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How to Get Federal Loan and Then Get it Forgiven

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Everything You Need to Know to Get Your Business Loan Forgiven

By Graham WinfreySenior editor, Inc.@GrahamWinfrey

Small businesses reeling from the impact of coronavirus may have good news coming in the form of loan forgiveness.
The $2 trillion federal stimulus package includes $350 billion in loans backed by the U.S. Small Business Administration, some of which will be forgiven depending on a company's circumstances. That's according to Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce. Bradley was speaking at the National Small Business Town Hall, a live webinar hosted by Inc. and the Chamber on Friday.

The SBA's paycheck protection loan program is "really more of a loan that converts to a grant," Bradley said. Small businesses with fewer than 500 employees qualify, as will some larger companies. The program is aimed at helping businesses maintain their payroll during the significant business disruption caused by the coronavirus crisis.
Here's how the loan forgiveness works:
  • Your company's expenses for the eight-week period after the origination of the loan will be analyzed.
  • Every dollar your company spent on payroll, utilities, rent, or interest on mortgage debt will be added together. That amount will be forgiven, up to the total amount your company borrowed through the program.
There is one caveat, however. The amount that is forgiven will be reduced for businesses that lay off employees during the first eight weeks following the loan. Companies that reduce wages of employees who make less than $100,000 per year by 25 percent or morewill also have the forgivable amount reduced.
The good news is that businesses that have already let employees go before accepting the loan will not be subject to such penalties. And if those businesses rehire employees after accepting the loan, they'll receive additional credit to cover their wages.
 

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Part 2

Summary of the CARES Act
As of March 27, 2020, both the United States House and Senate have voted to pass a sweeping $2.2 trillion stimulus package designed to abate the economic damages caused by the coronavirus (COVID-19) pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is the third piece of legislation crafted to address the economic havoc being created by COVID-19. The bill contains many provisions, including an expansion of unemployment insurance, direct payments to Americans, a loan guarantee program for industries, a suite of aid programs for small businesses, and more. President Trump has indicated that he will sign the bill into law. Details on the provisions included in the bill are laid out below.
Please note: This legislation has passed votes in both the US Senate and the US House of Representatives but will not take effect until the president signs it into law (expected shortly).
Unemployment Insurance
Portion of the stimulus package: $260 billion (estimated)
The expansion of unemployment insurance, which Senator Chuck Schumer (D-NY) has referred to as “unemployment insurance on steroids,” is the greatest expansion of unemployment insurance benefits in decades. It expands the coverage we window to four months, increases weekly benefits by $600, and extends coverage to the self-employed and gig workers. A secondary purpose of this provision is to allow companies to furlough workers, so they can stay on as employees and quickly return to work when the crisis is over. This portion of the bill is retroactive to January 27, 2020.
Individual Stimulus Checks
Portion of the stimulus package: $300 billion (estimated)
The Senate bill includes a provision for sending direct payments to Americans who earned less than $99,000 ($150,000 for couples without children) in adjusted gross income in 2019 (or 2018 if you haven’t yet filed your 2019 returns). Individuals who earned $75,000 or less will receive payments of $1,200 each; married couples who earned $150,000 or less will receive payments of $2,400. Those with children will receive an additional $500 per child. Beyond the$75,000/$150,000 threshold, the payment scales down and phases out entirely at $99,000/$198,000. Of course, if you have children, those payment scales shift slightly with the income limitation for adjusted gross income for a married couple with two children falling at $218,000.
Scenario 1: Jane Doe, who files as an individual, had 2019 AGI of $63,500 (she has not yet filed her 2020 tax return so the IRS will look at her 2019 return). In this scenario, she is entitled to receive the full $1,200 check, regardless of her 2019 tax liability.
Scenario 2: John and Sally Smith, who file as a married couple with 2 children under the age of 17, had 2019 AGI of $125,000. In this scenario, they are entitled to receive a check for $3,400 as part of the individual stimulus payments.
Keeping Workers Paid and Employed Act
Portion of the stimulus package: $350 billion+ (estimated)
The goal of this part of the bill is to prevent job loss and keep businesses from failing due to COVID-19. It provides $350 billion+ in “paycheck protection loans” to small businesses (defined as businesses with fewer than 500 employees and including sole proprietors and non-profits) to maintain their existing workforce and pay their obligations. These loans are fully guaranteed by the federal government through December 31, 2020. They will be limited to the sum of monthly payroll costs for 1 year multiplied by 2.5 AND any disaster loan that has been refinanced (capped at a total of $10M). A separate section of the CARES act allows for these “paycheck protection loans” to be forgiven on a tax-free basis. Theamount to be forgiven is limited to an 8-week period beginning on the date of the loan and is a sum of the following expenses during that period:
  • Payroll costs
  • Mortgage interest
  • Rent
  • Certain utility payments
To receive forgiveness, the borrower would submit an application with documentation of expenditures. However, if the employer reduces their workforce or salaries (to employees that earn less than $100,0000), the forgiveness amount may be reduced.
Scenario 3: Avian Engineering had a total payroll of $1.8 million over the prior 12-month period (looking back from the date they apply for the loan under this portion of the Act). The monthly average payroll is $1.8 million/12 = $150,000 which is then multiplied by 2.5 to arrive at the total loan amount of $375,000, which is less than the $10 million cap. If Avian pays $300,000 in qualified expenses (detailed above) over the 8-weeks after the loan is granted, $300,000 of the $375,000 loan will be forgiven under the Act (so long as their workforce and salaries are not reduced during this time.


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