One of the hotter topics for all businesses is how the CARES Act impacts their business and specifically the SBA loans are being administered. Today I had the pleasure of interviewing Stephen Custer of DMLO which a large accounting firm based in Louisville, KY. Stephen is not only a CPA but also an attorney, so he is a wealth of information on this topic. If you want to see the video recording of this interview, you can find it at www.Facebook.com/AccelerateMyPractice. For more detailed questions on this topic, I would suggest reaching out to DMLO via their website or phone number, www.DMLO.com or 502–326–2376
A big challenge we face with the CARES Act is that it is ever changing. The information we have today could become outdated in a week or two. We stalled a bit doing this interview waiting for the speed of change to slow down. So hopefully everything we do write here remains relevant, but do understand this is being written and published on 4/15/2020.
Timing — The timing of when to take your PPP loan is of vital importance. Once your loan is closed the bank is required to fund your loan within 10 days. Meaning you will have your cash within 10 days, which is good news. If your business is not considered an essential business and you can’t work, you will have a challenge. When the loan is funded, you will have 8 weeks to spend 75% of these funds on payroll. After that point your “forgiveness rate” starts to become modified. It is really a challenge to say the least. The smartest thing you can do, is wait as long as possible to close your loan. That way you don’t get it before your business can even open. Side note, this might be a great thing to write your elected officials about so perhaps the Treasury Department changes these rules ever so slightly.
Proper use of Funds — A business can use these funds for anything really, but your forgiveness is entirely based on your using these funds for qualified things. These are: payroll costs, mortgage interest (for mortgages that existed before 2/15/2020) rent and utilities. You have to use at least 75% of the funds for payroll or again your forgiveness rate will change. We were unable to gain clarity at the time of this interview if payroll taxes were a qualified use of funds. They might not be!
Repayment — the loans have deferral of interest and payments for 6 months. Meaning after you use the funds up, you will need to contact your bank and request the forgiveness. Provide evidence to your bank of how the funds were used in order to qualify.
EIDL loans — I have heard many conflicting things with this and within this interview we provided some clarity on the topic. If you took the EIDL loan prior to the PPP program launching, the amount you qualified for was likely reduced. At this point, most businesses with employees would be better suited with the PPP program. Personally I applied for an EIDL loan for one of my businesses and got an email back stating that business would only qualify for $1000 per employee. Which of course is dramatically different than what the rules were when I applied. For a sole proprietor business, you would have to run the math to see which option would be more advantageous. I don’t think anyone could make a blanket statement that one is better than the other without detailed information about your business.
In addition to the above, if your business didn’t lay off employees, you could qualify for employee retention tax credits. The last I read was $10,000 per employee. It is my understanding that you can’t do both tax credits and PPP for the same business. Businesses that also didn’t lay off can qualify for deferred payroll taxes, the keyword being deferred.
The bottom line with all of this is having a qualified professional giving you advice during this rapidly changing time is really smart. No one person can write an article that will provide you with sound advice without knowing your business precisely. If you lack this professional advice (CARES Act), I would suggest reaching out to DMLO at the contact at the beginning of this article.
Author does not claim to be a CPA or tax attorney, nor is he employed by DMLO. He simply found their advice to sound good advice that he could share with others.
