The Next Phase: The CARES Act Paycheck Protection Program

By Alan R. Sasserath, CPA, MS

It’s been almost a week since our last email and a lot has changed in that time frame. The biggest change was that President Trump signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) into law on Friday. There are a myriad of tax changes and economic stimulus provisions in addition to unemployment, health care, health system as well as other stimulus and stabilization provisions.

While I said above that a lot has changed, a lot hasn’t. In our previous emails, we stressed that cash flow is critical right now for all businesses, especially small businesses. We are still at the point where it is the most critical issue and will continue to be the most critical issue for at least the short term. In our estimation, the most significant business provision in the CARES Act is the Paycheck Protection Program (“PPP”) which falls under the U.S. Small Business Administration’s (“SBA”) 7(a) loan program.

Because it is so significant from the cash flow perspective, we have spent the better part of the last few days analyzing the PPP. The tax and other cash flow provisions in the CARES Act are important and we expect to take a deeper dive into those this week; however, they don’t come close to comparing to the cash flow significance of the PPP.

The most significant provision of the PPP is the provision that it is a loan that can be forgiven under certain circumstances.

Here is a high-level overview of the PPP:

  • It generally applies to businesses with fewer than 500 employees.
  • The amount of the loan is the lesser of (1) the average monthly payroll (salary, wage, commission, tips, vacation, group health benefits, certain other payments, etc.…) up to $100,000 on an annualized basis per employee/payee for the 12 months preceding the date of the loan multiplied by 2.5 plus the balance of any pre-existing emergency loan, or (2) $10,000,000.
  • The loan proceeds may only be used for payroll as defined above, interest on any mortgage obligation, rent, utilities and interest on any other debt obligations that were in place before February 15, 2020 (“Covered”).
  • In evaluating the eligibility of a borrower, the lender shall consider whether the borrower was in operation on February 15, 2020; had employees; or paid independent contractors as reported on Form 1099-MISC.
  • No personal guarantee requirement.
  • No collateral requirement.
  • Forgiveness: The amount that can be forgiven include the amounts paid by the borrower during the 8-week period following the loan origination date for:
    • Covered payroll costs – Generally including payroll as defined above up to $100,000 per employee/payee on an annualized basis. In other words, the amount of loan forgiveness available is limited to $1,923.07 per week or $15,384.56 over an 8-week period per employee.
    • Interest on a “Covered” mortgage obligation.
    • “Covered” rent obligation.
    • “Covered” utility obligation.
    • Any amount not forgiven will become a term loan for up to 10 years with a maximum interest rate of 4%.

The loan forgiveness can be reduced either based on a reduction in employees or a reduction in salaries of certain employees if their salaries are less than $100,000 on an annualized basis.

Even if you have laid people off, you are still entitled to the loan based on prior year payroll.  If you lay people off during the period February 15, 2020 – April 26, 2020 and hire them back by June 30, 2020, then you will not be penalized as discussed in the paragraph above. Remember, even if you are penalized, the penalty is that the term loan remains in effect and is not forgiven. Please note that the penalties related to the forgiveness of the loan is a complicated area of this program and beyond the scope of this writing.

We are suggesting that everyone should analyze this loan as it pertains to their circumstance. If you aren’t sure, take it. There is no penalty to prepay it.

It is going to take a little while for the banks to gear up to be able to make these loans. We don’t know how long. As of Friday, one banker mentioned that they were waiting from the SBA for guidelines. Treasury Secretary Mnuchin said that he wants loans to start by Friday. We’ll see.

With the program’s dependence on banking relationships, those businesses who lacked strong relationships prior to the coronavirus pandemic may get left behind if they don’t act quickly. We can help you with this. In the meantime, if you do have a banking relationship, call your bank and make sure they know you are on top of this and want it as soon as it is available.

Attached is a spreadsheet to assist in the calculation of the amount of the loan. Please call us if you need assistance and we will walk you through it. If there is enough demand, we will hold a webinar to explain the workbook and how to use it. Please let us know if you are interested.

It’s the start of a new week, and we are now one week closer to getting through this ordeal. Keep moving forward. Look at the shovel, don’t look at the mountain.

