2020 Post-Election Outlook
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orOn July 1, The U.S. House of Representatives unanimously passed a bill to extend the deadline to apply for forgivable small business loans through the Paycheck Protection Program. The legislation was previously passed by the Senate and President Trump is expected to sign the bill into law.
The bill extends the deadline to request Paycheck Protection Program loans to August 8 from June 30. The U.S. Small Business Administration (SBA), which oversees the program with the Treasury Department, stopped accepting loan applications at midnight Tuesday. The extension is intended to provide more time for small businesses to apply for the approximately $129 billion in PPP funding remaining.
The program provides forgivable loans that small businesses and other qualifying entities can use to cover payroll and other select costs.
The AAA will continue to press the Congress and federal agencies for help to ensure ambulance service organizations and our paramedics and EMTs serving on the front lines of the COVID-19 pandemic have the necessary resources and financial assistance to serve their communities.
On June 8, the U.S. Federal Reserve expanded its Main Street Lending Program to allow more small businesses to receive financial support. The Main Street Lending Program (MSLP) was established by the Federal Reserve and the U.S. Treasury under the CARES Act to support small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic.
Among the changes, the Fed lowered the minimum loan amount and raised the maximum loan limit. It also extended loan terms to five years from four years and will allow businesses to defer principal payments for the first two years of the loan, instead of the first year. The expanded MSLP will also accept loans that under the previously announced terms, if funded before June 10, 2020.
Unlike the popular Paycheck Protection Program for small businesses, the MSLP’s loans cannot be forgiven. However, the latest changes are designed to make the program attractive to a wider range of small businesses.
The MSLP is open to companies with up to 15,000 employees or less than $5 billion in revenue last year. Small businesses that have received PPP loans are permitted to borrow under the Main Street program.
The AAA leadership and staff will continue to tirelessly advocate for the much-needed relief to ensure that our members can keep their doors open, receive the equipment necessary to protect their staff, and the resources to provide excellence in mobile healthcare. We will keep you abreast of our advocacy efforts as well as changes to the MSLP as soon as the details become available.
Thousands of small businesses, especially those owned by people of color, have been left behind by the stipulations of the Paycheck Protection Program. In Texas, local governments are lending millions of dollars and it’s not enough.
On June 3, the U.S. Senate passed on voice vote the Paycheck Protection Program Flexibility Act of 2020. The legislation was passed by the House on May 28. The President is expected shortly to sign the bill into law.
The Paycheck Protection Program Flexibility Act (H.R. 7010) provides small businesses with more flexibility in how the Paycheck Protection Program (PPP) funds established under the CARES Act can be spent.
Under this new bill, borrowers who furloughed or laid-off workers will not be subject to a loan forgiveness reduction due to reduced employee count as long as they restore their pre-COVID employment by the new deadline of December 31, 2020. Businesses will also have 24 weeks instead of just 8 weeks to spend the funds.
This legislation lowers the minimum percentage of PPP loans that must be allocated towards payroll from 75% to 60% and clarifies a borrower does not have to begin repaying a loan until the SBA determines whether or not the business is eligible for loan forgiveness.
The PPP Flexibility Act also lifts the ban on borrowers whose loans were partially or completely forgiven from deferring payment of payroll taxes. The payroll tax deferral is now open to all PPP borrowers.
The PPP provides businesses with fewer than 500 employees, including ground ambulance service organizations, with access to loans at favorable terms to cover employee payroll for an original timeframe of eight weeks. Under the CARES Act, a borrower can have all or a portion of the loan forgiven depending on the percentage of retained employees.
The AAA will continue to press the Congress and federal agencies for help to ensure ambulance service organizations and our paramedics and EMTs serving on the front lines of the COVID-19 pandemic have the necessary resources and financial assistance to serve their communities.
On May 28, the U.S. House of Representatives passed by a vote of 417 to 1 the Paycheck Protection Program Flexibility Act of 2020.
The Paycheck Protection Program Flexibility Act of 2020 provides small businesses with more flexibility in how the Paycheck Protection Program (PPP) funds established under the CARES Act are spent and still qualify for loan forgiveness.
The PPP provides businesses with fewer than 500 employees, including ambulance service organizations, with access to loans at favorable terms to cover employee payroll for an original timeframe of eight weeks. Under the CARES Act, a borrower can have all or a portion of the loan forgiven depending on the percentage of retained employees.
