SBA PPP loans have been getting all the press.  However small businesses looking for an unforgiven traditional loan have two other potentially favorable SBA loan options available at the moment, courtesy of the Small Business Administration – an SBA 7(a) loan and an SBA 504 loan.  The basics of the 7(a) loan are that it can be used to, purchase equipment, acquire or start a business or obtain working capital. They have a maximum loan amount of $5 million, and have lower fees than 504 loans, which have payouts ranging from $125,000 to $20 million but require a 10% down payment by the business owner. The intention of 504 loans is for businesses to finance owner occupied commercial real estate or large equipment purchases. To qualify for these programs, a business must have fewer than 500 employees and generally less than $7.5 million in revenue. What are the positives? SBA loans usually involve significant fees and additional information/disclosure requests. However, as part of the CARES Act, the SBA is agreeing to waive those fees and pay several months of payments for loans approved through October 1, 2021. So, that is a nice benefit for small business owners.  Even if business owners don’t have all the equity conventional financing programs may require, they likely can qualify here, as long as they meet the basic requirements and have a good business plan. The biggest positive with these loans, however, is that the SBA is authorized to pay three months of principal (was 6 months but changed as of February 16, 2021 and could change again), interest and any associated fees that borrowers owe for all 7(a), 504 and microloans reported in regular servicing status (excluding PPP loans). Borrowers need not apply for this assistance. Up to $9,000/month in payment for a potential total of $27,000 per loan can be covered, although the SBA reserves the right to decline requests due to a lack of funds. It’s also important to note that these are payments on the company’s behalf, not deferrals. That type of money savings obviously can be huge for a start-up company or any small business. Finally, there is a potential for longer amortizations resulting in additional operating cash flow and flexibility for owners during these uncertain times.  What are the negatives? In terms of drawbacks, loan recipients are likely going to have to deal with a significant amount of red tape or additional requirements and disclosures that will require a personal guarantee by all owners. Additionally, there are loan maximums of $5 million. The loan limits may be a little less than what is available through conventional financing or for large businesses.  What can you do today? For starters, we recommend that you get the process started. Awareness and proactive planning are critical parts of this process. You should be prepared to discuss your business plan and how your business will succeed and grow post-COVID-19. If you’re potentially interested in refinancing, check on any prepayment matters that might be involved. If you need to involve additional decision-makers at your company, bring them into the loop as soon as possible. Be sure to discuss the loan opportunities with your banker. And of course feel free to reach out to members of the Baker Tilly Advantage team if you’re unsure if these opportunities are right for you. We can advise on the pros and cons of each loan type. We can analyze along with management your specific situation to help you make the best possible choice. Our Value Architects are here to help you maximize your opportunities today, for tomorrow.

SBA PPP loans have been getting all the press.  However small businesses looking for an unforgiven traditional loan have two other potentially favorable SBA loan options available at the moment, courtesy of the Small Business Administration – an SBA 7(a) loan and an SBA 504 loan. 

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Video Through the passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, additional Paycheck Protection Program loans will be available to qualifying organizations. View our on-demand webinar for an overview of the eligibility requirements as well as our PPP loan specialists’ insights on what you should be doing to prepare for a first time or second draw loan application. Additionally, Baker Tilly is working with CPA.com and the AICPA on an automated PPP loan application tool. This SOC-secured platform can expedite loan processing. The presenters will also provide participants with information about this tool and recommendations for your next steps regardless of your lender choice.

View our on-demand webinar for an overview of the eligibility requirements as well as our PPP loan specialists’ insights on what you should be doing to prepare for a first time or second draw loan application.

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PPP2 is here. What does that mean for you?

