Decoding the COVID-19 Stimulus Package: Q&A With Sibi Thomas
Recently, Jim chatted with Sibi Thomas to learn more about the stimulus package and how nonprofits, small businesses and live entertainment organizations can use the programs to weather this crisis. You can watch the full chat here, or read on for an excerpt of their conversation (which we’ll post in two parts).
First, a bit about Sibi: He has over a decade of accounting, auditing, tax and consulting experience in the nonprofit industry. He serves on the AICPA’s Not-for-Profit Entities Expert Panel and has been recognized by the CPA Practice Advisor as a 40 under 40 honoree for his leadership in the accounting profession.
Sibi plans, coordinates and conducts audits of nonprofit organizations including: large social service organizations, third party funded organizations, educational institutions, charitable, and fundraising and membership organizations including those requiring audits pursuant to Uniform Guidance (Single Audit). Sibi has led numerous training seminars on various topics relating to new accounting standards, governance, compliance, and financial reporting.
Selling Out: What parts of the CARES Act do you think are most relevant for providing relief for small businesses?
Sibi Thomas: There are two major provisions that small businesses and nonprofits can take advantage of right away: The first one, the most popular one, is the Paycheck Protection Program, we call it the PPP. It’s $349 billion in forgivable loans, primarily to pay employees during this crisis.
If you’re eligible and if you get the loan, it can be used to cover payroll, mortgage interest, rent and utilities for an 8-week period, once you’ve received the loan. The good news is that it is working. One of my clients has already received the loan, they were one of the first people to apply. So PPP is the biggest and most attractive option for small businesses.
The second one is the Emergency Economic Injury Disaster Loans, we call them the EIDL loans. They are not forgivable. They are a low-interest loan that you can get directly from the SBA. You can finance up to 30 years, it’s a low-interest loan, around 2.7% for nonprofits.
The only way to find out if you’re eligible for the loan is to go ahead and apply for it. The application process, I believe it takes almost two hours, it’s on SBA’s website, search for the EIDL loans and start the application.
The application process is designed in a way that if you’re not eligible, it’s going to kick you out during the process, and that’s when you know it’s not for you. But again, remember, that is not a forgivable loan. And if you go with PPP, you can’t pay the same expenses with the two different loans, you have to pick one or the other.
Also, for EIDL loans, you have to have some level of credit, the amount is decided by SBA, so keep that in mind.
There are two other things I want to mention. One is an employee retention credit, but once you go for the PPP, you can’t go for the employee retention credit. And for the employee retention credit, the calculation is a little bit complicated, so I suggest talking to your accountant if you decide to go for it.
I would say your first option is the PPP, and if you don’t get the PPP, you can go for this credit.
SO: What is the Employee Retention Credit?
ST: It is a tax credit, of up to 50% of the employee’s compensation, so you can keep them employed. The calculation is not straightforward, you’ll need an accountant to help you figure out how much you’re going to save. So I say if you don’t get the PPP, talk to your accountant to see if you can get this credit.
SO: Is the problem that it’s not cash in hand, it’s on the backend of taxes you paid and would be reimbursed?
ST: That’s correct, it is not new money coming in. It’s almost like a reduction to your expenses.
There is another one out there that is called the Payroll Tax Deferral, that everybody can take advantage of. You don’t pay the employer portion of the payroll tax for the remainder of 2020, and you can pay those amounts in two installments, one on 12/30/2021 and one on 12/30/2022. So if you think about it, it’s an interest-free loan for the rest of the year, for the payroll taxes you pay on behalf of your employees.
So these are the four items I can think of that small businesses and nonprofits can take advantage of right away.
SO: What makes somebody eligible or not eligible for the PPP?
ST: It’s really for small businesses with fewer than 500 employees. For nonprofits, you have to be either a 501-c3 or a 501-c19 organization. All other nonprofits are not eligible for PPP, but they may be eligible for EIDL.
Keep in mind that sole proprietorships are also eligible. And also for independent contractors, if you get 1099s, you’re eligible to apply for this as well.
And for self-employed individuals, it’s a little bit complicated, if you have a partnership for example. Certain types of self-employed individuals are eligible, but the majority of the applications are small businesses, nonprofits under 500 individuals, and sole proprietors.
SO: For an LLC without employees, where one only takes draws, not payroll, how do you handle payroll questions on the application?
ST: It sounds like a sole proprietorship, and for this you can borrow up to $100,000 for that one employee. If that person draws over 100K that amount is not eligible, but up to $100,000 is eligible.
One thing I want to add is the business needs to be in operation on or before February 15, 2020. So if you have a business that started after February 15, 2020, you’re not eligible to participate in this.
Selling Out: How do you apply for these programs? Are there any wrinkles in the application process?
ST: It’s only a 2-page application that the SBA put out. It’s a very straightforward application, if you’ve ever applied for a credit card, it probably took more time than this.
The program is open until June 30. It opened up on April 3 and it’s on a first-come, first-served basis. So if you’re eligible and you’re planning to apply, call your bank right away. Because you borrow the money straight from your bank, it’s not from the SBA. And the good news is that even non-traditional banks like PayPal and Square are doing it as well.
Most banks, you can start the process online, if you just google PPP application, you can see the application and instructions.
Check back soon for Part 2.