The Paycheck Protection Program Flexibility Act extends the timeframe in which to spend PPP funds from the current 8 weeks to 24 weeks and extends the original deadline from June 30, 2020 to December 31, 2020 for businesses to rehire furloughed employees to qualify for loan forgiveness. The legislation also lowers the minimum percentage of loans that must be allocated towards payroll from 75% to 60% and clarifies a borrower does not have to start repaying a loan until the SBA determines whether or not the business is eligible for loan forgiveness.
Further, the bill amends the program so loan forgiveness will not be affected by an inability to rehire all employees if an employer is unable to rehire a former employee, can demonstrate an inability to hire similarly qualified employees before the deadline, or can demonstrate an inability to return to their pre-COVID level of business activity.
The final provision of the Paycheck Protection Program Flexibility Act removes restrictions on deferment of payroll taxes and PPP loan forgiveness, allowing small businesses to both qualify for loan forgiveness under the PPP and delay their 2020 payroll taxes.
The AAA leadership and staff will continue to tirelessly advocate for the much-needed relief to ensure that our members can keep their doors open, receive the equipment necessary to protect their staff, and the resources to provide excellence in mobile healthcare. We will keep you abreast of our advocacy efforts as well as changes to the Paycheck Protection Program as soon as the details become available.
The Department of Treasury has announced that the $350 billion appropriated under the CARES Act for the Paycheck Protection Program has been exhausted. However, Congressional leaders are currently negotiating an economic stimulus package to act as a bridge between the CARES Act and the next comprehensive package stimulus package. A core provision of the bridge package is an allocation of an additional $250 billion for the Paycheck Protection Program. If your operation is in the process or plans to apply for a loan under the Paycheck Protection Program, you should move forward with your efforts. The AAA is advocating that the bridge package or next comprehensive package include more funding for ambulance services.
The recent Coronavirus Aid, Relief, and Economic Security Act (CARES Act) brings much-needed financial assistance to ambulance services and their employees. The chart below is designed to assist EMS leaders in determining which programs are best for you.
Section 1102 provides $349 billion for expedited individual loans up to $10 million through approved lenders that are guaranteed 100% by the U.S. government. The loan proceeds can be used to cover payroll support (such as employee salaries, paid sick or medical leave, insurance premiums) and mortgage, rent and utility payments incurred from February 15, 2020 through June 30, 2020.1 The maximum amount of a loan equals 2.5 months of average historical monthly payroll expenses, subject to certain exclusions.
On March 31, 2020, the Department of Treasury issued preliminary guidance regarding the imminent implementation of the Paycheck Protection Program (PPP). On April 2, 2020, the Small Business Administration (SBA) issued an interim final rule providing additional implementation guidelines and requirements for the PPP.
Small businesses and sole proprietorships started to apply for and receive PPP loans on April 3, 2020. Independent contractors and self-employed individuals can begin applying on April 10, 2020. The loans are first come, first served.
Benefits for Borrowers: Borrowers are eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. All borrower and lender fees, collateral and personal guarantee requirements are waived. The fixed interest rate is 1 percent and loan maturity is two years. No prepayment fees will be charged. Loan repayments can be deferred for six months.
Benefits for Lenders: Allows loans to be sold on the secondary market. Provides the regulatory capital risk weight of loans made under this program, and temporary relief from troubled debt restructuring (TDR) disclosures for loans that are deferred under this program. Lender compensation for servicing the loan is 5 percent for loans of not more than $350,000;
3 percent for loans of more than $350,000 and less than $2,000,000; and 1 percent for loans of not less than $2,000,000. Interim SBA regulations provide some protection for banks in the underwriting process.
The SBA lender list can be found at https://www.sba.gov/paycheckprotection/find.
SBA counts all individuals employed on a full-time, part-time or other basis, so this includes employees obtained from a temporary employee agency, professional employee organization or leasing arrangement. Contractors receiving IRS Form 1099 and volunteers are not considered employees.
The method for determining size includes the following principles:
The SBA’s affiliation rules substantially impact the ability of many entities to qualify for small business loans. On April 3, 2020, SBA issued an interim final rule (Affiliation IFR) about the applicability of affiliation rules at 13 C.F.R. §§ 121.103 and 121.301 to PPP loans. This supplements the SBA’s April 2 interim final rule.
The Affiliation IFR clarifies that SBA’s affiliation rules apply to all PPP applicants unless an exemption provided in the CARES Act applies. It also adds a new exemption, providing that affiliation rules do not apply to relationships of any church, faith-based organization, or entity that is based on religious teaching or belief. Affiliation rules a waived for:
Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised. SBA’s affiliation rules applicable to financial assistance programs, found at 13 C.F.R. §§ 121.103, provide that any of the following circumstances is sufficient to establish affiliation.