The small business owner's guide to the CARES Act For borrowers with a straightforward PPP loan compliance environment, we have developed a self-service, Excel-based loan forgiveness calculator. But if your situation is more complex, or you have limited staffing available to support the loan requirements, we can provide an automated approach to forecasting eligible spend, monitoring specific payroll exceptions, and managing compliance with final documentation requirements.
Business owners have been strongly affected by COVID-19 and are left with many questions. The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress are intended to assist them in overcoming the current challenges. Baker Tilly developed the below FAQs to guide business owners as well as certain not-for-profits and other employers during this uncertain time.  NOTICE: Baker Tilly is providing updated information as it becomes available. Due to the nature of the emerging and rapidly evolving information from government and non-government relief programs, some requirements and offerings may change before they are listed here. Please consult with your loan officer for the most current details. Paycheck Protection Program (PPP) loans The program provides cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans are forgiven up to the full principal amount of qualifying loans guaranteed under the PPP, which would help your workers remain employed, as well as help your small businesses and our economy to snap back quicker after the crisis.  PPP has a host of attractive features, such as forgiveness of up to eight weeks of payroll based on employee retention and salary levels, no SBA fees and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between Feb. 15, 2020, and June 30, 2020. This program would be retroactive to Feb. 15, 2020, to help bring workers who may have already been laid off back onto payrolls.  View the PPP application Expand the section(s) below to view the FAQ.
Baker Tilly COVID-19 support During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Coronavirus Aid, Relief, and Economic Security Act – Baker Tilly specialists answer all your questions.

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Paycheck Protection Program (PPP) FAQ

Video On Friday, May 15, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) loan forgiveness application with some new rules and guidance for business owners and not-for-profits. They must complete this form to apply for forgiveness of their PPP loan. Watch our complimentary on-demand webinar for an overview of the application form along with some insights and takeaways from our PPP loan specialists. They discuss questions yet to be answered by the SBA and what further guidance borrowers can hope for.  Topics also include: The standard 8-week covered period and the new alternative covered period The treatment of non-payroll costs The FTE reduction and safe harbor The salary/wage reduction and safe harbor
Click here to read more about PPP forgiveness Request the PPP good faith certification considerations and documentation template Baker Tilly has a comprehensive set of solutions available to assist qualifying businesses that have received, or will receive, loan proceeds that may be eligible for forgiveness under the Paycheck Protection Program.  FAQ on the CARES Act Baker Tilly specialists understand your industry and how an unplanned event such as the COVID-19 outbreak can affect your organization, employees, customers and suppliers.  For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

View our on-demand webinar for a discussion on the newly released PPP loan forgiveness application with some new rules and guidance for business owners and not-for-profits. Our specialists give an overview of the application form along with some insights and takeaways. They discuss questions yet to be answered by the SBA and what further guidance borrowers can hope for.

PPP loan forgiveness application released. What now?

Video The Small Business Administration announced it extended the deadline to May 14, 2020, for borrowers under the Paycheck Protection Program (PPP) to return loans they may not be able to certify are necessary for their ongoing operations in uncertain economic conditions. Included in the PPP is a provision that requires borrowers make a good faith certification that their loan is necessary to support their ongoing operations in the wake of the “uncertainty of current economic conditions.” The statutory language would appear to have broad application given the current economic climate; however, eligibility is complicated because the Coronavirus Aid, Relief, and Economic Security (CARES) Act offers few guidelines for the loan program. Watch our complimentary on-demand webinar for an in-depth review of the good faith certifications as well as our recommendations of specific considerations to be made and documentation to be prepared for each of them.
Request the PPP good faith certification considerations and documentation template Baker Tilly has a comprehensive set of solutions available to assist qualifying businesses that have received, or will receive, loan proceeds that may be eligible for forgiveness under the Paycheck Protection Program.  FAQ on the CARES Act Baker Tilly specialists understand your industry and how an unplanned event such as the COVID-19 outbreak can affect your organization, employees, customers and suppliers.  For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

View our on-demand webinar for a discussion on the extended deadline for borrowers under the Paycheck Protection Program (PPP) to return loans they may not be able to certify are necessary for their ongoing operations in uncertain economic conditions. Our specialists give an in-depth review of the good faith certifications as well as recommendations of specific considerations to be made and documentation to be prepared for each of them.

PPP loans: return the funds or seek forgiveness?

