The Consolidated Appropriations Act, 2021, provided Atlanta businesses with new economic relief opportunities through business tax incentives, expanded Economic Injury Disaster Loan (EIDL) advances, and a newly extended Paycheck Protection Program (PPP) for first- and second-time borrowers. The Small Business Administration (SBA) recently released both new Interim Final Rules (IFR)and PPP loan applications. The information contained provided important details on loan eligibility, loan amount calculations, terms, and required certifications. To help clients, prospects, and others, Wilson Lewis has provided a summary of key points below.
A business is considered eligible if it was in operation on February 15, 2020, with employees that were paid salaries including payroll taxes, independent contractors, or were an eligible self-employed individual, independent contractor or sole proprietor with no employees. The CAA also requires a potential applicant to fall into one of the categories below, including:
The maximum loan amount for first-time borrowers is $10M and is determined using a payroll-based formula. To make the calculation an applicant should aggregate all payroll costs from either 2019, or 2020. Then subtract any compensation paid in an excess of $100,000 annually, then calculate the monthly average payroll cost by dividing employee compensation by 12, finally multiply the average monthly payroll costs by 12.
As an example, assume an applicant has no employees that make over $100,000 per year. The annual payroll of $120,000 per year would be divided by 12 ($120,000/12) to find the average monthly payroll costs ($10,000) which would be multiplied by 2.5 which equals $25,000. Therefore, in this example, the maximum loan amount would be $25,000.
The loan term is 5 years, and the interest rate is set at 100 basis points or 1 percent calculated on a non-compounding, non-adjustable basis. Principal payments will not be required assuming the applicant submits a loan forgiveness application within 10 months after the end of the covered period. It is important to note during application review interest will continue to accrue. Repayment is required if full forgiveness is not received.
The amount of forgiveness may be up to the full principal amount and accrued interest. To receive full forgiveness a borrower must spend 60% or more on payroll and the remaining on nonpayroll expenses.
There are a number of certifications that must be made, including:
The SBA has already started accepting applications for the first time PPP loan borrowers through certain community-based lenders and opens it up to all eligible lenders starting on January 13, 2021. The application for first-time borrowers with related instructions is available through the SBA.
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The opportunity to receive a PPP loan will financially help many unable to previously participate. There are many complex rules, calculations, and compliance requirements to be aware of prior to application. For this reason, it is important to consult with a qualified advisor to guide you through the process. If you have questions or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
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