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20-0413_COVID-19_23

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Hello, this video is brought to you by the California Lawyers Association, a non-profit organization of lawyers throughout California. The video is geared for small professional firms, solo practitioners, and their clients who have questions about how COVID-19 impacts their own businesses and the financial assistance that is available, in this stressful and economically challenging time. Please note that this video is intended to provide general information and does not constitute legal advice. The information in this video is based on rules in place on April 10, 2020. Especially for matters covered here, the rules and procedures change frequently. Be sure to keep yourself updated. Hello, I'm Ben Root. I'm a partner in the Nano Law Group, a small law firm specializing in advising entrepreneurs and small business owners regarding securing of investments, early-stage business operation, mergers and acquisitions, and other monetizing events. Before coming to Nano, I spent over twenty years practicing at a very large international law firm and another five years as the CEO of a technology start-up. So I see this from both sides, the lawyer side and the business owner side. What I would like to do now, is to talk specifically about applying for the COVID-19 loans and if you are unfamiliar with these, you may want to see the introductory materials, that were presented in the first program, as this gets into the application procedure itself. When applying for these loans and their rebates, 28 00:02:08,000 --> 00:02:11,000 there are basically three loan programs There are basically three loan programs that you may look at, or tax credit and refund programs. The first is responsive to sick leave and family leave payments that were made for your employees as a result of the COVID-19 virus. This particular law provides for employer tax credits and refunds and must be done due to the tax situation. You may want to advise and involve your tax preparer there. The second group is the Payroll Protection Program loan, the one that provides for 2.5 times last year's average monthly payroll. In this particular case, getting the 2.5 times is pretty easy. Getting the average monthly payroll is not so easy. We will talk in a little bit, about what should be included and excluded as you do your calculation and your loan request. Finally, we have the Economic Injury Disaster Loans. They are really loans to compensate you for losses that have resulted from working through the COVID-19 time period. This is also the one that has that special $10,000 grant or up to $10,000. As the treasury reminds us, that's supposed to be available on an urgent basis. These are three programs we are going to talk about. In general, there is are also some debt relief programs that are buried in these laws, that are beyond the scope of this presentation, but I tell you that it is there because in specific cases, this could be very helpful to a small firm or a practitioner. Let's look first at the PPP loans. This will apply for businesses that were up and running as of February 5 of this year. Startups that are formed after that don't appear to be covered by this legislation in its present form. It needed to be a business that was in operation. As I said earlier, the formula here for the loan grant is 2.5 times the average payroll, and the initial measuring period will be the year of 2019. It is pretty simple. You add up the amount of payroll paid, divide it monthly, divide by twelve and you got the average. For some businesses, this actually works. For some businesses, that don't have much reporting in 2019, you may also be able to use the first couple of months of 2020 as qualifying. Depending on your situation, you should look at both situations. Because you can use the first two months of 2020, it provides a better number. By all means use that, if you qualify for that under the regulations. Then in terms of looking at average payroll, this is the hard part. You need to figure out the exclusions and the additions. A big surprise to most of us when we saw the final rules was that independent contractor expense of a firm is excluded from your average payroll. This is particularly important for practitioners that use contract lawyers, as many of us do. Those contract lawyers as independent contractors need to be excluded from your average payroll. In some cases, you will be using PEOs or other third parties-providers to actually do payroll and under the questions and answers after the interim final regs question 10, authorizes you to use a third-party payer employee expense as part of the average payroll. Now this is where it gets interesting for professional firms and partnerships. All of you are likely familiar with guaranteed payments, those things that you've got to pay your own social security on when you pay your taxes. It appears, although its not clear, it appears that guaranteed payments particularly to partners, may be included in the average payroll. This will make a substantial difference for practitioners. So you want to be familiar with this. There is some possibility, it is even less clear, that additional payments that would be reflected on your K1 may be included beyond the guaranteed payments, as this is often a significant number for a small professional firm, an LLP particularly. It will be important to talk with your tax preparer about the regulations although they are not clear as of today. We believe that there is reason to include these, and it may make it a very significant difference, so it's worth doing. Finally, the rule is that any payments over a hundred thousand dollars to an individual need to be excluded. Once you have taken these basic rules, you will be able to calculate average payroll and multiply it by 2.5. If you happen to bank at Chase, as we do, you will simply enter the amount of your average payroll and the online form will automatically multiply it by 2.5 for you and you will have the amount of the loan. There are number of other questions that need to be answered, including what is your intended use of funds is, but mechanically, that is how you go ahead and handle this loan application. In terms of doing the prep itself, I suggest that you get a copy of the PPP application, which you can get either from your bank or the SBA. Sometimes it is a little harder to get from the bank because they only have the electronic version, and you have to fill it out or it goes away. If that is the case, you could get it through the SBA or one of the websites I will give you a little later in the program, where we put all the small business association forms for people. Once you've done that, you want to confirm eligibility. In most