Menu
HARIK THOMPSON CPAs
  • About
    • Team
      • Patricia Harik
      • Kevin Thompson
    • Affiliation
  • Services & Industries
    • Accounting Services
    • Business Consulting
    • Entertainment Industry
    • Estates and Trusts
    • Financial Planning
    • International Taxation
    • Tax Strategies
  • Insights
  • Resources
  • Payments
  • Contact
  • About
    • Team
      • Patricia Harik
      • Kevin Thompson
    • Affiliation
  • Services & Industries
    • Accounting Services
    • Business Consulting
    • Entertainment Industry
    • Estates and Trusts
    • Financial Planning
    • International Taxation
    • Tax Strategies
  • Insights
  • Resources
  • Payments
  • Contact

The SBA EIDL and PPP Loans and Their Tax Implications

4/8/2020

 
Among the many relief provisions passed by Congress in recent days are loans focused on small businesses. This isn't entirely new to the SBA, which has long been in the loan business, but recently passed laws supercharged the offerings. As with so many government programs, however, the devil is in the details. Below are some specifics, and you should review the details carefully before proceeding.
Even before the current crisis, the SBA offered the Economic Injury Disaster Loan (EIDL) program, which is still available. A newer offering the Paycheck Protection Program loan program, should be available in the coming days. Some businesses may want to wait for it to be available; others may want to apply for the EIDL program now and possibly refinance it into their PPP loan later.
Below are comparisons between the two loan programs. Note that a lot of tweaking still is going on, so details may change in the coming days.

Terms of the loan
EIDL:
  • Maximum loan amount is $2 million, with an immediate advance of up to $10,000 from the SBA.
  • The interest rate is 3.75% for businesses and 2.75% for nonprofits.
  • Repayment begins one year after the loan origination date and interest is accrued during the deferment.
  • The term of the loan cannot exceed 30 years.
  • Loans are made directly by the SBA.
  • The loan may not be forgiven.

PPP:
  • Maximum loan amount is $10 million and calculated according to a formula.
  • The interest rate initially was to be a maximum of 4%, but recent SBA guidance says it has now been set at 1%.
  • Repayment begins at least six months after the loan origination date and interest is accrued during the deferment.
  • The term of the loan cannot exceed 10 years.
  • If you received an EIDL, you may be able to refinance it into your PPP loan.
  • Loans will be made by SBA-approved lenders and underwritten by the SBA. All existing SBA-certified lenders will be given delegated authority to speedily process PPP loans. Check if your local bank is approved and ready to accept applications.
  • The loan may be forgiven, but the forgiveness amount is calculated according to a complex formula.

Collateral and personal guarantees
EIDL:
  • Collateral: The SBA will place a Uniform Commercial Code lien against the assets of the business.
  • Personal guarantee: For loans greater than $200,000, owners of more than 20% of the business have to provide personal guarantees. However, no liens will be taken against real estate owned by the guarantor.
  • Recent legislation removed the requirements that the borrower (1) not be able to secure credit elsewhere or (2) must have been in business for at least one year, as long as the business was in operation on Jan. 31, 2020.
PPP:
  • Collateral: not required.
  • Personal guarantees: not required.

Permitted uses of loan proceeds
EIDL:
  • Financial obligations and operating expenses that could have been met had the disaster not occurred.
PPP:
  • Payroll costs, group health care benefits, insurance premiums, interest on mortgages or other debt incurred prior to Feb. 15, rent on any lease in force prior to Feb. 15, 2020 and utility payments.
  • For PPP purposes, payroll costs include salaries, commissions and tips; certain employee benefits (including health insurance and retirement benefits); and certain types of compensation to sole proprietors or independent contractors.
  • Certain payroll costs are specifically excluded from the PPP, including compensation of an individual employee in excess of an annual salary of $100,000, foreign employees, and FICA and income tax withholdings.
There are other provisions and limits as well. Consult the latest official guidance for full details.


Some Tax Implications
The Coronavirus Aid, Relief, and Economic Security Act grants a payroll tax credit for employment taxes owed by certain eligible employers that were especially impacted. Typically, these include but are not limited to businesses that had to close because of COVID-19.

Also, employers may be able to defer the employer portion of any Social Security taxes for the period beginning on March 27, 2020, and ending before Jan. 1, 2021. Half of the employer portion of any Social Security taxes for the payroll tax deferral period can be deferred until Dec. 31, 2021. The second half can be deferred until Dec. 21, 2022.
​
Would-be borrowers have a lot to consider. A key point is that any borrower who gets a PPP loan forgiven can't claim a payroll tax credit or deferral of payroll tax also offered under the CARES Act. So it is important to consider the benefits offered under each of these options in the process.

Comments are closed.

    Newsletter articles are posted every 2 weeks. ​

    If you would like to have our e-newsletter delivered directly to your inbox, please sign up. Your information is confidential; you can unsubscribe at any time. Subscribe.

