The part of the CARES Act that has me most excited for small and not so small business is the Paycheck Protection Program. There is even a sweet tax deal that is part of it. Just about every entity that qualifies should take advantage. Besides businesses, it is also an opportunity for 501(c)(3) organizations.
Elevated View Of Person’s Hand Removing Paycheck From The Envelope Over Wooden Desk
An extremely oversimplified possibly somewhat inaccurate summary of the program goes like this. You got to a bank that is approved for the Small Business Administration 7(a) loan program and tell the bank you want to sign up for a Paycheck Protection Program loan. If they don’t know what you are talking about, go to another bank. There are 1,800 of them (There may be more next week).
I tried to find a list of the banks, but did not have any luck.
You show the bank that last year you had payroll. Your loan is the lesser of 2.5 months of payroll (broadly defined including many forms of compensation) and some other expenses such as rent or $10 million. In figuring the average monthly payroll, annual salaries over $100,000 are kicked out.
The terms are pretty sweet. Up to 10 years at 4% interest. No collateral and no personal guarantee. There are people I know that are ecstatic already, but it gets better.
If you spend the money as you are supposed to keep people employed, some or all of the loan is forgiven. If that is the icing on the cake, here is the big cherry on top. Usually when you borrow money and then don’t have to pay it back, you have taxable income – discharge of indebtedness. But not when the loan was part of the Paycheck Protection Plan.
“Taxability.—For purposes of the Internal Revenue Code of 1986, any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection (b) shall be excluded from gross income.”
So that loss you were expecting to carry back to get a refund of your 2017 taxes is still there.
Does It Matter If I Have The Details Right?
Well it matters to me and my editor of course, but it doesn’t really matter that much to you. Here is why. The legislation is in place, Representative Thomas Massie to the contrary notwithstanding.
UNITED STATES – MARCH 27: Rep. Thomas Massie, R-Ky., stops to speak with reporters as he leaves the … [+]
CQ-Roll Call, Inc via Getty Images
I have to say I kind of admire the guy.
The legislation is written in such away that it is clear that they want to shovel out the money quickly. Still. SBA has to come up with what the rules are and let the banks know. Then the banks have to implement procedures. As far as you are concerned what matters is what the bank you go to thinks. Of course, if you think they are being too difficult you can always go to another bank.
How long will that all take? There is hope that it will be a week or two, but time will tell.
The Current Action Step
I started calling banks, perhaps foolishly working my way down the list of the largest banks. With one of them I was careless about how I identified myself when asking how quickly the bank might be able to start issuing loans. They wrote to clarify my identification. I wrote back that I was a contributor to Forbes.com and I got:
“Thanks Peter, we will decline.”
I would share with you my internal mental response to that, but we have these contributor guidelines.
Regardless, my persistence paid off and I struck gold with US Bank. They have been monitoring the progress and are one of the 1,800. There is a simple online form to fill out and they promise to contact you as soon as they have the details. My company Risorgimento Productions LLC probably doesn’t qualify, but I filled it our for research purposes anyway.
There Is More
I am planning a longer post on this program, but this tells you much of what you need. I have no attachment to US Bank and will pass on anything I learn about other banks. Simply put, if you have a business there is a good chance you are going to want to participate in this program. As of this moment, the program does not exist, but it is supposed to happen fast.
If you want to go beyond my oversimplification without reading the bill, this summary by Owen Yin is pretty good.
Remember. It doesn’t matter what you, I, Owen Yin, your accountant or barber think. It is the bank where you get the loan.