Baker Tilly has a comprehensive set of solutions available to assist qualifying businesses that have received, or will receive, loan proceeds that may be eligible for forgiveness under the Paycheck Protection Program. 
Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), provided funding to the Small Business Administration (SBA) totaling $349 billion for loans available to qualifying small businesses. These Paycheck Protection Program (PPP) loans have several favorable characteristics, including a low interest rate, no origination fees, no collateral requirements and the possibility of forgiveness. Since the program launched on April 3, overwhelming demand quickly depleted available funding and prompted Congress to add an additional $310 billion as part of the Paycheck Protection Program and Health Care Enhancement Act, enacted on April 24. Not surprisingly, questions about this novel loan program abound. Primary among them are: (1) how does a potential qualifying applicant (or current recipient) assess or demonstrate “economic need”; and (2) how does the PPP loan recipient consider qualified expenses when seeking forgiveness? Determining economic need Initial regulations issued by the SBA on April 15 require borrowers to certify in “good faith” on the PPP loan application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” The borrower also needs to certify that the funds “will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.” Apparently recognizing the ambiguity of the required certification, the Treasury Department updated its PPP loan FAQ on April 23 to provide some clarity, stating that:  “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.” After the PPP program launched, but before the regulations and guidance were issued, some public companies such as Ruth’s Chris Steak House, Shake Shack and Potbelly Sandwich Shop applied for and received PPP loans. The combination of public backlash, high-profile opinion, and the SBA’s later clarification of the law led to these three companies and others returning their PPP loan funds.  At least one bank recently sent an email to customers noting that businesses that do not adhere to the SBA’s guidelines may face criminal investigations as described in the PPP loan application and the SBA’s implementing regulations. Any borrower that applied for and received a PPP loan prior to the issuance of the regulation and repays the loan in full by May 7, 2020, however, will be deemed by the SBA to have made the required certification in good faith. Information relevant to current and prospective PPP borrowers Small businesses that have received or are considering a PPP loan face a challenging dilemma: how to make the required certification with ambiguous and inconsistent information, and significant residual uncertainty regarding how the COVID-19 crisis may affect operations. It is unclear how long any business will be closed down, operate at less than full capacity, or experience unsustainable operational inefficiencies that bear directly on employment levels. Also, will the SBA call into question the legitimacy of a certification if a business has received a PPP loan that it has not yet used and may or may not need before May 7, but wishes to retain because it does not know whether future events will affect the viability of its operations? Under the SBA’s interim regulations, a business can only receive one PPP loan and, accordingly, the SBA encourages borrowers to “consider applying for the maximum loan amount.” So, if loan funds already disbursed, but not yet needed, are returned by May 7, a business cannot later reapply for a PPP loan even if an economic need emerges. We encourage the SBA and Treasury Department to resolve this uncertainty. Unless the borrower can make a case, pursuant to its good faith certification that it needs a PPP loan to pay employees that it otherwise would furlough or lay off, and has no other source of funds for these expenses that “is not significantly detrimental to the business,” it runs the risk of further questioning by the SBA. To protect themselves from significant risks, we encourage PPP loan applicants and recipients to speak with their accounting and legal advisors about making disclosures to stakeholders regarding their economic need to keep employees employed, and the business in business. Identifying costs and expenses for PPP loan forgiveness A PPP borrower is eligible for loan forgiveness equal to the amount spent by the borrower on payroll costs, interest payment on any mortgage, rent and utilities, during an eight-week period after the origination date of the loan. Borrowers have expressed concern about how to determine the specific costs and expenses to be considered in determining potential forgiveness of the loans. The April 15 SBA interim regulations require borrowers to provide documentation on payroll costs, covered mortgage interest payments, covered rent payments and covered utilities. Although the SBA has not yet issued regulations governing PPP loan forgiveness, it indicated that forgiveness will be based on the sum of these documented costs, as adjusted for changes in the number of employees or the amount of compensation provided to employees in comparison with the identified base period. Information relevant to PPP borrowers Businesses that receive PPP funds should record the loan and continue recording payroll and operating expenses in accordance with generally accepted accounting principles (GAAP). Potential forgiveness of some or all of the PPP loan is currently undefined and, thus, remains an uncertain future event. Expect to produce accounting records necessary to demonstrate eligibility and compliance with the program, including the statutory forgiveness certification that “the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments.” Act quickly and be prepared! Initial funding for PPP loans was exhausted quickly. The new law provides more funds for loans and also makes it easier for smaller banks, credit unions and minority and community development financial institutions to process these loans. Businesses interested in tapping into this new round of funding should make sure they have the right documentation ready before approaching a lender. Give us a call – we can help!
Baker Tilly COVID-19 support Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Small businesses have many questions about the Paycheck Protection Program (PPP). Primary among them are: (1) how does a potential qualifying applicant (or current recipient) assess or demonstrate “economic need”; and (2) how does the PPP loan recipient consider qualified expenses when seeking forgiveness?

