CARES ACT: What Just Happened? Week of July 27, 2020

After a quiet week, we are ending July with the HEALS and Heroes Acts being proposed. More to come in August.

Kranz receives updates on the CARES Act and how businesses are responding to impacts of the coronavirus through communications with our consultants, valued clients, partner firms, and legal and tax service providers. In our commitment to keeping you informed, we hope that our sharing this information regularly is of value to you.

New interim final rules regarding details of the PPP

No new IFRs have been released in the past two weeks.

Preparing for PPP Loan Forgiveness

As we reported in our last update, while many borrowers have reached the end of their eight-week covered period many lenders’ systems are still being developed to accept forgiveness applications. Many still have questions about the details of what the SBA will be requiring, trying to assess and prepare for workloads, and creating their own systems to handle the applications. Last Friday evening the SBA released guidance to their lenders around their forgiveness application processing responsibilities which included mention that a portal being built by Goldschmitt – CRI is expected to be online August 10 enabling lenders to submit individual and batch PPP loan forgiveness applications. Visit the preceding link for the full text of the SBA’s guidance, key aspects of which include:

A reminder that borrowers may submit a forgiveness application before the end of the eight or 24-week covered period provided that they have used all of the loan proceeds for which the borrower is requesting forgiveness and the borrower’s loan forgiveness application accounts for salary reductions in excess of 25 percent for the full covered period.
A reminder that the “lender of record” (which may not be the lender servicing the loan) is responsible for accepting and processing the application.
A reminder that for Forms 3508 and 3508EZ received, the lender shall:
- confirm receipt of the borrower’s certifications
- confirm receipt of documentation supporting payroll and non-payroll costs as instructed in Form 3508
- confirm all of the borrower’s calculations on Form 3508
- confirm that the borrower correctly calculated the 60% payroll threshold amount.
After performing a good-faith review, in a reasonable time, of information submitted by the borrower, the lender should work with the borrower to remedy any errors or omissions.
A reminder that the lender must complete their review of the application and submit a forgiveness recommendation to the SBA within 60 days of the application having been received.
A reminder that the lender is responsible for notifying the borrower of the forgiveness amount approved by the SBA
A reminder that if the lender recommends to the SBA that no amount of the loan be forgiven that they are to notify the borrower in writing of that recommendation and that the borrower then has 30 days to submit a request to the lender asking for the SBA’s review of the recommendation. The lender must notify the SBA of that request within five days.
Information pertaining to accessing the SBA’s PPP Loan Forgiveness portal beginning August 10
Actions to take when notified by the SBA that a loan is under review
Documentation and data requirements of loans Approved in Full, Approved in Part, Denied or Denied without Prejudice.
Confirmation that the SBA will be issuing instructions on how borrowers may appeal any SBA decision.

You should begin gathering documentation supporting your forgiveness application request as recommended and outlined in our last update (week of July 17). Kranz & Associates has developed guidance and tools to assist companies with accounting for PPP loans, record keeping and documentation for loan forgiveness, and preparation and submission of the Loan Forgiveness Application.

HEALS and Heroes Acts

The $1T Health, Economic Assistance, Liability Protection and Schools (HEALS) Act being proposed by Senate Republicans will be an amalgamation of provisions introduced through bills from multiple Senators. This includes two bills we previously reported on:

Also, the American Workers, Families, and Employer’s Assistance Act contains additional elements affecting small businesses:

Section 211 of Subtitle B – Job Creation and Employment: 1) increases the employee retention tax credit (ERTC) from 50% of qualified wages as established in the CARES Act to 65% of qualified wages; 2) improves the eligibility criteria for the ERTC by lowering the CARES Act gross receipts decline of 50% to 25%; 3) improves the eligibility criteria for the ERTC by increasing the limit on allowable qualified wages from $10,000 per year to $30,000 per year; 4) allows employers to take both a PPP loan and the ERTC credit; 5) allows group health plan expenses to be included as qualified wages even when no other wages are paid to the employee.
Section 212 of Subtitle B – Work Opportunity Tax Credit: Adds a new WOTC targeted group, 2020 qualified COVID-19 unemployment recipients.
Section 213 of Subtitle B – Safe and Healthy Workplace Tax Credit: Establishes a refundable payroll tax credit equal to 50% of an employer’s employee protection expenses (PPE, testing, cleaning supplies, workspace modifications and technology expenses including contactless POS systems).
Section 214 of Subtitle B – Allows employers to provide financial assistance, health care including PPE, COVID-19 testing, and cleaning supplies and COVID-19 training to independent contractors without jeopardizing the contractor’s independent status under IRS code.

The HEALS Act injects an additional $190B into the PPP fund to be used by businesses in a second PPP loan, eliminates the 60% payroll threshold requirement, expands approved uses of PPP funds for loan forgiveness, and establishes a five-year liability shield for businesses from being sued for coronavirus related issues.

The $3T Heroes Act expands eligibility for PPP loans, eliminates the 60% payroll threshold requirement, and extends the PPP loan application deadline from October 31 to December 31, 2020. Additional business-related benefits are contained in the Heroes Act’s Prioritized Paycheck Protection Program section. Details of the P4 can be found in our July 17 COVID Update.

PPP Loan Update

Through July 24 a total of 5,005,261 loans have been made (an increase of 97,606 in the last two weeks) totaling $519.5B, an increase of $2.1B since July 10.
The average loan amount has dropped an additional $1,600 and now stands at $103,800.
California small businesses have received 597,746 loans, an increase of 13,689, and 2.3% in the last two weeks. California’s loans continue to represent 11.9% of total loans. Their $67.8B of loan value continues to be 13.1% of the total.
Loans less than $150,000 represent 86.8% of all loans made and 27.7% of total dollars loaned.
Loans between $350K and $1M account for 4.0% of loans made and 21.8% of total dollars loaned.
67.5% of the loans made were for no more than $50,000.
The following three industry sectors received the greatest share of loan funds – health care and social assistance (12.9%), technical and professional services (12.7%), and construction (12.4%).
$130.0B of approved PPP funding remains.
For additional detail on PPP loans by amount, state, lender size, and activity click here.

PPP FAQ Update: New Question Added

The last FAQ update was the addition of Question and Answer #49 added June 25 by the Treasury at PPP Program FAQ’s.

Q: What is the maturity date of a PPP loan?

A: If a PPP loan received an SBA loan number on or after June 5, 2020, the loan has a five-year maturity. If a PPP loan received an SBA loan number before June 5, 2020, the loan has a two-year maturity, unless the borrower and lender mutually agree to extend the term of the loan to five years. The promissory note for the PPP loan will state the term of the loan.

Additional Resources

Aside from this blog we recommend the following websites for additional information and guidance:

National Venture Capital Associations (www.nvca.org)

U.S. Treasury (www.treasury.gov)

Small Business Administration: www.sba.gov

Live Update from Pitchbook on COVID-19 Impacts to PE/VC

By Kranz Consulting