the US Census Bureau statistics, there are 7.6 million companies that have employees. Companies with employees are able to claim the most money from the Payroll Protection Program (PPP). Based on the averages to date, this would mean there are currently only sufficient funds to provide for 1.5 million of the 7.6 million small businesses with employees, or 20% of the businesses with employees. And this would leave nothing for small businesses without employees.
According to a survey by the US Chamber of Commerce and Metlife, 25% of small businesses have already closed. And another 15%, which would bring the total to 40%, said they will likely need to close, at least temporarily, in the next 2 weeks. 20% of businesses getting funds does not seem like it would be nearly sufficient.
The number of application will be impacted based on how many businesses actually need help. Grocery stores, pharmacies, etc should not need to apply as they are likely seeing increased sales currently. So let’s assume 1/3 of businesses don’t need help. That would leave 2/3, or 5 million businesses with employees that do. If we assume that half of the companies that need help actually apply for help (this is the approximate conversion rate on mail-in rebates – so half the people don’t claim their free money), this would leave 2.5 million businesses that will apply as employers. Again, using the Bank of America day 1 averages, this means we would need 2.5 million x $261,000 = $652 billion. This doesn’t include the small businesses without employees.
Starting April 10, independent contractors and self employed individuals are able to apply for PPP Loans. According to the US Census statistics, there are 24.8 million small businesses without employees that make average revenue of $46,978. As a worst case, assume that all this revenue is income. Then these businesses would be able to claim about $9,800 each (2.5 months worth of their annual income). This could amount to $240 billion. But I don’t think all that revenue is profit. If we assume 50% is, then are we looking at a potential liability of $120 billion. If we use the same 2/3 need help and 50% of those that need help will actually apply, that widdles this portion of the liability down to $40 billion.
$652 billion + $40 billion = nearly $700 billion, or twice the current $349 billion allocation for the program. These numbers will vary dramatically based on the average loan size. So as more stats are available, the numbers will become more clear. If the average loan size were to drop to half, from $261,000 to $130,000, then there is a chance that there might be sufficient funds allocated. So keep a close eye on the average loans size as more press releases on the PPP loans become available.
Remember, this loan is first come, first serve. And although government officials have said that they will increase the the allocation if needed, this will require passing another law, which is not guaranteed.
Bottom line, I expect the funds to run out. So please apply ASAP before it is too late!
April 3, 2020 – What are the loan options for small businesses?
What are the loan types available for small businesses during the coronavirus pandemic?
There are essentially 2 loan types:
- Payroll Protection Plan (PPP), which are administered by local banks – SBA 7(a) loans.
- Economic Injury Disaster Loans (EIDL) which are loans directly from the Small Business Administration – SBA 7(b) Loans.
Who is eligible for these loans?
Any business with 500 employees or less. This includes sole proprietors, independent contractors and self-employed individuals.
Applicants must certify, in good faith, that the uncertainty of current economic conditions makes the loan necessary to support your business operations. The business must have been “substantially affected by COVID-19,” which is described as supply chain disruptions, staffing challenges, decrease in sales or customers, or shuttered businesses.
Your company must have been in operation on February 15, 2020 (January 31 for the EIDL loans).
Your company must have had employees for whom the borrower paid salaries and payroll taxes or paid independent contractors (as reported on a Form 1099-MISC).
What is the intent of these loans?
The government wants these loans to help businesses continue to operate during these unprecedented times. The major benefit incentive (loan forgiveness) is for businesses that keep their employees employed through June 30, 2020.
Loan Option 1:
Payroll Protection Plan (PPP) Loan information – SBA 7(a) Loans
Payroll Protection Plan (PPP) loans which are administered through local banks that do SBA loans. Contact your local banker for more details. And you do not need to work with your local bank, you can work with any bank that does SBA loans.
Here are some new resources (as of 3/30/2020) from the SBA on these loans:
How much can I borrow?
2.5 times the average payroll costs (defined below) for the previous 12 months (not more than $10 million)
Example: Company A’s monthly payroll costs are as follows: payroll & payroll taxes $80,000, health care $10,000, 401(k) of $4,000. Combined total of $94,000. So Company A would be eligible for a loan of $235,000 ($94k x 2.5).
Are Payments on the Loan Deferred?
Yes. There is no interest or payments due for the first 6 months.
Will the loans be forgiven?
A borrower is eligible to have its covered loan forgiven. The amount eligible to be forgiven is the sum of the following costs incurred and payments made during the eight-week period after the loan is originated:
- Payroll costs which are defined as:
- Compensation (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 employees
- For a sole proprietor (with or without employees) or independent contractor: wages, commissions, income, or net
earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
- Payments on any rent obligated under a leasing agreement in force before February 15, 2020
- Payments for utilities: electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020
Example: Company A’s monthly costs are as follows: payroll & payroll expenses $80,000, health care $10,000, 401(k) of $4,000, rent of $5,000, and utilities of $1,000. They would be eligible for 8 weeks of these costs, or approximately $200,000 in this example ($80k + $10k + $4k + $5k + $1k = $100,000 per month x 2 = $200,000 for 8 weeks) would be eligible to be forgiven.