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PPP loans: important economic need and accounting considerations

Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo, Pat Balthazor and Michael Wronsky On April 14, 2020, the Small Business Administration released much-anticipated guidance on how self-employed individuals as well as partners in partnerships can participate in the Paycheck Protection Program enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  Background                                                                                                Paycheck Protection Program (PPP) loans are small business loans issued by private lenders and fully guaranteed by the federal government. The principal purpose of these loans is to help employers retain their employees. The loans are intended to cover eight weeks of payroll expenses, applied for any date between Feb. 15, 2020, and June 30, 2020. Under the PPP, an eligible recipient includes: Small business concerns (as defined under the Small Business Act), plus  Other business concerns as long as such business concern employs not more than the greater of:
– 500 employees; or 
– If applicable, the size standard in number of employees established by the SBA for the industry in which business concern operates Others eligible to receive a covered loan include: (a) individuals who operate as sole proprietors, independent contractors or as self-employed persons; and (b) any business concern that employs not more than 500 employees per business location and that is assigned a North American Industry Classification System (NAICS) code beginning with 72 (Accommodation and Food Services). Key takeaways Partners in a partnership, solely in their capacity as partners, cannot qualify for the PPP loan program. Qualification for the program is determined solely at the partnership level. Up to $100,000 (annualized) in self-employment income of a “general active partner” can be included in payroll costs in the partnership’s loan application.  Individual self-employed Schedule C filers are eligible for PPP loans if they were in business on Feb. 15, 2020, their principal place of business is in the U.S., and they filed or will file a Form 1040 Schedule C for 2019. Additional guidance will be issued for those individuals with self-employment income who: (i) were not in operation in 2019 but who were in operation on Feb. 15, 2020; and (ii) will file a Form 1040 Schedule C for 2020.  Individuals will need to have a completed 2019 Schedule C (whether they have filed their Form 1040 or not) to comply with the loan requirements, determine eligible uses of the loan and determine the owner’s eligible compensation. Application to partners Partners in a partnership may not submit a separate application for themselves as self-employed individuals. The self-employment income of general active partners may be reported as a payroll cost (subject to a $100,000 limitation) on the partnership’s PPP loan application. A variety of reasons for prohibiting partners from individually applying for loans on their partnership income is given in the guidance, including: (1) allowing as many applicants as possible to apply by the June 30, 2020, deadline; (2) faster processing of applications; (3) many of the expenses for which the loan is provided are incurred at the partnership level; and (4) avoiding confusion regarding which entity, the partner or the partnership, applies for allocating partner and LLC member income. The guidance does not provide a definition of a “general active partner” – presumably, it is a partner whose income is subject to self-employment taxes. The guidance also does not mention whether partners that receive guaranteed payments for services qualify as self-employment income for purposes of computing the partnership’s payroll. Unless clarified otherwise in additional guidance, we interpret guaranteed payments for services as being self-employment income that would qualify when determining the partnership’s payroll costs. We also believe that Line 1 of Schedule K-1 (ordinary business income (loss)) can be included as payroll costs (limited to a total of $100,000 per partner) as long as that income is subject to self-employment taxes. Eligibility rules for individuals filing Schedule C, Form 1040 Taxpayers are eligible if they meet the following requirements: In operation on Feb. 15, 2020 An individual with self-employment income (such as an independent contractor or a sole proprietor) With a principal place of residence is in the United States Have filed or will file a Form 1040 Schedule C for 2019 Additional guidance will be issued for those individuals with self-employment income who; (i) were not in operation in 2019 but who were in operation on Feb. 15, 2020; and (ii) will file a Form 1040 Schedule C for 2020. The guidance points out that participation in the PPP loan program may affect eligibility to receive state unemployment compensation and to participate in other CARES Act programs, such as the CARES Act employee retention credits. Calculation of maximum amounts that can be borrowed The maximum amount that can be borrowed depends on whether the borrower has employees.  Use of PPP loans Proceeds of PPP loans can be used for: Owner compensation replacement, calculated based on 2019 net profit  Employee payroll costs (only U.S. resident employees) Certain mortgage interest, rent and utility payments. For these expenditures to qualify, they must have been a deductible expense on the 2019 Schedule C Interest payments on any other debt obligations that were incurred before Feb. 15, 2020 (such amounts are not eligible for PPP loan forgiveness) Refinancing certain Economic Injury Disaster Loan (EIDL) program loans It is worth noting that the use of the loan proceeds is limited in some instances to expenditures for which the borrower claimed or could have claimed a deductible expense in 2019. For example, 2020 rent and utility payments on leased property that was not leased in 2019 and for which the borrower had no expenditures in 2019 is not an eligible use of the loan proceeds. The reason is that this is consistent with the intent of the Act, which is “to support the ongoing operations” of the borrower and not business expansion. Although the Act makes businesses eligible if they were in operation on Feb. 15, 2020, individuals will need to rely on their 2019 Form 1040 Schedule C, which provides verifiable documentation on expenses between Jan. 1, 2019, and Dec. 31, 2019.  At least 75% of the loan proceeds must be used for payroll costs. Forgiveness of PPP loans The amount forgiven can be up to the full amount of the principal plus accrued interest. Additional guidance explaining the mechanics of the loan forgiveness component is expected. There are many unanswered questions as to the computation, such as what happens if 75% of the loan proceeds do not end up being spent to cover payroll costs. Does that mean the entire amount of the loan cannot be forgiven? The SBA and the Treasury Department are expected to issue further guidance concerning the loan forgiveness program.  
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The Small Business Administration released guidance to help self-employed individuals and partners in partnerships participate in the CARES Act’s Paycheck Protection Program (PPP).

