It is a challenging time all-around for many business owners small and large. Many are making pivots to remote work teams, others are trying to figure out how to make up for lost revenue and what all this means for the futures of their business.
To help with some of the financial stress you may be experiencing, we have partnered with CPA Evan Hutcheson who has been managing finances, taxes and accounting for businesses for more than 10 years.
Evan shared strategies and details for us to share with business owners if you had to shut down or reduce payroll as a result of covid-19.
Emergency Economic Injury Disaster Loans (“EIDLs”)
The CARES Act provides for an emergency grant that allows a business to potentially receive an advance on an EIDL of no more than $10,000 after the Administrator receives the application, subject to eligibility.
The money may be used to pay for employee sick leave (COVID-19 related), mortgage or rent, and other overhead expenses. The grants would be awarded on a first-come, first-served basis until the $10 billion fund is exhausted, and applicants would not have to repay the $10,000 grant even if they are denied the loan.
For the period between January 31, 2020 and December 31, 2020 (the “covered period”), EIDL eligibility is expanded to individuals operating sole proprietorships, independent contractors, cooperatives, non-profits and ESOPs with not more than 500 employees.
Furthermore, EIDLs may be approved by the Small Business Administration solely on the bases of an applicant’s credit score or by use of alternative methods to gauge the applicant’s ability to repay.
Team members can apply for unemployment while you apply for the Paycheck Protection Program
One strategy for using Paycheck Protection Program funds would be to have employees apply for unemployment while you are shut down or while having reduced hours. Then as a business owner, you can apply for the Paycheck Protection Program (PPP) for the time period when business begins again.
The loan would have to be applied for prior to June 30 to be forgivable. The desired result is that the government pays employees directly (through unemployment) while you are shut down, and the government pays employees (indirectly) for the first 8 weeks you are back up and running.
This should also apply to independent contractors and sole proprietors. All sole proprietors can apply for both unemployment and PPP.
If you are applying for the PPP, it’s important to set up a separate bank account to deposit the loan proceeds and pay the forgivable expenses. A clean set of records will help trace the qualified expenses to the loan deposit which is what the bank will need in order to forgive that portion of the loan. These expenses would include payroll, health insurance, rent, internet, telephone, and utilities.
Layoffs or Cutting wages
If business is shut down, and you see laying off or cutting wages as the ultimate answer to keep your business going, there are two “covered periods” that you need to pay attention to.
- The first covered period began February 15. You have from then to 30 days after the law was signed (4/27) to lay off employees. They will need to be rehired by June 30, or you risk losing some or all the loan forgiveness.
- The second covered period is the 8 week period after loan origination.
Additional CARES Act Loan Details
The PPP Loan will be available through private lenders, including most local banks. Your lender will look at the 8-week period following the loan origination date to determine if your expenses are qualified or not. Therefore, you may want to apply for the PPP loan but not submit final paperwork until a later date. This is because you want the 8 week period to have full payroll, etc.
This PPP loan also has deferred payments including interest for 6 months, so if you end up not needing the loan, you can pay it back within 6 months at no cost to you.
If you are applying for the Paycheck Protection Program loan, here are some reports and files you may need to provide.
1) Gross payroll reports for last 12 months, or the last 4 Form 941’s
2) Health insurance invoices
3) 2019 pension admin information
5) Financial statements, if required by banks
As of right now, many can apply for the Paycheck Protection Program loan through your bank if you already have a line of credit open with your financial institution (credit cards count.)
There are additional details and options coming out for small businesses who do not have an open line of credit to be able to apply for the Paycheck Protection Program loan. You can find more information here.
If you have financial, accounting or tax questions about your business, feel free to reach out to Evan Hutcheson here.
Our goal at Bento is to help business owners during this challenging and unprecedented time by bringing you helpful information that pertains to you.
If we can help you at Bento in any way, please reach out here.