Thank you for your time. Click here to download the workbook

Payment Protection Program Loan Under the CARES Act

By Alan R. Sasserath, CPA, MS

Here is a high-level summary of the “Payment Protection Program Loan” (The loan that can be forgiven under certain circumstances):

  • The amount of the loan is the lesser of (1) the average monthly payroll (salary, wage, commission, tips, vacation, group health benefits…) up to $100,000 per employee for the preceding 12 months multiplied by 2.5 plus the balance of any pre-existing emergency loan or (2) $10,000,000.
  • Interest rate on such loan not to exceed 4%.
  • The loan proceeds may only be used for payroll as defined above, interest on any mortgage obligation, rent, utilities and interest on any other debt obligations that were in place before February 15, 2020 (“Covered”).
  • In evaluating the eligibility of a borrower, the lender shall consider whether the borrower was in operation on February 15, 2020; had employees; or paid independent contractors as reported on Form 1099-MISC.
  • No personal guarantee requirement. No collateral requirement.
  • Forgiveness: The amount that can be forgiven include the amounts paid by the borrower during the 8-week period following the loan origination date for:
    • Covered payroll costs – Generally including payroll as defined above up to $100,000 per employee on an annualized basis. In other words, the amount of loan forgiveness available is limited to $1,923.07 per week or $15,384.56 over an 8 week period per employee.
    • Interest on a “Covered” mortgage obligation.
    • “Covered” rent obligation.
    • “Covered” utility obligation.

A few other items to note:

  1. There are reductions to the amount of the loan forgiven based on a reduction in the number of employees. So, if you have had layoffs, now is the time to reconsider since you can bring them back within 30 days of enactment without such penalty. However, as noted below, it is going to take a little time for the banks to ramp up to be able to distribute these dollars, so you may want to wait on such re-hiring until you are closer to getting this loan. Keep in mind that this hasn’t been signed into law yet, so you have a little time to make this decision.
  2. If you reduced the salaries of employees that make less than $100K annually, there are further reductions in the amount of loan forgiven if such salary reduction exceeds 25% of their compensation.

As stated above, we think that it is going to take a little while for the banks to gear up to be able to make these loans.

We are working on a summary of the payroll credits mentioned in my prior emails as well as the other provisions in the legislation and will send more detailed information on this as well.

Next Phase: Cashflow & COVID-19

By Alan R. Sasserath, CPA, MS

Over the last week, some of you received two emails from me with the subject “The Next Phase.” For those of you that didn’t receive those emails, please click the link here. You can see how our messaging is becoming more and more clear as the economic challenges surrounding the COVID-19 virus have gotten more serious. This email is no different.

One of the topics discussed in the emails was the importance of cashflow. Most of my conversations with clients today have been about – cashflow. I cannot stress enough how critical it is that tough, cost cutting decisions be made NOW, and you put yourself in a position to get through what we believe will be a huge cash crisis in the coming weeks. Many of you know me and know that I am not an alarmist. I am sounding the alarm here, because I don’t believe that everyone is taking this seriously enough. I think people, in general, believe this is serious, but I don’t see the action I would expect in all cases.

We, like many others, are waiting for the Federal Stimulus Package (“Stimulus Package”) to come through. When it does, we have people on our team ready to rip it apart, understand it and figure out how to get it working for our clients. We have already gone through our client list and started sorting the typical data needed for loan packages to be ready if/when there is a loan provision in the Stimulus Package. Just like we have already been working to apply for SBA Disaster Loans for many of our clients, we expect to do the same under the Stimulus Package. That assumes a loan program comes through in the package as has been discussed.

You cannot count on the Stimulus Package to bail you out. You must act now. Once the Stimulus bill passes the Senate, it will get reconciled with the House bill and then onto the President for signature. That will probably take another 24-48 hours from Senate approval.

Once it is signed into law, how long does it take to get those dollars deployed into the economy and does that happen quick enough for it to make a difference to you? I don’t know the answer to that and neither do you. My point is that you need to take control of your cashflow situation now. If I am wrong and they can deploy the cash in record time, then I can live with that. I cannot live with being put out of business because I didn’t take action on the tough issues that I didn’t want to attack head-on.

Let us know how we can help. If you aren’t preparing a loan package for the SBA Disaster program or putting together the information required with most loan packages for the expected loan program with the Stimulus Package (three years of business tax return, three years of personal tax returns, personal financial statement, etc.), there is a good chance that you should be.