    Categories

    All
    1040-X
    1099 Form
    2021 Adjustments
    401Ks And IRAs
    529 College Savings Plans
    941 Form
    ACA Affordable Care
    Accounts Receivables
    ADA Americans With Disabilities Act
    Alternative Minimum Tax
    Annuities
    ASC 606
    Audits
    Back Pay
    Backup Withholding
    Bankruptcy
    Basis
    Benefit Transfers
    Blockchain
    Bonuses
    Budgeting
    Business Closure
    Business Deductions
    Business Interest Expense
    Business Interruption Insurance
    Business Structure
    Business Tips
    Capital Gains
    CARES Act
    Cash And Accrual
    Cash Flow
    Charitable Gifts
    Commercial Real Estate Vacancies
    Communication
    Compensation
    Coronavirus
    Coronavirus Relief Package
    Credit Cards
    Credit Score
    Crowdfunding
    Death And Debt
    Debt
    Deductions
    Depreciation
    Disaster Relief Payments
    Disaster Tax Break
    Diversity Training
    Dividends
    Divorce
    D&O Insurance
    Dollar Cost Averaging
    Down Payment
    Dress For Success
    Earned Income Tax Credit
    Economic Injury Disaster Loan
    Education Credits
    EIN Employee ID Numbers
    EITC
    Elder Mediation
    Employee Direct Deposit
    Employee Leave
    Employee Overpayment
    Employee Ownership
    Employee Pay
    Employee Retention Credit
    Employees Cross State Lines
    Employee Taxes
    Employment Record Keeping
    Employment Taxes
    Entertainers
    ESOP
    Estate Planning
    Estate Taxes
    Estimated Taxes
    Executor
    Expenses And Depreciation
    Expensing Rules
    Family Businesses
    Family Leave
    FATCA
    Federal Excise Tax
    Fiduciary
    Filial (Adult Child) Responsibilities
    Filial Responsibility
    Filing Status Options
    Financial
    Financial Advisor
    Financial Planning
    Flood Insurance
    Floods
    Foreign Earned Income
    Franchise Ownership
    Fraud
    Freelancing
    Furloughs
    Harik Thompson Merger
    Headcount Reporting
    Health Care
    Health Savings Account
    HIPAA
    Hiring Compliance
    Hiring Help
    Hiring Tax Credits
    Hoaxes
    Hobby Vs. Business
    Home Equity Loans
    Home Office Deduction
    Homeowners
    Homeowners' Deductions
    HSA
    Hurricanes
    IC-DISC
    Identity Theft
    Income Tax
    Independent Contractors
    Inflation
    Information Return
    Inherited Mortgage
    Innocent Spouse Rule
    Insurance
    Intestate
    Inventory Management
    Investing
    Investors For Your Business
    IRAs
    IRS CP2000
    IRS Disagreements
    IRS Identity Protection PIN
    IRS Representation
    IRS Rights
    Joint Tenancy
    Key Performance Indicators
    Kiddie Tax
    Layoffs
    Lease Accounting
    Leave
    Legacy
    Life Insurance Trusts
    Loans
    Long Term Care Insurance
    Managing Employees
    Market Capitulation
    Marriage Penalty
    Maternity And Paternity Leave
    Medicaid Trust
    Medical And Dental Deductions
    Medicare
    Mergers
    Mileage Rates
    Morale
    Mortgages
    Multistate Taxes
    Myers-Briggs Personality Types
    Net Investment Tax
    Net Pay
    New
    Newsletters
    New Tax Law
    Noncompete Agreements
    Operating Loss
    Opportunity Zones
    Organize Your Finances
    OSHA
    Outsourced Accounting
    Overtime Exemption
    Padding
    Pandemic Planning
    Papers For Taxes
    Part-time Help Tax Rules
    Passwords
    Payable On Death Accounts
    Paycheck Protection Program
    Payday Changes
    Payday Frequency
    Payroll Cards
    Payroll Scams
    Payroll Taxes
    Pensions
    Personal Finances
    Power Of Attorney
    PPP Loan
    Private Tax Debt Collection
    Profit Sharing
    Property Taxes
    Protecting Wealth
    QSEHRA Benefits
    Quarterly Tax Returns
    R & D Tax Credit
    Real Estate 1031 Exchange
    Real Estate Held In IRA
    Real Estate Investment Trusts
    Reciprocal Agreements
    Records
    Recovery Rebate Credit
    Referral Program
    Rehiring Staff
    Remote Employees
    Reporting
    Reputation
    Retirement
    Revenue Recognition
    Reverse Mortgage
    Sales Tax
    SBA Loans
    Schedule C
    S Corporations
    Self Employment Taxes
    Severance Pay
    Sexual Harassment
    Sharing Economy Tax Implications
    Sick Leave Rules
    Small Business Administration
    Social Media
    Social Security
    Spendthrift Trust
    State And Local Taxes
    Student Loans
    Success
    Succession Plan
    Supplemental Wages
    Supply Chain Risks
    Tariffs
    Tax Brackets
    Tax Breaks
    Tax Changes
    Tax Credits
    Tax Debt Collection
    Tax Deductions
    Tax Forms
    Tax Implications
    Tax-Loss Harvesting
    Taxpayer First Act
    Tax Planning
    Tax Preparation
    Tax Reform
    Tax Refunds
    Tax Scams
    Tax Tips
    Trump's Tax Law
    Unemployment Tax
    W-2 Form
    W-4 Form
    W-4 Requests
    Wage Garnishments
    Wages And Overtime
    Wildfire Solution
    Wills And Trusts
    Withholding
    Work Opportunity Tax Credit
    Year End Tax Considerations

    RSS Feed

Proudly powered by Weebly