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On April 14, 2020, the MSBA Tax Section hosted its second webinar on the CARES Act Payroll Protection Program (PPP). This webinar, Caution Ahead: PPP Updates and Considerations for the Self-Employed, focused on grants and loans available to independent contractors, self-employed individuals and partnerships, and built on an April 3 presentation regarding small businesses and sole proprietorships. Frost Law attorneys Rebecca Sheppard and Peter Haukebo provided program updates, answered questions and made practical suggestions based on current experience with their clients and others that have sought relief from the SBA and SBA lenders for COVID-related economic hardships. Both presentations can be viewed in their entirety here.

Before addressing the new PPP loan provisions, the speakers reminded their audience that the CARES Act enhanced the pre-COVID Economic Injury Disaster Loans (EIDL) program administered directly by the SBA. Unlike the PPP, EIDL is not tied to payroll and is available to small businesses (including sole proprietorships and independent contractors) and nonprofits with less than 500 employees that have suffered substantial economic injury due to the pandemic. The SBA can provide low interest EIDL loans of up to $2 million, and under the CARES Act, grants of up to $10,000, even if the business also receives benefits under the PPP. Information about the interplay of EIDL and other COVID-19 relief programs can be found here. Although not yet working as efficiently as promised by the SBA, the presenters suggested that eligible businesses promptly pursue EIDL and other benefits as funding is limited.

While EIDL covers general business disruptions, the PPP is designed to keep people working by authorizing bank loans to small businesses and nonprofits to help cover payroll and employee benefit expenses during the COVID-19 emergency. Congress has thus far provided $349 billion for loans to be repaid with interest at 1%, much of which will be forgiven if certain full-time equivalent retention benchmarks are met. Additional PPP funding is anticipated.

Ms. Sheppard and Mr. Haukebo walked their audience through some of the formulae for determining PPP eligibility, including how to determine payroll costs, which employees and what benefits can be included in the calculation, the time (or lookback) periods relevant to the calculation, and how the amount of the loan forgiveness will be determined in the future. They also discussed when (“now”), where (any SBA lender or federally insured depository institution) and how to apply for PPP benefits.

Before taking questions for 30 minutes, the presenters warned of potential pitfalls for businesses that seek CARES Act benefits, most notably post-loan scrutiny for misstatements in benefit applications or a subsequent misapplication of proceeds. They suggested as a guiding principle that these programs not be looked at as a “free money cash grab,” and encouraged all benefit recipients to take steps now to be prepared to show later how the coronavirus crisis impacted their business, and how they used the proceeds.