How much of the eligible amount will be forgiven?
The amount of loan forgiveness is reduced, but not increased, by multiplying the forgivable amount by the quotient (expressed as a percentage) obtained by dividing the average number of full-time equivalent employees per month employed by the borrower during the eight-week period after the covered loan is originated by:
- the average number of full-time equivalent employees per month employed by the borrower during the period beginning on February 15, 2019 and ending on June 30, 2019, or
- the average number of full-time equivalent employees per month employed by the borrower during the period beginning on January 1, 2020 and ending on February 29, 2020.
Example: Company A had 20 employees for the first 2 months of the year. By June 30, the company had an 8 week average of 18 employees. Therefore, the amount forgiven would be 90% (18/20) of the $200,000 above, or $180,000.
Since the original loan amount was $235,000, $180,000 will be forgiven.
Then the balance, $55,000, will have to be repaid by the borrower to the bank.
Amounts so forgiven are excluded from gross income for federal income tax purposes.
What is the loan rate and term?
Interest rate shall be 1.0%
Maturity of 2 years after 6 month deferment.
Example: The $55,000 would have a payment of $2,316 a month (assuming 1.0% rate and 2 year amortization) with the first payment due after the 6 month grace period.
What is the recourse on these loans?
No personal guarantees or collateral are required for the covered loan. In addition, SBA has no recourse against any individual shareholder, member or partner of an eligible recipient of a covered loan for nonpayment of any covered loan, except to the extent that the shareholder, member or partner uses the covered loan proceeds for a purpose not authorized.
When can I apply?
The standard operating procedures for the PPP loans are being written now by the SBA. These are expected to be completed by Friday, April 3. Lenders are waiting on guidance before they start lending through PPP.
You must apply for these loans by June 30, 2020.
How quickly can I expect approvals and receipt of funds?
The expectation is that loans will be approved within about 15 minutes of application. And the loans will be funded in a matter of days.
When can I apply?
Starting April 3, 2020, small businesses and sole proprietors can apply for and receive PPP loans through existing SBA lenders.
Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive PPP loans through existing SBA lenders.
Loan Option 2:
Economic Injury Disaster Loans (EIDL) – SBA 7(b) Loans
EIDL loans are administered directly by the SBA. You apply directly on the SBA’s website.
How much can I borrow?
Up to $2 million.
Are Payments on the Loan Deferred?
Yes. No interest or payments are due for the first year of the loan.
Will the loans be forgiven?
No, the EIDL loans will not be forgiven.
What is the loan rate and term?
3.75% rate for for-profit businesses (2.75% for non-profits)
30 year repayment plan
Do I have to give a personal guarantee?
Loans less than $200,000 do not require a personal guarantee
Can I pay off the loan early?
Yes. There is no prepayment penalty. So you can pay off the loan in part or in full at any time without penalty.
When can I apply?
How quickly can I expect approval and get money?
It is expected to take 3 weeks or more to process the loan application.
Will these EIDL funds run out?
Congress has appropriated $50 billion for EIDL loans. In my opinion, demand is likely going to exceed this amount.
What if I need funds faster than this?
The CARES Act provides the opportunity to get up to a $10,000 Advance on an Economic Injury Disaster Loan (EIDL). This Advance may be available even if your EIDL application was declined or is still pending, and will be forgiven. You will receive these funds within 3 days.
If you wish to apply for the Advance on your EIDL, please visit the This Link on the SBA Website as soon as possible to fill out a new, streamlined application. In order to qualify for the Advance, you need to submit this new application even if you previously submitted an EIDL application. Applying for the Advance will not impact the status or slow your existing application. (This application will take you less than 10 minutes if you have access to your company books and all partner’s personal information)
Can I apply for both loans?
You also may be able to request an EIDL (in addition to a PPP loan) so long as the loan proceeds are not used to cover the same expenses.
Where can I get more info on these loan options?
March 30, 2020 – The CARES Act was signed into law. Now what?
This law is very complex and addresses a multitude of different issues. I am simply trying to extract the information as it relates to small businesses navigating these unprecedented times. There are certainly many rules and regulations. So please investigate and confirm information on your own.
We are all in this together! Let’s get our economy, our businesses and our lives back on track!
About Chris Ehrenfeld
Chris is the founder and President of Bold Companies in Chapel Hill (Chatham County), North Carolina. Bold Companies is a vertically integrated group of real estate companies focused on real estate opportunities in the Triangle Region of NC. Bold Companies do real estate development, residential general brokerage, commercial real estate brokerage, custom home new construction and renovations. Bold Companies include Bold Construction, Bold Real Estate, Bold Commercial Real Estate and Bold Development Group.