10 questions (and answers) about EIDL, PPP loan programs

Recently, the New Jersey Chamber of Commerce partnered with ROI-NJ and accounting and advisory firm Withum on a webinar about COVID-19 relief programs offered by the U.S. Small Business Association. The featured speaker was SBA New Jersey District Director Al Titone.

Here are 10 of the most important questions raised during the webinar, as well as answers from Titone and Frank Boutillette, a Withum partner and team lead for its SBA Disaster Loan group.

Some answers have been edited or condensed for clarity.

Q: How does the federal COVID-19 Economic Injury Disaster Loan program work, and who can apply for it?

Al Titone: Who’s eligible? Pretty much every small business in the country. What they say is anybody who’s been affected by the COVID-19 injury. … Nonprofits can, faith-based organizations, any general legal, small business.

With disaster loans there’s a big difference: This is the only loan SBA does directly. The money comes directly from the Treasury through SBA to the borrower. You don’t have to go through a bank or a lender to apply. Every disaster has its own limit. For these COVID-19 loans, it’s $2 million. The interest rates are going to be 3.75% for small, regular businesses and 2.75% for nonprofits, and that will go up to 30 years.

The funds can be used for pretty much any business expense that you can think of. What they cannot be used for is what you feel are your lost sales or profits, or for expanding your business.

Q: Are there any common mistakes on the application?

AT: Make sure you click the right loan button. If you’re a sole proprietor, do not click the button that is a business with not more than 500 employees. While that might be true, that is not the forms that you’re going to want. Just read through and make sure you click on the one that is most applicable to you. That’s really important. Make sure you click whether you are a nonprofit organization or not; again, that will affect the forms you see. Are you a franchise? Again, it’ll affect the forms you see.

Once you hit ‘send,’ you can no longer access the application. You would need to call the customer service center to make any changes.

Q: What if I filed prior to recent clarifications of EIDL or PPP rules?

Frank Boutillette: With clarifications released almost daily, some borrowers may have found that their previously submitted application was incorrect. They are permitted to revise the application, but are not required to do so as long as they applied in good faith and were following the rules and guidance available at the time.

Q: What is the EIDL advance?

AT: It’s up to $10,000. It basically comes out to about $1,000 per employee. But you have to request the advance when you apply for the loan. The advance can be used to pay fixed debts, payroll, accounts payable and other bills that you could have paid had the disaster not occurred. Again, it is not to be used for lost sales or profits, or expansion. And, even if you don’t get the loan for the advance, you can keep the advance.

Q: How does the Paycheck Protection Program loan work, and who is eligible?

AT: This follows more traditional lending practices, where you go through a participating lender, bank or non-bank. It’s designed to provide a direct incentive for small businesses to keep their workers on the payroll. You can use it for up to eight weeks of payroll costs, including benefits. The maximum amount you can get is $10 million. The interest rate is 1%. Your first payment is going to be deferred for six months. The loan maturity is two years. There are no collateral requirements, there are no personal guarantees required. There’s no borrower or lender fees payable to SBA.

So, the unique thing about this loan, as opposed to every other loan SBA has ever done before: This can be fully forgiven when 75% of the funds are used for payroll.

Who is eligible? Small businesses with 500 or fewer employees. But there’s an asterisk there, because SBA has different size standards, and certain folks with larger employees or with a higher limit than the income and limits outlined in the SBA small business programs can still apply for the PPP because they still qualify as small in their industry. Pretty much everyone is able to apply for this program: nonprofits, vets organizations, faith-based, sole proprietors, self-employed, independent contractors.

FB: Note the PPP program does not permit 501(c)(4)s, (c)(5)s or (c)(6)s to apply.

Q: What about the forgiveness?

AT: If you use less than 75% of the loan amount for payroll costs, you will owe money. If the borrow maintains staff at less than the Feb. 15, 2020, levels, you will owe money.

For total loan forgiveness, and I’m stressing total here because you can actually get partial, full-time employee headcount has to be maintained or retained. Salaries and wages have to be maintained. Borrower has until June 30 to restore full-time employment and salary levels from any changes made between Feb. 15 and April 26.

In terms of partial forgiveness, you would be forgiven for the part you used on payroll. But whatever’s left of that loan, you’ve got to pay that back, and you only have two years to do it.

FB: Payroll and expense documentation is required to receive loan forgiveness and to ensure the appropriate use of the amount forgiven.

Q: What’s a realistic turnaround time on these loans?

AT: Generally, the EIDL is a minimum 24-day turnaround under normal times. These are not normal times, but let’s hope that they stay within the 24-to-30-day time, but we won’t really know yet, because we’re just really at the 24- to 30-day timeframe.

Q: Can you get status updates on applications?

AT: No. All the firepower, all the computing power is going to getting in as many of these applications as possible, so they can’t take the bandwidth out to track. It takes a lot more than I would have thought. Millions and millions of folks are applying for these loans. As long as you’ve got a loan number and a notice that the application has been submitted, you’re in the queue.

Q: Can you have both an EIDL loan and a PPP loan at the same time?

AT: Yes. You can have both, but you cannot use them for the same thing. So, let’s say you get the EIDL loan first and use that for payroll. Well, you can’t use the PPP for the same payroll. It’s called double-dipping. The government doesn’t let you do that.

FB: The interim guidance seems to indicate if you received an EIDL loan between Jan. 1 and April 3, and you received a PPP loan, then the EIDL loan must be refinanced into the PPP loan. Additional guidance is expected, and there may be some issues obtaining a PPP loan if you obtain an EIDL after April 3. Consult your adviser.

Q: Any other options?

FB: The Payroll Credit process. For those who are not getting the PPP, remember there is a payroll credit — this is different from the payroll deferral. To obtain the credit, you need to work with your payroll company and fill out IRS Form 7200. Very few companies have taken advantage of this credit, because they are pursuing the PPP, and you cannot have both. But his may become more prominent in the future, when PPP funds are fully spoken for.

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