We are all in this together. We are here for you. We will get through this together.

Thank you for your time.

The Next Phase: Update

By Alan R. Sasserath, CPA, MS

As you are aware, since my last writing this past Tuesday, the health and economic issues regarding Covid-19 have changed for the worse and will most likely continue to change for the worse in the short term.

I have to admit, when I saw that accountants were on the list of essential businesses in NYS, I wasn’t exactly sure why.  After reviewing the legislation that has already come, drafts of the stimulus packages that are to come and seeing what our clients faced this past week and what we believe they will be facing in the coming weeks, I completely understand why we are on the list.  We are here to help.

So we are clear, we view our response to assist you through this dark phase in our country’s history as part of our civic duty.  Our firm is going through many of the same things that you are going through.  While we cannot work for free, we understand everyone’s predicament as it relates to this type of work and will be reasonable with all of our clients with regards to our fees and ask them to be reasonable with us.  We are not viewing this as a windfall opportunity for us, but rather we are asking that we end up in no worse shape than any of you when this is all said and done.  We will be making the same tough decisions internally that we believe many of you will be making in the coming days/weeks.

We are writing now to help you understand the resources available to small/mid-sized businesses – We are here for you and want to help you through this.  There are resources available to businesses.  We are waiting to hear about what we hope will be the largest piece of legislation – the Coronavirus Stimulus Package (Expected to be in the range of $1.4 – $1.8 trillion.) being negotiated by congress/senate/president and hope to see that passed as early as tomorrow.  As soon as that comes out, we will digest it and explain how it will apply to many of you.  Before we get that legislation, here is what we know:

  1. Tax Filings: The April 15th tax filing deadline was extended until July 15th.  This includes 2019 personal income tax, corporate income tax, trust and estate income tax as well as first quarter 2020 estimated tax payments.
  2. Families First Coronavirus Response Act: This is a piece of legislation that gives employers/employees relief if the employee or their families have been diagnosed with the Coronavirus.
  3. SBA Disaster Loans:  These are not the typical SBA loan that you apply for from your bank.  These are loans that need to be applied for direct with the SBA.  The website to apply for such a loan is located here. We will have a list available tomorrow of the items/information required to complete the application.

What else should you be thinking about?  Please see my post earlier this week here, especially the highlighted areas, with an update immediately below on certain items:

  1. Cashflow/Cashflow/Cashflow:
    1. Make a cashflow budget.  What cash do you have?  What cash do you expect to come in over the next week, 4 weeks and 8 weeks?  What cash do you need to pay out over the next week, 4 weeks, 8 weeks?  That is the budget, plain and simple.  We can help you with this.  Please don’t hesitate to lean on us.  Update that every week for the subsequent week, 4 weeks, 8 weeks.  Just like the healthcare community is now being very aggressive in fighting the Coronavirus, you need to be very aggressive in managing your cashflow.  You need to take these steps immediately.  Many of those that waited to address this when previous disasters struck were the ones that didn’t make it to the other side.
    2. Based on the budget, control your cash.  Take vendor payments off autopay.  Review your credit line availability.  Defer expenses where possible.  Stay close to your bank, customers and vendors.  Review vendor contracts.
    3. If your business has significantly dropped off and you own a pass through entity consider stopping withholding on your salary, possibly stopping your salary altogether.
  2. Insurance:  Review your policies to see if there is any coverage for this type of event.
  3. Supply Chain: Many supply chains have shut down.  Monitor the chain and find out when vendors expect it to open up, whether they have or will have product once it does open up.  You need to understand the timing that you expect to be back in business.

If things get worse from the health and economic perspective, as we expect it to, keep in mind that scams will most likely increase.  Trust your gut – If something doesn’t seem right, it probably isn’t right.  Protect your personal and business information.

As I said below, keep communications open with: customers, staff, your team, vendors, bank, attorney, …

We are all in this together.  We are here for you.  We will get through this together.

We will continue to communicate via direct email from me and our constant contact database.

Thank you for your time.

Federal Tax Payment Deadline Extended Due to COVID-19 Disruption

By Alan R. Sasserath, CPA, MS

In light of the COVID-19 outbreak, as well as the recent restrictions and operating hours placed on businesses and social gatherings, the Department of the Treasury announced today that the tax payment deadline of April 15 has been extended by 90 days. Individuals and business filers whose deadline is April 15 now have until July 14 to submit 2019 tax payments without incurring interest or penalties.

