Attorney Thomas B. Burton discusses the latest developments with the Paycheck Protection Program including several new frequently asked questions and guidance from the SBA.
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Transcript of Video: SBA Loans Video 8--Paycheck Protection Program FAQs and Updates
Okay, welcome back this is my eighth video in my SBA loan series, can you believe that already this is the eighth one and today I've got new updates on the paycheck protection program, so if you watched my last video which came out a day or two ago, you'll know on Monday.
I was on a national webinar with attorneys and CPAs all over the country discussing the paycheck protection program and I had a few useful tips in that video from the webinar. But today I wanted to go over a couple more things because I am hearing reports this week that people are closing on their paycheck protection loans and starting to receive those loan proceeds, so if you’re a small business or sole proprietor and you haven't gotten your application in I encourage you to do it as soon as possible because it is a first serve first come first serve program and you'll see in the news this week in Congress, they're discussing the funds running low in the program.
And they're discussing adding more funds but Congress is currently at a gridlock so I would get your application in and let's hope they do allocate more funds in the future but you're better off getting your application in now again as a reminder if you watch my video earlier this week the SBA is saying in their frequently asked questions that you can rely on the guidance that's out at the time you apply.
So if you applied last week, that's the way things were today now they've got new guidance here new frequently asked questions out today April 15th, so they're updating those guidance as they go for lenders and borrowers but they're saying you can rely on what was out at the time you applied so my advice is to get your application in and that was the consensus of the attorneys and CPAs from Monday as well. real quickly
I want to cover a few other takeaways from that and, from the frequently asked questions and one new one today. I want to discuss is this question. How should a borrower account for federal taxes when determining its payroll costs for purposes of obtaining the maximum loan amount allowable uses of the paycheck protection program loan in the amount of alone that may be forgiven so there again it's about how to calculate your payroll and what is that amount?
And it says here. Payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer but payroll costs do not include the employer's share of payroll tax, okay, so you go on gross where you just but not the employer side, so they're saying for example an employee who earned $4,000 per month in gross wages from which $500
In federal taxes was withheld. Would count as $4,000 in payroll costs. So that employee side withholding you can include that in your calculations when you're doing that 2.5 times average monthly payroll. The employee would receive $3,500 and $500 would be paid to the federal government, however the employer side federal payroll taxes impose on the $4,000 in wages are excluded from payroll costs under the statute so that's how you calculate it gross wages is for the employee but not the employer side payroll costs, so that's one key there and then I wanted to cover this one quickly question 19 on the frequently asked questions and you'll see the updated link in this video do lenders have to use a Promissory note issued by the SBA or may they use their own and the answer from the SBA is lenders may use their own promissory note or an SBA form of promissory note, but this is one thing I want to mention from the webinar Monday be careful when you get your loan documents look through them and make sure there's no personal guarantee in that promissory note, okay because I on the webinar they're saying some banks are just using the forms they use on a normal business loan because they've been rushed to do this and you want to make sure there's no personal guarantee on there and no collateral because under the care's act no personal guarantee is required for this business loan and some of the lawyers were pointing out Monday, you don't want to end up inadvertently signing a personal guarantee on this note to save your business when this is not required under federal law, so look through your loan document carefully before you sign it the promissory note and review it with your attorney before signing because you want to make sure it's consistent.
With the Cares Act and you're not signing a personal guarantee for this loan to pay your employees. And remember the key in my opinion is you want to get that eight weeks loan forgiveness later under the program, so here's the next question the amount of forgiveness of a PPP loan depends on the Borrowers payroll costs over an eight week period when does that eight week paid begin? So this is key and here's the answer the eight week period begins on the date, the lender makes the first disbursement of the PPP loan to the borrower.
The lender must make the first disbursement of the loan no later than 10 calendar days from the date of approval okay, so when that money hits your account, that's the date of disbursement when you receive it and the SBA is saying that eight week period begins on the date, they disburse it to you.
So that's going to be your eight week payroll period going forward to calculate so keep that in mind when you're going through this and signing your loan docs, when that payment comes put that down on paper as the beginning of your eight week period for those eight weeks of payroll because you're going to have to prove then that the loan was used for the covered costs including payroll utilities and rent when you apply for the loan forgiveness later.
So that's key and then in those frequently asked questions there's more rules some questions about franchises and hotels and how you figure it and things like that so I would take a look at them if that applies to you also one more thing this seems intuitive but they added this question can lenders you scan copies of documents or e-signatures or e-consents permitted by the e-sign act and the answer is yes lenders may accept scanned copies of sign loan application and documents containing the information and certifications required by the SBA. And the promissory note for the PPP loan, so we're being told not to go into the bank lobbies. I mean in most states right now, right so it only makes sense you can e-sign these documents so work with your lender to do it via e-signature but again review it carefully before you sign because it's each bank doing this and you want to make sure they're not putting a personal guarantee in your loan documents.
So that was a key takeaway also from Monday that we discussed one other thing. I want to get out to my viewers today to help you when you get these loan funds a lot of the lawyers like myself we're looking ahead to how this program is being implemented, okay and we want to help our clients get the maximum loan forgiveness allowed under the law the way Congress wrote it and what some of the lawyers are speculating is that the SBA is going to hire auditors to look at how these loans were used and that's a good thing we don't want fraud and abuse but these auditors may or may not even be CPAs or accountants so you want to make it easy for them to track that you use the funds for an allowable use so what they're recommending is set up a separate account put the paycheck protection loan funds in that account and then only make distributions from the account for an allowed expense so either a separate checking or at least a separate savings account under your business account and then let's say you make payroll for week one you write a check to the normal operating payroll account payroll week 1 When you write a check for rent from that account. So for that 8 week period make it real simple for them to track what those expenses were going for because if you like me or a lot of businesses you have an operating account and we have lots of bills paying out of there every month and some of those are allowed under the PPP rules and some are not so make it easy for yourself and for the future record keeping and my advice would be set up that separate account from the get go, so you can give them that statement at the end to get that maximum eight week loan forgiveness. So, that's all for today. Thanks for watching. Stay safe. Be well and we'll see you next time.
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