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As the number of COVID-19 cases continues to climb, the multifamily housing industry faces a great deal of uncertainty. Panelists at a Baker Tilly webinar discussed the impact that COVID-19 is having on multifamily housing and specifically on development, lending, due diligence, and tax and advisory issues.
Baker Tilly COVID-19 support During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. Contact our COVID-19 support team For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Panelists at a Baker Tilly webinar discussed the impact that COVID-19 is having on multifamily housing and specifically on development, lending, due diligence, and tax and advisory issues.

Multifamily housing industry responds to pandemic with focus on essentials, looking to the future

video Business owners have been strongly affected by COVID-19 and are left with many questions. The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act are intended to assist them in overcoming the current challenges. When implemented, there will be many new resources available for small businesses, as well as certain not-for-profits and other employers. Watch our complimentary on-demand webinar for a discussion that explores the major programs and initiatives that are available from the Small Business Administration (SBA). Our specialists are actively monitoring these changes and exploring the following: Paycheck Protection Program (PPP) Emergency EIDL Grants Disaster loan expansion Qualifying entities Maximum and forgivable loan calculation 13-week cash flow Next steps
For borrowers with a straightforward PPP loan compliance environment, we have developed a self-service, Excel-based loan forgiveness calculator. But if your situation is more complex, or you have limited staffing available to support the loan requirements, we can provide an automated approach to forecasting eligible spend, monitoring specific payroll exceptions, and managing compliance with final documentation requirements. Get started with forgiveness application Learn more about cash flow and its importance during uncertain times > FAQ  on the CARES Act > Resource center Baker Tilly specialists understand your industry and how an unplanned event such as the COVID-19 outbreak can affect your organization, employees, customers and suppliers.  For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

In this on-demand webinar, Baker Tilly shows how the CARES Act is intended to assist small business owners in overcoming current challenges related to COVID-19.