The U.S. Treasury has also announced that individuals, and pass-through businesses utilizing the individual code on a business owner’s personal tax return, will be able to defer up to $1 million in tax liability to the IRS for 90 days. Corporations will likewise be allowed to defer up to $10 million in tax liability.

So far, this extension does not affect the April 15 deadline to file tax returns, although requests for extra time can still be submitted. The federal government continues to urge Americans to file their tax returns by the April 15 deadline to receive their tax refunds as soon as possible, which could help with much-needed cash resulting from reduced work hours and a stalled economy. Approximately 70% of Americans receive tax refunds each year.

We anticipate that the states will follow suit and will advise you accordingly.  We also anticipate that the 90-day extension would apply to estates and trusts, but we have not been able to confirm that yet.

As for the March 15 deadline that has just passed for partnerships and S-corporations, payments due in connection with those returns, as well as the extension deadlines for those who did not file on March 15, have not changed. As the situation is rapidly evolving, Sasserath & Zoraian will report any updates to our clients as soon as the information becomes clear.

While we are not physically in the office, we remain ready to serve you without interruption. Please contact our office with any questions.

UPDATE: March 18, 2020 – The extension also includes payment of estimated taxes for the first quarter of 2020.

The Next Phase

By Alan R. Sasserath, CPA, MS

We hope this finds everyone safe and healthy.

To some of us that owned our own business in 2001 (9/11), 2008 (Financial Crisis) and 2012 (Hurricane Sandy), the current economic situation looks and feels familiar, not good, but familiar.  Maybe there is more uncertainty now?  I don’t know.  I do know that just like those periods of uncertainty and darkness, we will recover.  Whether the recovery is slow or fast, now is not the time to panic, but rather a time to plan and execute.  For many of us, 2020 went from a time to thrive to a time to survive over a matter of days.  For those in that situation, we need to put a plan in place to get us through this period of uncertainty until we are in a place where we can, once again, thrive.

There is no one-size fits all answer to the issues that we face, however, there are some things that we all must do to keep moving forward.  Below are some key points that everyone should address as they apply in no particular order.  Please note that the foundation to all of the factors below is communication.  Communication with clients, vendors, staff/team, finance, legal, …  Communication should come from one source and be consistent and honest.

Customers What are they going through and how will the current events affect them?  Are you in a position where you can help them through their issues?  Now is the time to get closer and not more distant.

Vendors and Supply Chain Continue to monitor the supply chain and be realistic with your expectations of your own output.  Do you have commitments?  What are they? What needs to be done about them?  If your cash flow budget says that you will need to adjust payment terms, have you discussed this with them?

Cash and finance What does your projected profit and loss statement look like?  What are your fixed expenses?  How can they be reduced or utilized in another fashion?  What is your current cash position?  What does your cash flow budget look like – short and long term?  What access do you have to credit facilities?  Once you have these answers, have you spoken with your bank?  Are there any programs that can help you get through this challenge?

Team/Staff:  Your team is what will get you through this challenge.  You need to be consistent and honest with them.  There will be some tough decisions to be made in the coming days/weeks.  Our experience is that if there needs to be a lay-off or an hours cut, to do it swift, to do it at one time and then once it is done, call everyone together and let them know that it is over and we are prepared to move forward.

IT Management/Security:  As many of us move to some or all of our team/staff working remotely, security risks increase.  What can be done to minimize the risk?  Two-factor authorization?  Are your IT advisors giving input to minimize security risks?  Understand the risks and act accordingly.

We continue to prepare to work remotely, but the majority of us continue to work out of our main office.  This may change as more information becomes available.

We also continue to monitor government updates and programs:

  • Attached is a summary of some of the provisions that may affect you from the Bill that passed the House of Representatives this weekend: H.R. 6201 – Families First Coronavirus Response Act.  The Senate is expected to vote on this shortly and is currently discussing additional aid to be offered.  This Bill will most likely change before it becomes law.
  • All indicators point to an extension of the April 15th tax filing deadline by as much as 90 days.  We are hopeful to hear definitive news on this by the end of this week.

Don’t be afraid to ask for help.  Continue to review the information available to you and to make decisions to move your company forward.