Originally published on Forbes.com.
This is an update on yesterday’s report on the Paycheck Protection Program. It is based on the feedback I have been getting in reaction to the piece and some further inquiries. Bottom line is that many of the questions you have probably still don’t have answers.
Overview
The Paycheck Protection Program was created by the CARES act which passed last week. It is run by the Small Business Administration working through banks. You will be able to borrow money based on “payroll costs” which is defined very broadly and likely includes things not normally thought of as payroll.
The borrowed money can be spent on “payroll costs” as defined, rent, utilities and interest on some loans. The loan can be forgivable to a significant extent, but the rules are complicated and I am not going to try to run through them again here.
US Chamber of Commerce has put out a nice flyer on the program.
When Can You Act
Although understanding the program to the extent possible is a good thing, at the end of the day how much you can borrow and how quickly you will get the money after applying is in the hands of the bank.
One fellow I spoke to plans to inquire of three banks and take which ever one offers him the biggest loan. That strikes me as a pretty sensible approach. There is a problem, though. Because of the required representation, he can only pull the trigger on one application.
“that the eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan”
Here is the most important piece of intelligence. It comes from a banker who will be on-point in making these loans. His bank seems to be ahead of the curve and this is what he told me. They expect that the SBA will be issuing instructions to the banks on Friday. That bank will be taking applications 72 hours after they hear from the SBA. He had no prediction on how long it will take to process applications.
I heard from somebody else confirming other banks expecting to hear from SBA this week.
Something You Can Apply For Now
My friend Jeff Kristoff, Director of Tax of Rosen Associates has been working intensely on these issues for some time. Rosen Associates is a CPA firm that focuses on dentistry. Except for oral surgeons responding to emergencies, dentist offices are pretty well shut down at least in Massachusetts.
Rosen Assoicates is recommending that their clients also apply for the Economic Injury Disaster Loan. There was talk that you could not apply for both PPP and EIDL, but that was based on an earlier version of legislation.
Most handy they provide you with a step by step guide to applying. You do it directly with SBA on their website. I tried it this morning for my company Risorgimento Productions LLC and it went smoothly. Look at the guide so that your have the information you need in front of you as you are applying.
The big attraction to EIDL is that it is supposed to provide you with $10,000 very quickly.
Full disclosure – I have done consulting work for Rosen and Associates and several CPAsCA that I have worked with are there.
The Biggest Mystery
A lot of the questions I get involve sole proprietors, partnerships and the payment of people as independent contractors. In terms of the legislation the answer to those questions lies in the definition of “payroll costs” which includes this item:
“the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period” (Emphasis added)
What does that mean?
It reminds me of a joke about umpires talking about what constitutes a ball or a strike. The final grizzled old umpire says “Somes I calls ball. Somes I calls strikes. They ain’t nuthin till I calls em.”
Effectively your umpire is going to be the bank using the rule book that the SBA has not yet written.
My inclination is to take it to mean my net (or maybe gross) Schedule C income plus all the 1099 income I have paid out, but that’s just a theory. Some people are sure about what it means. I guess they can mock me next week if they turn out to be right.
Summary
You can apply right now for an EIDL loan and you might be able to apply for PPP next week. So make it so.