CARES Act: a guide for small businesses and not-for-profits

Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo, Pat Balthazor Beginning Friday, April 3, 2020, the Small Business Administration (SBA) opened the Paycheck Protection Program (PPP) as authorized in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. On Thursday, April 2, 2020, the SBA released regulations explaining the process that businesses affected by COVID-19 would need to follow in order to qualify and apply for relief. While employers can begin applying for PPP loans immediately, it is our understanding independent contractors will not be able to apply before April 10, 2020. Additional guidance is expected from the SBA and the Treasury Department on independent contractors looking to use the loan program. Key takeaways =Payroll costs do not include:
 – Compensation for employees outside the U.S.
 – The compensation of an employee in excess of $100,000, prorated as necessary (while there is drafting tension within the statute, we believe the cap pertains to all compensation, not just wages)
 – Imposed or withheld individual federal employment taxes between Feb. 15, 2020, and June 30, 2020, including the employee’s and the employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
 – Qualified sick and family leave wages for which a Families First Coronavirus Response Act (FFCRA) credit is allowed Independent contractor payments do not count as payroll costs for the employer, as they are eligible for their own PPP. Borrowers who received a loan from the SBA Economic Injury Disaster Loan Program (EIDL) earlier in 2020 can use the proceeds of the PPP loan to refinance the EIDL loan. If the previous EIDL loan was used for payroll costs, a new PPP loan must be used to refinance the EIDL loan. The SBA intends to promptly issue additional guidance with regard to the applicability of affiliation rules to PPP loans. At least 75% of the loan proceeds must be attributable to payroll costs, and not more than 25% of any loan forgiveness amount may be attributable to nonpayroll costs. Background A PPP loan is a small business loan issued by private lenders and fully guaranteed by the federal government with the principal purpose of helping employers retain their employees. The loans are intended to cover eight weeks of payroll expenses, applied to any payroll period between Feb. 15, 2020, and June 30, 2020. Under the PPP, an eligible recipient includes: Small business concerns (as defined under the Small Business Act), plus Other business concerns as long as such business concern employs not more than the greater of:
 – 500 employees; or
 – If applicable, the size standard in number of employees established by the Small Business Act for the industry in which business concern operates

Others eligible to receive a covered loan include: (a) individuals who operate as sole proprietors, independent contractors or as self-employed persons; and (b) any business concern that employs not more than 500 employees per business location and that is assigned a North American Industry Classification System (NAICS) code beginning with 72 (Accommodation and Food Services) SBA employee definition According to the SBA website, an employee means individuals employed on a full-time, part-time or other basis. Employees from a temporary employment agency, leasing concern, a union agreement or a professional employer organization agreement are also included. In general, owners are considered employees, regardless of whether they are paid. Volunteers are not considered employees. The SBA will consider the totality of the circumstances as well as criteria used by the IRS for federal income tax purposes in determining who qualifies as an employee. What borrowers need to know and do Borrowers need to first determine if they are eligible. Employers with 500 or fewer employees with their principal place of business within the United States, or that operate in certain industries and meet applicable SBA employee-based size standards, are eligible. In addition, certain not-for-profit organizations are eligible. Businesses must have been in operation on Feb. 15, 2020, and either had employees (and paid wages and payroll taxes) or paid independent contractors. Individuals operating sole proprietorships or as independent contractors in operation as of Feb. 15, 2020, are also eligible. Existing SBA rules prohibit several types of businesses from participating in the PPP (13 CFR 120.110). Included in the list, among others, are banks, financial institutions, life insurance companies, businesses located in foreign countries (businesses located in the U.S. owned by aliens are eligible), legal gambling, passive businesses, government-owned businesses (except Native American tribal entities), lobbying and speculative businesses. Further, household employers are not eligible for loans under this program. How much can I borrow? The maximum amount to borrow is the lesser of $10 million or an amount based on a payroll formula. The formula steps are: Aggregate payroll costs from the last 12 months for U.S. resident employees. The loan application form states that most applicants will use the average monthly payroll for 2019, which differs from the period used in the statute, which defines the period as the one-year period before the date the loan is made. Lenders appear to be using the first criteria based on 2019 payroll. Subtract compensation paid over $100,000. Calculate average monthly payroll costs. Multiple average monthly costs by 2.5. Add any outstanding EIDL loans made between Jan. 31, 2020, and April 3, 2020. Payroll costs defined Payroll costs include salary, wages, commissions, cash tips, vacation pay, parental, family, medical or sick leave, allowance for dismissal or separation, employee benefits (insurance premiums, retirement), and state withholding. While not specifically clear in the regulations, we believe independent contractors would include their net earnings plus wages and commissions paid to their own employees. Payroll costs do not include compensation for employees outside the U.S.; amounts in excess of $100,000; federal employment taxes and federal withheld taxes between Feb. 15, 2020, and June 30, 2020; and qualified sick and family leave wages for which an FFCRA credit is allowed. While there appears to be some discrepancy between the regulations and the statute, based on our current interpretation of the statute, we believe the $100,000 cap applies to all compensation, not just wages. Independent contractor payments do not count as payroll costs for the employer as they are eligible for their own PPP. Finally, the regulations do not specifically address whether guaranteed payments paid to partners in active operating partnerships qualify as payroll costs. Since businesses can only apply for one PPP loan, taxpayers should consider making the case for the maximum loan amount. Maturity is two years with an interest rate of 100 basis points or 1%. Payments do not have to be made for six months following the disbursement of the loan. The loan can be forgiven in whole or in part, up to the full amount of the loan plus any accrued interest. Proceeds must be used for payroll costs, continuation of group health benefits, mortgage interest payments, rent payments, utility payments, and interest payments on other debt obligations or refinancing an EIDL loan. Prior SBA EIDL loan  Borrowers with a preexisting SBA EIDL loan can use PPP proceeds to refinance an EIDL loan obtained between Jan. 31, 2020, and April 3, 2020. If the EIDL loan was not used for payroll costs, it will not affect the ability to obtain a PPP loan. However, if the EIDL loan was used for payroll costs, applying for a PPP loan must include a refinancing of the EIDL loan. At least 75% of the loan proceeds must be attributable to payroll costs and not more than 25% of any loan forgiveness amount may be attributable to nonpayroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL loan refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness. . The SBA intends to issue further guidance pertaining to the loan forgiveness program. Application process Application is through SBA Form 2483, Paycheck Protection Program Borrower Application Form, and payroll documentation. The application is available online on the Treasury Department website. The lender must submit SBA Form 2484, Lender Application Form -Paycheck Protection Program Loan Guaranty. For more, see the SBA’s Paycheck Protection Program information for borrowers, including a link to application form.
Baker Tilly COVID-19 support During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

