COVID-19 business resources: Navigating the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL)

COVID-19 business resources: Navigating the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL)

Hello everyone,

With the deadline for the Paycheck Protection Program (PPP) loan application just around the corner (August 8), small businesses across the United States are in a race against the clock to apply for the loan.

As you might know, the Economic Injury Disaster Loans (EIDL) and the forgivable PPP loans are part of the US Small Business Administration's (SBA) economic assistance programs to businesses impacted by the COVID-19 pandemic. Over the last few months, we have written in detail about the loans in our blog. 

In addition to this, the Zoho team has also been hosting a series of webinars with finance experts from the New York based accounting firm, Presti and Naegle, to demystify the loan application process and explain loan accounting in your accounting software. In our latest webinar on Navigating the PPP and EIDL on July 30, we explained the current loan application process, PPP loan forgiveness and its tax consequences, and IRS tax issues related to COVID-19.

In this article, we have attempted to consolidated the information that we have provided in our webinars and compiled a list of frequently asked question from the loan applicants. We hope you find this useful.

PPP and EIDL - What are the differences?


EIDL
PPP

Originator

 SBA Direct
 SBA approved bank or credit union
Eligibility

 > Small Businesses with less than 500 Employees
 > Non-Profits
 > Sole Props or independent contractors

 > Small Businesses with less than 500 Employees
 > Non-Profits
 > Sole Props or independent contractors
Terms / Interest

 > Up to 30 years
 > 3.75% interest

 > 2 year maturity
 > 1% interest
First loan PMT
 > 12 months
 
 > 6 months

Forgivable
 
 NO

 
 YES



Basics of Paycheck Protection Loan (PPP)
  1. Who can apply?
    > All entities can apply (LLC, Sole Prop, S-Corp, C-Corp)
  2. When is the loan application deadline?
    > The loan application was originally closed on June 30th, but was later extended to August 8, 2020.
  3. How is the loan calculated?
    > It is 2.5 times your average monthly payroll cost.
  4. How is the loan forgiven?
    > Loan forgiveness is based on payroll costs for the 24 weeks from receiving the loan plus rent, utilities and loan interest paid.
    > Essentially 100% of loans could be forgiven.
  5. What are the conditions for loan forgiveness
    ‌> Costs used to forgive the PPP loan will not be deductible (There are talks of that possibly changing).
    > Loan has a ‌1% interest on the portion not forgiven and a 5 year payback period.
    > Businesses need to apply through SBA certified bank.
Basics of Economic Injury Disaster Loan
  1. Will this loan be forgiven?
    > No, it won't be forgiven.
  2. How is the loan calculated?
    > It is calculated at 3.75% interest for a 30 year amortization period.
    > No payments for the first 12 months from funding.
    > Interest starts to accrue the day a business receives the loan.
  3. When is the loan application deadline?
    > Applications were closed on June 15th. However they are open again now. You can apply through SBA directly.

FAQs from PPP loan applicants in our webinars
  1. What are approved expenses if you want the PPP loan forgiven?
    > Payroll costs.
    > Salaries, wages, commissions, or tips ($100,000 max per employee—gross earnings)
    > Employee benefits (e.g., vacation, sick leave, health care benefits, retirement benefits)
    > State and local taxes
    > Interest on mortgages (for loans incurred before February 15, 2020)
    > Rent (under lease agreements pre-February 15, 2020)
    > Utilities (if service began before February 15, 2020)
  2. If a business were bought and making seller note payments, can the PPP loan be used to pay these seller note payments?
    > That would not be considered eligible. 
  3. Is the PPP loan, if forgiven, considered taxable income?
    > Yes, whatever portion of the PPP loan that is forgiven is considered taxable income.
  4. I was told the bank had to approve the loan documents and then the SBA had another 90 days to approve the loan?
    > Currently only banks are reviewing loans.
  5. If I have a schedule C with no employees. What can I use the PPP loan for and would it be forgiven?
    > With schedule C you are limited in the loan amount but it is all forgivable as you just pay yourself and other approved expenses.
  6. What do I need to do to get my loan forgiven?
    > Fill out the PPP Loan Forgiveness Application. As of now the loan application was revised on June 16, 2020 and is in form number 3245-0407.
    > No deadline has been established yet.
  7. If you received the initial PPP loan which was enough money to help out for 8 weeks, can you get more money to help out for a total of 24 weeks of payroll?
    > No, you can only apply for one PPP loan and that application would be for 10 weeks and not eight.  2.5 times your average payroll is ten weeks.
  8. Can I still receive unemployment when i get the PPP loan?
    > No, you cannot.
  9. What happens if you do get a second PPP loan and try to give it back?
    > Do not spend this money, it was probably approved accidentally. Speak to your bank for guidance.
  10. Can a person who owns multiple businesses apply for a PPP loan per business?
    > Yes, they can do this.
  11. What if a company was organized in the middle of 2019 and was not in business in Jan 2019. How do you calculate the average monthly income
    > Use the bottom line profit for the period you have and annualized that for the application.
  12. Can you discuss FTE calculations as they relate to part time people, etc and how the headcount still comes into play with the extended forgiveness period? 
    > The current law looks at average FTE during the covered period vs. the average FTE during the "Reference Period".  You have three options for the "Reference Period".  2/15-6/30/19, 1/1-2/29/20, or a consecutive 12 week period between 5/1-9/15/19. So, if you have used up your PPP funds and are going to need to lay people off, you probably want to consider an early filing as your average FTE will go down in the covered period if you lay people off. Now, there are three chances to get out of the FTE calculation. To see those in detail, please examine the PPP forgiveness form application page 3 (lower half).
  13. What if an employee chooses to cut their availability or they do not want to come back and work after a job is offered?
    > If you offer a job and it is refused you can remove them from the FTE calculation. 


FAQs from EIDL loan applicants in our webinars:
  1. What is the EIDL Advance?
    > EIDL advance is often called the grant.  It is forgivable but currently that amount is deducted from the forgiveness amount of PPP.
    > If all you have is the EIDL grant and loan, the grant is forgivable.
  2. Is the EIDL Advance/grant taxable income?
    > The grant is not taxable
  3. If no payments needed to EIDL for 12 months when does interest start to accrue?
    > The date of the loan is received

Please note that all the information provided here is as of August 4, 2020. The Congress is talking about changing many of the rules mentioned above and we will update this list as that information becomes available.  

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