To our clients and friends.
As we look back to January 1st we were looking forward to a much easier busy season than last year which was complicated by the December 2017 major tax law changes, the IRS shutdown in early 2019 and the learning curve that we and the tax software companies had to go through.
The 2020 busy season was progressing nicely until the first signs of COVID-19 started to make headlines in January. At first it seemed like this would be a passing event and like most businesses, we proceeded with business as usual. However, as March arrived everyone’s lives began changing as we have witnessed the destruction caused by this pandemic on fellow citizens and the economy.
The following is a summary of what we are doing, the impact on our operations, and an update of the SBA loan programs.
Impact on AHS and What We are Doing:
We are considered an “essential business” and remain open for business but with some significant changes to our operations including but not limited to:
- Many of our staff are now working remotely.
- We are still meeting with clients on a selective basis but are discouraging one on one meetings.
- We have committed a significant amount of time related to the March 27th CARES Act (Coronavirus Aid, Relief, and Economic Security Act) reading and researching the provisions and how they will benefit our clients.
- We have posted numerous articles and updates on our website regarding the provisions of the CARES Act. You can see those at www.ahsaccounting.com
- Since Saturday the 28th of March we have spent most of our time working on the SBA disaster loans that are available to our clients. The primary loans are the “Paycheck Protection Program” (PPP loan) and the “Economic Injury Disaster Loan” (EIDL).
- We have made numerous calls to our banking friends to try and identify additional resources for our clients so they can apply for the PPP loans.
- We are not going to furlough any of our staff and are making sure they have the flexibility to take care of their families first.
We are committed to provide you with the best guidance we possibly can and all of us at AHS are focused on staying current on the rapidly changing loan rules to help our clients through this time period. We have been fortunate that our decision to invest in “state of the art” tax software and “document management” systems are truly paying off.
What Impact Does This Have on My Individual or Business Returns?
The decision by the Treasury to move the April 15th filing date to July 15th was significant in that it gave everyone some breathing room and additional time. This not only includes the return filing dates but just as important, moving the deadline for the payment of any tax due on your 2019 return and your first quarter 2020 estimate to July 15th. Minnesota followed federal for any balance due on the 2019 return but unfortunately, as of April 13th the State of Minnesota has not moved the 1st quarter 2020 estimate payment to July 15th.
- At this time, we are probably 4-6 weeks behind in getting returns completed and reviewed consistent with our quality expectations.
- We are trying to identify those clients that have refunds and getting those returns done as soon as we can.
- We are also identifying those returns that have a business “Schedule C” and trying to get that part of the tax return done. This is important as it can be used (and may be required) for applying for the SBA PPP loan or the SBA EIDL grant program.
We thank you for your patience as we attempt to get as much done as we can considering the limitations we are working under.
Update Regarding the “SBA PPP Loan Program & SBA EIDL Grant Program”
This program was announced on March 27th and the SBA and banking industry were told that the program needs to be up and running by April 3rd. Given the short timeline, what has happened so far is quite amazing. However, there certainly has been some hiccups during the process and to a certain extent, the traditional bureaucracies has added to the confusion and delays in getting the loans approved and processed.
The following is a summary of our observations, questions we have received from our clients, and feedback we have received from our banking relationships.
What are the SBA PPP Loans and SBA EIDL grant programs?
We encourage you to go to our website for additional explanation and the requirements for each of the loan programs.
The SBA PPP loan is meant to keep employees on the payroll and to allow companies to start to ramp up by bringing furloughed employees back on to the payroll. One of the primary purposes is to keep employees off unemployment and to prepare companies for the “re-opening”. Highlights of the program include:
- The loan amount is determined by taking the 12-month average payroll and multiplying it by a factor of 2.5.
- If the loan is approved, a significant portion of it can be forgiven if used as follows:
- 75% or more for payroll
- Up to 25% can be used for rent and utilities. If you own the building, mortgage interest is equivalent to rent.
- To the extent the PPP loan is not forgiven it must be repaid within two years. The interest rate is 1%.
