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Hello. This video is brought to you by the California Lawyers Association, a non-profit organization of lawyers throughout California. This video is geared for small professional firms, small practitioners, and their clients who have questions about how COVID-19 impacts their own businesses and what financial assistance is available in this stress hole and economically challenging time. Please know that this video is intended to provide general information only and does not constitute as legal advice. The information in this video is based on the rules in place as of April 10th 2020 and especially for the matters covered here, rules and procedures change frequently. Be sure to keep yourself updated. Im Ben Root, a partner at the Nano Law Group, a small law firm specializing in advising entrepreneurs and small business owners regarding financing, securing investment, early stage business operations, merges acquisitions, and other monitizing events. Before coming to Nano, I spent over 20 years practicing in a large, international law firm and then another 5 years as CEO of Technology Startup so I see this both through the eyes of council and as a business owner. In this particular section of the series, I want to focus on the COVID-19 loan programs and more particularly in the loan forgiveness elements in those programs. The PPP has its own distinct loan forgiveness requirements and you want to start by assuring that you're a qualifying candidate and then request for forgiveness. Different banks may approach this issue different ways, we bank Chase and Chase reminds us early on in the form that we both have to meet the qualifications that will be established in the form and then subsequently we have to request forgiveness. So put it on the calendar because its like any other date that you have to keep track of. The qualifications in terms of achieving loan forgiveness are crucial. I think any time you are dealing with a bank or the government about not repaying the money, you're going to find the knit-picking will be the name of the game so be especially well prepared and responsive in this area. Among the requirements for forgiveness are that funds must be spent within 8 weeks of loan approval. Recently its been noted that loan approval and loan funding may be separated by a number of days and as the 8 weeks is short the treasury has advised us that its the date of funding that which the 8 week period starts. Money spent outside of that 8 week period will not be eligible for the loan forgiveness so be sure that your expenses are within the right time period so that you can qualify for the forgiveness when you get to the point of requesting that. In order to be eligible for the forgiveness, the further qualification is that 75% of the money to be forgiven, that portion of the loan must be spent on qualifying payroll expenses. The payroll expenses are a little detailed, they've discussed them in earlier sections of this program but generally the same considerations in seeking forgiveness will apply in qualifying for the payroll. Recall that payroll in this case, includes health insurance, retirement benefits, and may also include state and/or local taxes that are paid on behalf of the employee. Similar to what was excluded in the qualifying accounts are salaries over $100,000 dollars, FICA and federal tax withholding as opposed to state and local taxes, and any payments to foreign employers. This last one is particularly important for California employers and startup industries, look for further definition on what that means exactly because its not necessarily defined in the documents thus far. In addition to the other requirements, there is a Full Time Employee or Full Time Equivalent test that is built into the loan forgiveness program. Loan forgiveness is reduced if you have a decrease in your full-time employee headcount over a period of time. Many of us have had to lay off workers and/or reduce salaries when COVID-19 hit and we were required to close. If you don't have that built up over a period of time back to your original position or wages have been decreased by more than 25% during the period indicated then there will be a reduction in the forgiveness amount. You have some time to cure some of this so that if you rehire employees who have been laid off before June 30th and get a chance to restore your Full Time Equivalent, that will allow you to qualify for the full amount of forgiveness. EDIL also has a loan forgiveness provision, it is somewhat different than the Payroll Protection program. This remembers the loan that you secured based on economic loss or lost opportunities that were caused by the COVID-19 disaster. In this case, the requirements say that the loan in excess of a grant amount may not be forgiven which is a way of saying whatever the grant amount is can be forgiven. It is important to distinguish between the grant amount and the loan amount in the case of EDIL. This may qualify forgiveness even if a portion of Payroll Protection is forgiven, in other words if you do this correctly and touch the right bases you might be eligible to get both PPP forgiveness and EDIL loan forgiveness. The grant portion of the EDIL is that emergency proportion thats up to $10,000 dollars, in this case, the usage of these funds can be over a different period of time where the PPP loan forgiveness has to be in the 8 weeks following the funding of that loan. My suggest is that whatever you do with the emergency grant amount of your loan be at a different point in time than those 8 weeks so that there isn't an argument that the authorities can have, that you have been double dipping or that only one amount can be forgiven. There are also some differences in qualifying expenses for use of the grant money separate from PPP. Remember, we talked about the PPP use of only 75% per salaries and 25% for rent, mortgage and similar types of things. In the grant use of qualifying forgiveness, you can use it also for payment of accounts payable or other bills like increase in cost of materials due to supply chain issues. This is designed to deal with things such as increase in cost and personal protective gear but it might also employ to the shortage of toilet paper that we all know about. You also want to know that this money can be used for repaying obligations that could not be met due to revenue losses during the COVID-19 period. You want to look specifically at being able to trace application of funds for which you are going to request forgiveness so that you will know that you will for sure qualify for the maximum eligible amount. In the forgiveness documentation, I expect because it is not very detailed, that there will be a high bar for documentation. Neither the bank nor the federal government gives out money that they think are owed so be careful to make sure that your documentation is as full as you can make it. I would suggest that you consider specifically sequestering funds for any amount that you want to be forgiven so that the qualifying expense can be easily traced. We've actually opened up separate bank accounts for the PPP loan and a separate bank account for the grant portion of the EDIL so that we can show that money out went to pay a specific expense. It gets much easier when it gets down to documentation to trace specifics that comes out of a separate account. Your accountants can do this for you fairly easily and can actually do this paid out of one account but I think you'll find it easier as a small businessman or woman to use a separate account to make sure that your documentation is clear. You may want to check with your tax preparer, your council, even your banker to make sure that you understand what expenses qualify for further explanation by treasury or the SBA or the IRS documentation requirements. Id rather expect that there will be more information so looking out for it and keeping your eye on it will help you later on. Finally, I urge you to check carefully with your council, tax preparers, and others on integration of the PPO and the EIDL. What is clear from the regulations is that you cannot claim twice for the same expense, there is no double dipping. That is absolutely clear in all of the materials. The differences that I've mentioned earlier in terms of both expenses and time of payment may allow you to avoid this particular restriction and maximize your deduction. If you can schedule those payments separately and still trace them clearly, you'll do better. The farther distinctive payments are the better off you'll be. So given that you should be able to qualify for forgiveness for both loan programs and this almost like having free money so remember its not about how much money you make but how much money you keep and this is an excellent opportunity for you to keep a little bit of the governments money. Please remember that the information presented here is not legal advice and is based on the rules in effect as of April 10 2020, especially for the matters here, the rules and procedures change frequently. Be sure to keep yourself updated. I hope you have gotten ideas out of this, thank you for watching this video and thank you for doing your part to navigate through the COVID-19 pandemic.

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Posted by: tyanadiaz on Apr 18, 2020

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