Questions continue to pour in as the federal government prepares to open applications for the new Paycheck Protection Program tomorrow.
In a webinar hosted by Business Report this morning, U.S. Rep. Garret Graves and LABI President Stephen Waguespack answered some of the most pressing questions about which businesses qualify and how to apply.
More guidance is expected in the coming days, but both Graves and Wageuspack strongly encouraged business owners to start filling out the paperwork now with their bank and CPA to get into the programs early.
A video recording of the full webinar is online here.
Here are some of the paraphrased answers provided by Graves and Waguespack during this morning’s webinar:
Q: How does the PPP differ from the economic injury disaster loans (EIDL)?
Both: The PPP loan is a new product that limits the amount of borrowing to roughly 2.5 times your monthly payroll/benefits. The loan has a 0.5% interest rate with 2-year maturity, but if you spend 75% of PPE on payroll costs, that loan can be converted into a grant.
The EIDL has a $10 million cap that’s intended to be a quick injection of cash and has a larger eligibility of use. Interest rates for that program are 3.75% for businesses and 2.75% for nonprofits, but it is not forgivable.
Q: How are monthly payroll costs calculated for PPP?
Graves: For an established business, it’s the average of your payroll from April 2019 through March 2020. For new businesses, it’s the average of January and February payroll. That includes benefits, but there’s no guidance yet on if more expansive operating costs will be included.
Waguespack: The U.S. Chambers of Commerce has a document detailing what’s excluded, that includes compensation over $100,000, and payroll and income taxes.
Q: Can you file for both?
Graves: Absolutely. Where it gets complicated is if you get an EIDL loan, and if you use that money for payroll, mortgage or rent, that may prohibit you from getting forgiveness for PPP. If you want loan forgiveness, focus on payroll costs with PPP, and focus on other costs with EIDL loan.
Q: When will the loan portal officially open?
Graves: It will open tomorrow, but I have not seen a specific time. That may be in the guidance issued later today.
Q: How quickly does the money start getting dispersed?
Graves: The intent is this money is available within days, not within weeks or months. There’s not a specific amount of time that I’ve seen released.
Waguespack: The eight-week clock begins when the money is in hand if you want to be eligible to convert the loan into a grant.
Q: Are the banking industry and SBA prepared to roll this out?
Waguespack: With EIDL on the SBA website, we are hearing frustration in dealing with that and a backlog. But on the banker’s side, this is a new program, kicking off for the first time tomorrow. I would expect there to be some growing pains on that. There is apprehension on the front end going in, but I expect it will become more second nature as we run through the process.
Q: What do you say to banks that are wary of participating?
Waguespack: The treasury did come in a little more narrow on return rates. What we’re hearing from banks, despite that, is they’re absolutely willing to step up and do what’s best for their community.
Q: Are funds available for non-profits?
Waguespack: Yes, but mostly limited to 501(c)3s. Follow CPA advice.
Q: Can lobbying firms participate?
Graves: Not on the EIDL, but they’re likely eligible for PPP.
Q: Can PPP be used to pay 1099 contractors?
Both: A company can pay their 1099 contractors with PPP funds, but that will not be considered part of the payroll costs that can be forgiven. Contractors can apply for PPP independently.
Q: How do the employee retention credits work?
Graves: There are all sorts of incentives in the law designed to help keep employees on the payroll. The credit in the CARES Act allows for a payroll tax credit of up to $5,000 if you paid $10,000 in payroll (including health care) to retain an employee. There are also provisions to defer payment of payroll taxes until 2021 or 2022.
Waguespack: There’s also Form 7200 to get an advance payment from the IRS to qualify.
Editor’s note: Further clarification was received after the webinar that companies cannot use both the PPP and the employee retention tax credit.
Q: What is available for midsize companies that exceed the 500 employee cap?
Graves: $425 billion has been allocated for companies between 500 and 10,000 employees to get capital. So far, eight lending institutions have been approved to participate in the loans, with low and zero interest.
Waguespack: The interest rates are capped at no more than 2%, but there are some limitations like prohibiting stock buybacks. The state’s new lending program led by LED also has a $50 million total loan pool for companies with less than 100 employees. Those loans are being offered for up to $100,000, with 5-year terms, interest capped at 3.5% and a 6-month payment deferral. That program does not conflict with any of the federal programs.
Q: What are the expanded unemployment offerings?
Graves: This one is really generous, in fact maybe too generous. The average weekly unemployment payment in Louisiana is $247. This adds a $600/ week federal supplements, and provides an additional 13 weeks of eligibility, and expands eligibility to gig workers, independent contractors, self-employed workers, non-profits, and state and local government employees.
Waguespack: Employers do have the right to tell the workforce commission when they’ve offered continued employment, but an employee has chosen not to return to work and seek out unemployment benefits.
Q: Are agents prohibited from being paid by clients for the PPE?
Graves: Guidance from the Treasury says agents are able to collect a certain percentage of the bank’s servicing fees, and prohibits an agent from collecting funds from the applicant. More guidance is expected today.