The SBA EIDL grant consists of two steps. The first step is applying online and requesting your company be considered for an “Economic Injury Disaster Loan”. The second step is by checking the box at the end of the application requesting an emergency grant of up to $10,000.
Should I apply for both loan programs?
We are encouraging most of our clients to apply for both programs. The EIDL loan request is done online and the PPP loan must be done through a participating bank.
Which loan program is best?
It depends on each client’s circumstances. Factors and questions to ask of yourself include:
- Can I repay the loan?
- How much of the PPP loan can I really expect to have forgiven? If I do not restore my payroll, I may end up having a loan that I might struggle to repay.
- This disaster is going to have a long-term impact on my business. If so, taking the time and following through on the EIDL loan may be most appropriate.
AHS Comments & Observations of the SBA Loan & Grant Process
The questions we are receiving and observations we have (as of April 12th) include:
- If your bank is not participating all we can say at this time is good luck. Most of the banks we have talked to are not taking on new customers and are serving existing clients first. However, new banks are being approved daily so perseverance is extremely important in your quest to find a bank to work with as the list of participating banks continues to grow.
- Each bank’s documentation requests vary. The program is supposed to be “self-certifying” and the banks role is to make sure the application is real. However, many of the banks are using an underwriting process that is slowing up the approval time resulting in the banks not being able to take applications and approving the ones they have already received.
- Many of the banks are wary of the 100% SBA guarantee. I have received the comment back from some bankers that in the past the SBA has created some issues with the “guarantees”. If a loan has gone bad, and if it can be shown the bank failed to properly document the loan file, the bank may not be made whole.
- As of now, the banks are limited to how many loans they can approve because of banking industry restrictions related to capital requirements. This will probably change but for now it is still an area of uncertainty.
- There is massive confusion related to how to treat a business that is operating in the partnership form. Based on what we are seeing some of the banks will not allow the partner’s compensation to be included as payroll cost. If the business was operating as an S corporation, all employee payroll cost is considered for purposes of payroll costs. Clearly, a type of discrimination that I do not think was intended. The SBA indicated they are aware of this but have no guidance to date.
- Be wary of the funding date if you receive a PPP loan. This starts the 8-week forgiveness clock and you need to properly plan to make sure you take advantage of having the maximum amount of the loan forgiven. This is more important than the application.
- We expect our time commitment to help our clients document their files for the “PPP Loan Forgiveness” step to increase by a factor of 4 x the amount of time we have spent helping our clients apply for the PPP Loans. This is going to be a problem because the guidance is sketchy at best and every business is different.
- There is significant confusion over the $10,000 EIDL advance if you apply for this loan. Too many people focus on the $10,000 thinking they would automatically get that advance. This has been further promoted by many of our members in Congress and to a certain extent the media. The application says it is “up to $10,000” and I am aware of a regional SBA director saying that they will disburse an amount equal to $1,000 per employee. For the independent contractor who has seen their revenues drop to “0”, this is not much help.
- We have been calling other banks in the metro and outstate area trying to build our own internal list of banks that are willing to take on new applications. We do have some banks we can refer to but the response we get is that our clients will have to go to the end of the line.
- The banks will get paid for approving and processing the loans. The fees can be up to 5% of the loan amount. It is my understanding that the loan cost will be paid directly by the SBA and will not reduce the loan proceeds. However, this has not been confirmed yet.
- The SBA indicated that the loans will be disbursed on a “first come first served” basis. This is true and it is creating the business version of the “toilet paper run”. However, we are confident that congress will do the “right” thing and fund the PPP program. Unfortunately, this will create further delays.
- I do think there is a disconnect with the small business community, our elected leaders, and the government employees that must administer the programs. They do not have the same sense of urgency, anxiety, and stress that our clients and we do. They get paid regardless of what the economy does and are making decisions that impact the small business community. Most have never experienced the worry about having enough cash to cover the next payroll. This statement was written on Easter Day by the old guy and is not meant to be the opinion of either my partners or our staff.
In closing, the partners and staff at AHS just want to say thank you to all our clients. Your patience and understanding has been greatly appreciated. We will all get through this and look forward to returning to a more normal life.
Feel free to share this with your friends and business associates.
Amy, Linda & Rod