Eligible borrowers can seek a total loan amount equal to monthly average of payroll over the past 12 months, multiplied by 2.5. “Payroll costs” include salary, wages, commissions, cash tips, paid vacation or leave, insurance premiums and other group health care payments, allowance for separation or dismissal, paid retirement benefits and state or local taxes. The statute also allows a business to include the “sum of any compensation to or income of a sole proprietor that is a wage, commission, or income, net earnings from self-employment, or similar compensation” in payroll costs to the extent these amounts are in an amount that is not more than $100,000 in one year.
“Payroll costs” do not include individual compensation in excess of $100,000, certain taxes (including the employer’s share of the social security portion (6.2% of employee wages) and the Medicare portion (1.45% of employee wages) of payroll taxes known as Federal Insurance Contributions Act (FICA)) and ordinary income tax withholding, compensation paid to an employee if their place of residence is outside the United States and paid leave under the Families First Coronavirus Relief Act.
Example: An employer with total payroll costs of $12 million over the past 12 months is eligible for a PPP loan of $2.5 million ($1 million average monthly payroll cost x 2.5).
If you received an Economic Injury Disaster Loan (EIDL) between January 21, 2020 and April 3, 2020, you can add the outstanding amount of that loan (less the amount of any “advance” under a COVD-19 EIDL) to your calculated total (average monthly payroll cost x 2.5) for purposes of calculating your maximum loan amount.
Example: An employer calculated the $2.5 million amount in the above example, and also has an outstanding COVID-19 EIDL of $600,000, $100,000 of which was an advance. The employer is eligible for a PPP loan of $3 million ($2.5 million plus
$600,000, minus $100,000 advance).
Borrowers that were not in business between February 15, 2019 and June 30, 2019 can receive a loan amount equal to 2.5 times their average payroll costs between January 1, 2020 and February 29, 2020. Borrowers that have existing loans under certain SBA programs may be subject to different limits.
Lenders must consider whether the borrower was in operation before February 15, 2020 and had employees for whom the borrower paid salaries and payroll taxes, (or paid independent contractors under Form 1099-MISC). Borrowers also must make a good faith certification on the PPP application form that:
The PPP waives certain fees typically required for SBA loans, including those under Sections 18(A) and 23(A) of the statute. Applicants also do not need to certify that they are unable to obtain credit elsewhere, or provide a personal guarantee or collateral for a covered loan. However, loan proceeds received under PPP cannot be used for the same costs for which proceeds from a loan received through the Economic Disaster Loan Assistance Program are used.
Loan proceeds may only be used to pay: (1) payroll costs; (2) costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums; (3) mortgage interest payments; (4) rent payments; (5) utility payments; (6) interest on any debt obligation incurred before the covered period; or (7) refinancing EIDL made between January 31, 2020 and April 3, 2020.
Loan amounts expended during the eight-week period following the loan origination will be forgiven, up to the total amount of the loan, if used for payroll costs (up to an annualized rate of
$100,000 per employee). In addition, up to 25 percent of the loan forgiveness amount may be attributable to qualifying non-payroll costs including: (1) interest on a mortgage obligation; (2) rent; or (3) covered utilities. The CARES Act provides an exception from the general rule that debt forgiveness is taxable, so that that amount of loan forgiveness will not be included in the borrower’s taxable income.
The forgiveness amount will be reduced if the employer reduces the number of full-time equivalent employees, or reduces employees’ salary and wages beyond a certain amount during the eight-week period.
First, the forgiven amount will be reduced by multiplying the amount of forgivable costs by:
*Seasonal employers must measure the average number of FTE employees for the period from February 15, 2019 to June 30, 2019.
Example: Borrower had average FTEs of 300 employees per month from February 15- June 30, 2019, and average FTEs of 250 employees per month from January 1- February 29, 2020. The borrower obtains a $2.5 million loan and uses all of the loan proceeds to pay for forgivable expenses. During the eight-week period following the loan, the borrower employ an average of 150 FTEs per month. Employer elects January 1-February 29, 2020 baseline period. Forgiveness on the loan is reduced as follows:
150 Covered Period FTEs / 250 Baseline Period FTEs = 0.6
$2.5 million x 0.6 = $1.5 million forgiven
*Remaining $1 million principal must be repaid at applicable interest rate over remaining term of loan
Second, the forgiven amount will be reduced by the amount of any reduction in total salary or wages during the eight weeks after origination that exceeds 25 percent of an employee’s total salary or wages during most recent full quarter during with the employee was employed.
