Attorney Thomas B. Burton discusses the latest guidance from the Small Business Administration on the Paycheck Protection Program loans, including a new useful handout available here.
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Transcript of Video: SBA Loans Video 10--Paycheck Protection Program How to Calculate Max Loan Amount by Business Type
Okay, welcome back. This is Attorney Thomas Burton and I wanted to do another video on the paycheck protection program. This is video ten in my series on the paycheck protection program, which is alone a new loan program authorized under the CARES Act passed by Congress and being administered by the small business administration the SBA. So today we've got a lot of news in Wisconsin with the Supreme Court ruling yesterday afternoon, which is allowing a ending the governor's safer at home order as of now and many businesses are reopening. Be aware you should check with your local health authorities, if you are a business, they're going to govern they do have significant authority under state law and so your local health authorities now that the statewide order has been struck down by the Supreme Court it's going to follow the, Local health authorities depending on what county and municipality you're in but in terms of the paycheck protection program this loan program is still available in Congress did allocate more money to the program. So if you're someone out there who has an applied and you're still thinking about applying I would watch my previous videos on the topic, but I wanted to bring to your attention today for many of my small business clients friends and neighbors. There's new guidance on the US. Treasury website. And if you recall and if you were working with me several weeks ago, it's hard to believe it's been several weeks already but I when I was looking at this video series, I've already done 10 videos so that tells you we've been at this for quite a while but the thing is back then there was a lot of confusion when people when the program was first opening about how to apply and what documentation was needed and all that sort of thing. Well now as I caution you at the beginning government moves slow and they're catching up to the law that come. S wrote. So the care's act was this massive law and we almost never see legislation like that past so quickly and then pushed out to the community banks to administer in the banks didn't know what was going on. Well now the link is in this video below the video. I'll post the link but there's new guidance from SBA and let me see here it's, A new handout available on the website so you know how I've been discussing the frequently asked questions they went through. Well now they've got a new one specifically for borrowers and in my opinion, this is what people needed from the beginning, but it's called how to calculate maximum loan amounts by business type. Okay, so when this all started people could think about what type of business they had right? They thought I'm a individual. I'm a sole proprietor or I'm an LLC or I'm an escort but the way the application. Was. Where it did and in fact I recall that first week telling my client there should be more checkboxes on the top of this application and sure enough the next day they added them so that year was more than just sole proprietorship or a C Corp or an LLC they also included escort but nonprofit in the different types of entities well this handout goes through how to calculate your maximum loan amount by entity type okay, so if you recall my other videos what they go by is that 2.5 times your average. Monthly payroll for the previous year and I work through this with many clients and I did this in Excel spreadsheet is how I calculated it but now if you're still out there applying now you've got more formalized guidance so that advice was good. I was giving but now you can go get this hand out choose your entity type and walk through exactly what you need to do, so the one the first one I'm not going to go to a mall but I'll go to the first one because it applies to a lot of people. I am self-employed and have no employees how I kept. Calculate my maximum PPP loan amount and then they say right here note the PPP loan forgiveness amount will depend in part on the total amount spent during the eight week period following the first disbursement of the PPP loan, so again be aware when you get your loan not when you apply but when the funds actually hit your account that's when the eight week period starts for you to use the money to pay employees and rent and other covered expenses, okay, so if you're slowly reopening or thinking about, Reopening. I mean think about that eight week period because you don't control the timing it's when the loan gets dispersed is the way they're saying it so the answer how to calculate it the following method should be used to calculate the maximum amount that can be bought if you are a self-employed and have no employees and your principal place of residences in the United States including if you are an independent contractor or operate a sole proprietorship, okay, so here's the easiest way to do it step one find your 2019 IRS form 1040 schedule C go to line 31 net profit amount and they're saying now if you have not filed your 2019 return, they want you to fill out and compute that value okay, so you know, all the extended the tax diet that line to July well if you didn't file they want you to fill it out anyway. And compute that value if this amount is over $100,000 reduce it to $100,000 okay, so that's that upper limit $100,000, so if you're over that just reduce it to $100,000. If you're not profit amount is less than zero you're not eligible for PPP loan amount okay, so this is what's tough if you're a real new business and you weren't making money yet you're not gonna be eligible for the PPP loan amount because it's based on net profit you might want to look at the EIDL that economic injury disaster loan on SBA that's a different program so look at that but for the PPP this is how you do it, okay step two calculate the average monthly net profit amount divide the amount from step one by twelve, okay, so, That's easy 12 months and you can do. This in like I say Excel spreadsheet divide by 12 that amount from line 31 and schedule 3. Multiply the average monthly net profit amount from step 2 by 2.5, so then your Excel spreadsheet you can have times 2.5. And then if you got the EIDL loan add the outstanding amount of any EIDL loan made between January 31 in April 3rd that you seek to refinance okay, so if you didn't get any ideal, you don't have to add that amount you've got the number then. So it's that 2.5 times average monthly net income so anyway, it doesn't seem that complicated but now they're giving you the exact steps and that's for self-employed okay, so if you go through this though, then the next page they say how about self-employed and have employees so page two you can go through that calculation the next one is. Page three how about I am self-employed. I report it on schedule app so this means you're not farm profit so you use schedule F line 34 net farm profit when doing the calculation then there's one about how to partnership supply okay, so you can look at that if you're a partnership. Now one more I want to point out quick in today's video how about eligible non-profit organizations up to 10 million dollars, they can apply for so that's question six on here and it goes through how to calculate it for you so I would refer to that page it's very simple and one last thing I want to mention today is question eight and this is just why I was talking about it says I am an LLC owner which set of instructions applied to me and here's the answer and this is what I'd been telling folks, but now we've got it in writing from SBA. LLC should follow the instructions that apply to their tax filing situation, for example, whether they file as a sole proprietor a partnership or a corporation okay, so if you know how this gets confusing because the legal definition of a sole proprietorship is you have no business entity your operating under your own name, but many single member LLCs like my law office we file as a sole proprietorship on schedule C if you elect flow through taxation, so the answer here is follow your tax filing status in terms of how to determine the instructions to apply and that makes good sense right but in the beginning this was not clear and so it's great to see some clarity to these answers, unfortunately. I feel like it's a little bit late for a lot of folks because they had to muddle through all this without help, but if you're still looking at doing, It I would reference this document the links available below if you have any questions or need help feel free to reach out to my office for assistance. Stay safe. be well and we'll see you next time.
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