Update: Get Ready! The Paycheck Protection Loans Are Almost Here

As a small business owner, this economic uncertainty is overwhelming. Work is slowing down or shutting down altogether. The employment laws have changed over night. Cash flows patterns are no longer reliable. Nothing seems to be as it was just a few short weeks ago.

To help with this, on March 27 Congress approved and the President signed the $2 trillion coronavirus stimulus package, called the CARES Act, sending $350 billion to the new Paycheck Protection Program (“PPP” for short). With many small businesses suffering from a loss of cash and funds, the PPP is aimed to give forgivable loans to help businesses make payroll and avoid laying off workers.

WHEN AND WHERE TO APPLY

The great news is that it appears that businesses can start applying for these loans tomorrow, April 3rd. The unrolling of the loans for certain business types, sole proprietor and independent contractors may not be available until April 10th. We’re still waiting to get confirmation of this from our financial institution, but relief should be here very soon and you should get your application materials ready. A list of participating lenders as well as additional information and full terms can be found at www.sba.gov .

While the Cares Act is a new law, its PPP will use existing channels, including the 7(a) Loan Program (which offers loans to small businesses), to distribute the new PPP loans. Even though the PPP loans will use established channels, it is going to change much of the previous framework, on top of the changes already made from the March 6th stimulus law, the Coronavirus Preparedness and Response Supplemental Appropriations Act.

WHAT YOU’LL NEED TO DO TO APPLY

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for a sample application published by the SBA. The following is the general information and materials you will need to apply:

Business information including EIN
Average Monthly Payroll and number of employees on that payroll
List of all owners of the business with 20% of more ownership
List of all affiliated businesses
History of receiving previous SBA loans
Eligibility questions regarding criminal history, immigration status, etc.
Historic payroll, mortgage, rent and utility information

EXPANSIONS OF PREVIOUS SBA ELIGIBILITY REQUIREMENTS

Now, with the new laws, the number of businesses eligible for loans has increased, providing additional assistance to those struggling to keep employees on payroll and maintain operations. this is how the stimulus laws will change the SBA’s small business loan programs:

Paycheck Protection Program (PPP)

The maximum loan amount has been temporarily raised from $5M to $10M covering the time from between February 15, 2020 through June 30, 2020. The maximum of the loan will be equal to the lesser of $10M or the sum of 2.5 times the average monthly payroll cost in 2019. That includes wages for employees as well as for expenses associated with paid sick leave, health care, and other benefits.
100% of the loans, regardless of size, are guaranteed (temporarily). Traditionally, only 85% of loans up to $150,000, and 75% of those greater than $150,000, were backed by the SBA.
Eligibility is given, temporarily, to any business with 500 or fewer employees, including charitable organizations, sole proprietorships, and independent contractors, regardless of whether the business qualifies under the SBA’s size standards as “small.” Normally, revenue standards are used to determine whether a company is eligible as a small business.
The maximum interest rate for the loans is capped at 4%. Borrowers and lenders will still need to negotiate loan terms, which are a product of the prime rate, plus the LIBOR rate, but cannot exceed 4%. Before, fixed rate loans had a cap of 6%.
Businesses do not need to show that they cannot obtain credit elsewhere. Prior to the changes, the inability to secure credit was a requirement.
All annual or guarantee fees for the loan and all prepayment penalties are waived from the start. Traditionally, the SBA levied fees of 2-3.75% of the guaranteed portion of a loan.
As of now, the SBA plans to have the distribution process in place tomorrow, April 3rd. The plan is to have the loans available to be disbursed the same day, when previously, SBA loans look 5-10 days.
No personal guarantee or collateral will be required. Traditionally, lenders, for loans over $350,000, would be required to collateralize the loan to the maximum extent possible, up to the loan amount.
The use of funds is expanded to include payroll support, paid sick leave, mortgage payments, rent payments, and servicing existing debt.

Loan Forgiveness

As part of the PPP, the loans may be fully or partially forgiven for any portion of the loan that is used for payroll, paying utilities, rent, mortgage, and existing business debt, dollar for dollar. To be eligible for the dollar-for-dollar loan forgiveness, workers need to remain employed through the end of June. In the past, 7(a) loans needed to be repaid in full, depending on the repayment terms.
In the case of a reduced number of employees, lenders can reduce the amount of the loan forgiveness, if the business lays off employees during the first eight weeks following the loan. Loan forgiveness is also reduced if wages of employees who earn less than $100,000/year are reduced.
If businesses rehire employees after accepting the loan, if they had to let employees go before accepting the loan, they will receive additional credit to cover wages.