Employees that earned annualized pay in excess of $100,000 in 2019 are not counted for these purposes.
Example: Borrower obtains a $2.5 million loan and uses all of the loan proceeds to pay for forgivable expenses. During the eight-week period following the loan, the borrower reduces pay of hourly employees by 50 percent, resulting in a total reduction in compensation of $1,500,000. The borrower also reduces the pay of its five officers, all of whom earn more than $100,000, by 50 percent. The reduction in officer pay produces a savings of $250,000. No reduction in FTEs occurs. Forgiveness on the loan is reduced as follows:
$2.5 million – $750,000 (comp. reduction in excess of 25 percent to employees earning less than $100,000) = $1.75 million forgiven
(Remaining $750,000 principal must be repaid at applicable interest rate over remaining term of loan)
Borrowers may “cure” reductions in FTEs or compensation for purposes of forgiveness in certain circumstances. Specifically, these reductions will not reduce the forgiveness amount if:
Borrowers must provide sufficient documentation to demonstrate compliance with these requirements, including: (1) payroll tax filings reported to the Internal Revenue Service; (2) state income, payroll and unemployment insurance filings; and (3) other documentation, including cancelled checks, receipts or account transcripts, to verify mortgage interest, rent and utility payments.
Borrowers also must certify that the amounts for which forgiveness is requested were used to retain employees and make covered mortgage interest, rent or utility payments.
SBA intends to issue additional guidance on the loan forgiveness provisions of the PPP loan.
Beginning on April 3, 2020, you can apply at any lending institution that is approved to participate in the Small Business Administration’s 7(a) lending program. Additionally, upon completion of the CARES Act Section 1102 Lender Agreement (SBA Form 3506), the following types of lenders will be “automatically qualified” to issue PPP loans provided they are not currently designated in Troubled Condition:
However, the $349 billion in funds may not still be available by the time additional qualified lenders submit the requisite Lender Agreement. You will not have to visit any government institution to apply for the loan. Applicants are eligible to apply for the PPP loan until June 30, 2020.
For eligibility purposes, lenders will not be determining eligibility-based repayment ability, but rather whether the business was operational on February 15, 2020 and had employees for whom it paid salaries and payroll taxes (or paid independent contractors).
US Treasury Press Release: March 31, 2020
Contact: Treasury Public Affairs, (202) 622-2960
With $349 Billion in Emergency Small Business Capital Cleared, Treasury and SBA Begin Unprecedented Public-Private Mobilization Effort to Distribute Funds
WASHINGTON – Following President Trump’s signing of the historic Coronavirus Aid, Relief, and Economic Security (CARES) Act, SBA Administrator Jovita Carranza and Treasury Secretary Steven T. Mnuchin today announced that the SBA and Treasury Department have initiated a robust mobilization effort of banks and other lending institutions to provide small businesses with the capital they need.
The CARES Act establishes a new $349 billion Paycheck Protection Program. The Program will provide much-needed relief to millions of small businesses so they can sustain their businesses and keep their workers employed.
“This legislation provides small business job retention loans to provide eight weeks of payroll and certain overhead to keep workers employed,” said Secretary Mnuchin. “Treasury and the Small Business Administration expect to have this program up and running by April 3rd so that businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day. The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses.”
“This unprecedented public-private partnership is going to assist small businesses with accessing capital quickly. Our goal is to position lenders as the single point-of-contact for small businesses – the application, loan processing, and disbursement of funds will all be administered at the community level,” said Administrator Carranza. “Speed is the operative word; applications for the emergency capital can begin as early as this week, with lenders using their own systems and processes to make these loans. We remain committed to supporting our nation’s more than 30 million small businesses and their employees, so that they can continue to be the fuel for our nation’s economic engine.”
The new loan program will help small businesses with their payroll and other business operating expenses. It will provide critical capital to businesses without collateral requirements, personal guarantees, or SBA fees – all with a 100% guarantee from SBA. All loan payments will be deferred for six months. Most importantly, the SBA will forgive the portion of the loan proceeds that are used to cover the first eight weeks of payroll costs, rent, utilities, and mortgage interest.
The Paycheck Protection Program is specifically designed to help small businesses keep their workforce employed. Visit SBA.gov/Coronavirus for more information on the Paycheck Protection Program.
Loan Terms & Conditions
Visit treasury.gov/cares for more information on SBA’s assistance to small businesses.