As part of the CARES Act, the Small Business Administration opened up the Paycheck Protection Program on April 3, 2020, to give employers loans to help them through the COVID-19 pandemic. Regulations for how to qualify and apply for the loans were issued the night before.

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SBA issues regulations on Paycheck Protection Program

The $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted March 27, 2020, is the largest economic relief package in United States history. Many of the Act’s tax-specific provisions are relevant for private equity (PE) funds, investors and portfolio companies.  PE taxpayers will need to plan carefully in order to effectively use the CARES Act to help them through this uncertainty. For instance, those who receive a small business loan cannot also claim the employee retention credit. Likewise, certain credits available in the recently enacted Families First Coronavirus Response Act must be considered in conjunction with the CARES Act. Each portfolio company or PE fund should consult with professionals to evaluate these benefits in light of its own facts and circumstances. 1) The employee retention credit may be a helpful tool for portfolio companies  The CARES Act creates a refundable credit that can be used to offset certain payroll taxes. This credit is generally available to businesses that are either fully or partially suspended due to COVID-19. The credit is also available to businesses that continue to operate but endure a significant decline in gross receipts. The credit is equal to 50% of qualified wages, not to exceed $10,000 per employee, through the end of this calendar year. Employers with fewer than 100 employees are eligible for this credit even when an employee continues to perform services. Portfolio companies should evaluate eligibility prior to filing their first-quarter employment tax return. Taxpayers taking this credit cannot take a small business loan under the CARES Act Paycheck Protection Program (PPP) or utilize the Work Opportunity Tax Credit. 2) A payroll tax deferral is generally available to all businesses The CARES Act defers payment of the employer’s portion of Social Security taxes, i.e., 6.2% of the base. The deferral applies to wages incurred through the end of the year. Half of the deferred liability is due Dec. 31, 2021, and half is due Dec. 31, 2022. This deferral is additionally extended to 50% of self-employment taxes. Essentially, this is an interest-free loan, and there is no requirement that the taxpayer be impacted by COVID-19. However, employers that utilize the loan forgiveness component of the payroll protection loan program are not eligible for this deferral. 3) Profitable portfolio companies can now utilize prior-year net operating loss (NOL) carryforwards to offset 100% of current-year taxable income The Tax Cuts and Jobs Act (TCJA) established that, beginning in 2018, NOLs could only offset 80% of current-year income. The CARES Act repeals this change for the 2018, 2019 and 2020 tax years. Moreover, the CARES Act establishes that NOLs arising in 2018, 2019 and 2020 may be carried back five years. Portfolio companies that paid income taxes in 2018 or 2019 should consider filing amended returns to fully utilize NOLs.  4) Businesses can now apply bonus depreciation to qualified improvement property (QIP) In a much longed-for technical correction to the TCJA, the CARES Act fixes the so-called “retail glitch.” QIP is now 15-year property, which makes this property eligible for bonus depreciation retroactive to 2018. QIP generally includes most improvements to a building’s interior. Real estate-related PE funds and certain operating portfolio companies should consider amending tax returns or changing their accounting methods to take advantage of this important correction.  Caution: Entities organized as partnerships that are subject to the consolidated partnership audit rules (CPAR) cannot file amended returns. Such taxpayers should consult with their tax advisors regarding their options. 5) PE investors get temporary reprieve from TCJA’s excess business loss limitation The TCJA limited the amount of pass-through business losses that could be used to offset nonbusiness income. This “excess business loss” limitation was effective beginning in 2018. The CARES Act delays this limitation until 2021. PE investors subject to the excess business loss limitation should consider filing amended tax returns to claim refunds. 