Debt Relief

Existing borrowers can defer payment of interest, fees, and principal for up to six months, but no longer than one year.

What Changes have been made to SBA Express Loans?

The maximum loan has been increased from $350,000 to $1M.

What Changes have been made to Economic Injury Disaster Loans (EIDL)?

Statewide companies may apply for EIDL loans. Before, only companies located in certain counties could apply once the county had received specific disaster declaration.
When before EIDL loans required a personal lien (such as on a home), now personal guarantees have been updated and in some cases, eliminated.
Small businesses can request an immediate advance of $10,000, which will be released within three days of a request.
No repayment on the loan is required if it is used for payroll, even if your EIDL loan application is denied later on.

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Beneficial Ownership Rules

December 28, 2023

Starting January 1, 2024, a new rule took effect requiring all registered legal entities, including limited liability companies and corporations, to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). We wanted to give you a heads up about the rule and give you as much information about what it means to you. What is the rule? The rule, which is called the Beneficial Ownership Information Reporting Requirements (BOI Rule) , comes from the Corporate Transparency Act, which was passed by Congress in 2021. This law created the BOI Rule with FinCEN as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other deceitful ownership structures. Under this new law, FinCEN will permit Federal, State, and local officials to obtain ownership information for authorized activities related to national security, law enforcement, and intelligence. When does the rule take effect? And when do I have to submit a report? The BOI Rule took effect on January 1, 2024 . If your company existed before January 1, 2024, you must file its initial beneficial ownership information report by January 1, 2025 . If your company is formed or registered after January 1, 2024, you must file its initial beneficial ownership information report within 90 days after receiving actual or public notice that its creation or registration is effective. If any beneficial ownership information changes, you will have 90 days from the day of the change to file an updated or corrected report with FinCEN. What if I don’t file a Report? According to FinCEN: “The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.” What do I need to include in the report? The BOI Rule requires that all entities report information about the company, each individual with substantial control over the entity, and each beneficial owner. What information is required to report about the entity? Full legal name of your company and any DBAs names; Complete current street address for your company's principal place of business (P.O. boxes will not be accepted); The jurisdiction of formation or registration; and Tax identification: IRS tax identification number (TIN) and employer identification number (EIN). What information is required to report about the controlling individuals and beneficial owners? The individual's legal name; Individual's date of birth; Individual's residential address; and A unique identifying number from an acceptable identification document (such as an unexpired driver's license, passport, identification document issued by a State or local government or Indian tribe) and the name of the issuing state or jurisdiction. Who is considered to have substantial control of the entity? Examples of an individual that exercises substantial control over the entity are: An individual is a senior officer (President, CEO, CFO, COO, Manager, or other office who performs a similar function); An individual has the authority to appoint or remove certain officers or a majority of directors of the reporting company; An individual is an important decision-maker for the company; or An individual has any other form of substantial control over the company. Who is considered a beneficial owner? A beneficial owner is an individual that owns or controls at least 25% of the entity’s ownership interests. This includes individuals that indirectly own or control 25% of the ownership interest. For example, if Joe is a 50% owner of Parent LLC, which in turn owns 50% of Subsidiary Corp, then Joe beneficially owns 25% of Subsidiary Corp (50% of 50% = 25%). What type of entities will be required to file a report with FinCEN? All domestically formed entities and foreign registered entities in the USA are required to file a report. Types of entities include corporations, limited liability companies, limited partnerships, general partnerships, and any other entity registered with a state Secretary of State or Division of Corporations or other similar office. There are some types of companies that are exempt from the reporting rule, and in general they are companies that already have to report beneficial ownership to another federal agency. The 23 exemptions listed by FinCEN are: Securities reporting issuer, Governmental authority, Bank, Credit union, Depository institution holding company, Money services business, Broker or dealer in securities, Securities exchange or clearing agency, Securities exchange or clearing agency, Other Exchange Act registered entity, Investment company or investment adviser, Venture capital fund adviser, Insurance company, State-licensed insurance producer, Commodity Exchange Act registered entity, Accounting firm, Public utility, Financial market utility, Pooled investment vehicle, Tax-exempt entity, Entity assisting a tax-exempt entity, Large operating company, Subsidiary of certain exempt entities, and Inactive entity. Can you help me with my company’s report? Yes! We are happy to help prepare and file your company’s BOI Rule report with FinCEN before the December 31, 2024 deadline. We offer a flat-fee service that is discounted based on how early you pay and submit your information. Sign up for our BOI Rule report service HERE. We also know that some situations can be complicated, so please feel free to ask us any questions regarding compliance with the beneficial ownership interest reporting requirements for your company by emailing teamjosh@freemanlovell.com .