COVID-19 SBA Updates
June 19, 2020
PPP Loans: Forgiveness Updates for Independent Contractors
On Wednesday, June 17, 2020, the Small Business Administration, in consultation with the U.S. Treasury Department, issued a new update to the Paycheck Protection Program, which features updated loan forgiveness applications offering automatic forgiveness for eligible independent contractors.
The guidance revision to the full forgiveness application clarifies that the “owner compensation” amount automatically forgiven for borrowers who use a 24-week covered period is equal to 2.5 times their average monthly net income. Therefore, independent contractors with a 24-week loan period can potentially have the entire amount automatically forgiven. However, the maximum amount able to be forgiven for borrowers who choose an eight-week period is unchanged.
In addition to revising the loan forgiveness application implementing the PPP Flexibility Act of 2020, the SBA also published a new EZ version of the forgiveness application, which requires fewer calculations and less documentation for eligible borrowers. The EZ application applies to borrowers that:
- Are self-employed and have no employees; or
- Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or
- Experienced reductions in business activity due to health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.
If the loan was made before June 5, 2020, both applications give borrowers the option of using the initial eight-week covered period or an extended 24-week covered period. If the loan was made after June 5, 2020, borrowers must use the 24-week period. You can access the updated loan forgiveness application here and the EZ application here. The SBA hopes these changes will result in a more efficient process for independent contractors and businesses to realize full forgiveness of their SBA loans. Note, the PPP program still has funding available, and applications will close at the end of June unless Congress acts to extend it.
SBA Guidance for REALTORS®
The coronavirus small business relief programs are ongoing. On Thursday, April 23, Congress passed new coronavirus relief legislation that provides additional funding for the two Small Business Administration (SBA) programs, the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) Program. President Trump signed the measure into law on Friday, April 24, and lending has officially resumed for the SBA programs.
Through this legislation, the PPP received $310 billion in new funding, and the EIDL will receive an additional $60 billion. The PPP funding contains a $60 billion set-aside specifically for small to mid-sized community banks, which should provide additional support for self-employed individuals and small businesses that do not have relationships with larger banks. The relief bill also includes $25 billion for coronavirus testing and $75 billion for hospitals.
If you have questions about your eligibility for either of these programs, see Alabama REALTORS® CARES Act FAQs here.
- If you have already applied for an EIDL: The SBA is processing applications already in their system on a first-come, first-served basis. You do not have to reapply.
- If you have not already applied for an EIDL: The SBA is currently accepting new EIDL applications for all eligible applicants. The new applications will also be processed on a first come, first serve basis. Check the SBA’s EIDL webpage here for more information, and submit your application as soon as possible.
- If you have already applied for a PPP loan through an SBA lender but have not yet been approved: Check with your specific lender to see where your application is in the process.
- If you have not applied yet for a PPP loan through an SBA lender: Apply immediately. If you have an existing relationship with an SBA lender, you should go to that lender first once the program reopens, but be prepared to try multiple lenders, which you can find on the SBA site here. You should have an application form filled out and your documentation ready to provide to your lender.
- For businesses with employees, have payroll documentation.
- For independent contractors, have your 2019 Form 1040, Schedule C, and 1099-MISC.
Paycheck Protection Program Flexibility Act
On June 5, 2020, the Paycheck Protection Program (PPP) Flexibility Act was signed into law. In addition to the CARES Act and the subsequent allocation of PPP funding, every member of Alabama’s congressional delegation also voted in favor of the PPP Flexibility Act. This bill amends the CARES Act to give PPP borrowers more flexibility on how they can use their loan proceeds. The following are the positive changes made to the PPP through this bill:
Covered Period: The period during which the proceeds of the PPP loan may be used is extended from June 30, 2020 to December 31, 2020. Forbearance Period: The forbearance period for a PPP loan is extended from six months to a year.Forgiveness Period: The loan forgiveness period is extended from eight weeks after the disbursement of the loan to the earlier of 24 weeks after disbursement or December 31, 2020. Payroll Minimum: The mandatory payroll amount required for loan forgiveness was reduced from 75% to 60%.Re-hire Exemption: The date by which businesses must meet the re-hire exemption is extended from June 30, 2020 to December 31, 2020.
The SBA and Treasury will need to issue new guidance to reflect these changes to the program, and AAR will update its resources to reflect these changes and will keep you apprised as we learn more from the Treasury and SBA going forward.
SBA PPP Usage Update
As of June 6, 2020, the SBA advised that a total of 61,576 small business in Alabama have received $6.1 billion in PPP funds. These numbers do not include the Economic Injury Disaster Loans (EIDL) totaling nearly $566 million that have been provided to 7,941 Alabama businesses. Nationally, approximately 5,500 lenders have issued over 4.5 million PPP loans totaling more than $511 billion. You can see the most recent PPP usage report here.
Currently, SBA lenders are still accepting PPP applications, and there is still approximately $120 billion in PPP funds available for small businesses. Some lenders expect that the PPP may receive renewed interest due to the extended payback period. You can find local SBA lenders here, and you must submit a PPP application by no later than June 30, 2020.