6) Businesses are now able to deduct additional interest expense The TCJA limited total interest expense to an amount equal to 30% of adjustment taxable income (ATI). The CARES Act modified this rule to deduct interest expense equal to 50% of ATI for 2019 and 2020. However, special rules apply to partnerships. Broadly, a partnership does not get to use the increased limitation in 2019, deferring any potential benefits of the 50% threshold to 2020. This change is particularly important for real estate-related businesses and funds.  7) Small business loans are now available In addition to the favorable tax items discussed above, the CARES Act also creates loans for small businesses.  The PPP are loans issued by private lenders and fully guaranteed by the federal government. The principal purpose of this loan is to help employers retain their employees. The loans are intended to cover eight weeks of payroll expenses, applied for at any date between Feb. 15, 2020, and June 30, 2020. Companies with 500 or fewer employees may apply for loans of up to $10 million to cover payroll and other employee-related costs as well as debt, rent and utility payments.  Under the program, an eligible recipient includes: Small business concerns (as defined under the Small Business Act), plus  Other business concerns as long as such they employ not more than the greater of:
500 employees; or  If applicable, the size standard in number of employees established by the Small Business Administration (SBA) for the industry in which business concern operates Since the SBA’s affiliation rules apply (subject to a narrow exception for accommodation and food services businesses), PE-owned businesses must account for the employees of other portfolio companies owned by the same PE fund when calculating the 500-employee threshold. In addition, certain expenditures can qualify for loan forgiveness. Amounts eligible for this forgiveness are based on monies used to cover certain payroll, mortgage interest, rent and utility costs paid within eight weeks of the loan’s origination date. Limits would apply to the amount eligible for forgiveness. For example, if a business borrows $5 million under this program, and incurs $2.5 million of eligible expenses within eight weeks of obtaining the loan, that $2.5 million is eligible for forgiveness. This debt forgiveness is not subject to federal taxation, but state taxation is not certain at this time. Taxpayers that participate in this program are not allowed to use the employee retention credit. And, if they have part or all of the payroll interruption loan forgiven, they are not eligible for the payroll tax deferral.  The  information provided here is of a general nature and is not intended to  address the specific circumstances of any individual or entity. In  specific circumstances, the services of a professional should be sought.  Tax information, if any, contained in this communication was not  intended or written to be used by any person for the purpose of avoiding  penalties, nor should such information be construed as an opinion upon  which any person may rely. The intended recipients of this communication  and any attachments are not subject to any limitation on the disclosure  of the tax treatment or tax structure of any transaction or matter that  is the subject of this communication and any attachments.

In our recent article, we review and detail seven key benefits the CARES Act provides to the private equity industry.

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CARES Act: important tax considerations for private equity

Lenders are struggling to keep up with the volume of applications for COVID-19 relief from the CARES Act and other government funding assistance programs. Time is of the essence for applicants, but documentation must still be reviewed and applications submitted to the SBA. Lenders are maxed out in available personnel and don’t have time to search for new hires. They need knowledgeable staff, now. 

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During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 

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Baker Tilly provides numerous outsourcing and managed services in order to help our clients focus on what they do best so they can win now and be prepared for tomorrow.

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