cases, you will be eligible. There will be some questions right on the form. One of the obvious exclusions will be illegal business and that particularly applies in California because we have a number of businesses in the cannabis business. That may be fine in California, but the feds doesn't think so. Those businesses are disqualified from this. Most of you will find confirming eligibility isn't a big issue, but you want to look at the things you have to certify as part of the form itself. Once you do that, you will need to get proof of what your payroll is. If you simply apply for the loan and don't have proof of payroll, it's very likely that the loan will either be denied or get lost and put into a bucket till proof arise which maybe well too late. So you want to gather your 941, 942, 944 tax filing forms. Your bookkeeper will likely have these. In some cases, you will need to get other proof of this. That could be the guaranteed minimum payments in your taxes, your K1s, or other PP or PEO forms for third party payers. Once you have all of those things together, you could do the calculation of what you think the average is by taking all of the payments you have made over the twelve months in 2019, adding them all up and dividing by twelve. That is the average I suggest you put into the form as your base number, before multiplying by the 2.5 times. Most banks are a little jumpy about making these loans and what the documentation is, so they are going to be slow. In filling out the form, give the bank officer a hand, and give him as much information as you can at the beginning. My suggestion is that you prepare a small number of PDFs, that includes your tax payments, your other proof, your calculations, and you can upload them. In the case with Chase, it will differ for different banks, but in the case with Chase, they allow you to upload up to four PDF, no more. Which of course could be your quarterly returns, but if you want to upload your K1s or calculations, you'll need to do a little creative amalgamation of the information. Finally, as you get ready to do this, consider how you are going to use the funds, because they are going to ask. Under the rules, if you are entitled to forgiveness for a portion of this, this is something we will address in the four series of videos here. You must use the PPP funds, 75% allocated to wages, to be paid in a specific period of time, and the other 25% to qualifying expense, like rent, mortgage payment; there are several. I suggest that you want to do that calculation in advance and again looking at the forms before you go online and start to fill this out will make this pretty much a breeze. For the economic injury, the EIDL loans, this is different. Instead of a formula-driven loan, this is a negotiated amount determined based on the information that you provide to the SBA in the loan application. This one is particularly important that you think in advance, of how you want to characterize what you believe your losses are, and what the loan amount should be. Depending on the quality of your story, it will determine the amount of the loan. The SBA is required by statute, don't hold your breath on this, but they are required by statute to distribute the emergency portion of this up 10 thousand dollars, within three days of the request. I can tell you that I have received none of those emergency grants for the loans that we have filed on. So they are a little behind on the three days. Basically the SBA is pretty much swamped, but it is our understanding that payments started on Saturday, this first portion of the EIDL loan. Hopefully they will be able to get caught up. The advance that is in the EIDL, that is up to ten thousand dollars, can be considered as grant money as opposed to loan money. This is going to be very important when we get to the forgiveness portion down the road. You are not required to pay back the emergency grant even if the subsequent loan is denied. Let's say, just for giggles, that you apply for fifty thousand dollars, and that is the amount you believe that you've been injured by how COVID-19 affected your business. Theoretically anyway, you could get up to ten thousand dollars as the emergency grant. They'll consider your application for the other forty down the road. If they don't grant that, you could still keep the ten thousand dollars, and there is a good chance it will be forgiven if you manage it right. We will talk a little bit later about that. Before disbursing the advance payments, the SBA will do its paperwork so that all loan documents will be completed. This program, by its terms, ends on December 30 of this year, but I urge you to take a quick look at this and get in line. There are somewhat limited funds available for this, and like the PPP loans, it is done on a first come, first serve basis. In preparing to do this loan, the SBA has what they call their three step process, and it is pretty simple. You file an application with supporting materials that you believe entitles you to a loan. They'll contact you through one of their officers and discuss this with you. Usually they will ask for additional information. They may ask for back up for some reason you have given them and it's a period in which both the amount of the loan are negotiated, and the documentation supporting that are provided. Then the third part is they paper the loan to get it paid. You can see this a fairly elaborate process and given the great number of people that will be applying, and the somewhat limited resources of the SBA, this may take a little bit of time. This is one of those areas were we need to be patient. We believe there will be good funds available, but this is not a program designed for speed. In terms of the support that the SBA will be looking for in many cases, there are the various SBA forms, they are available on the SBA website, or on the COVID loan website where we have most of the information you'll need. It will depend a little bit on the nature of your application, but there may be personal financial statements required if you are a solo practitioner. Interestingly enough, this particular SBA program does not require personal guarantees up to two hundred thousand dollars, and it does not involve a second source of repayment. Those particular elements that sometimes make SBA loans unattractive or unavailable are not a part of this particular program. The 2202 is the schedule of liabilities. They are some additional forms referenced here that will be helpful. You can review those as you develop your application and the support form. Then the SBA claims that after you have submitted your application, you can check the status of your application. They give you an a 800 number; feel free to call that. We have not gotten through. Perhaps you will have better luck than we had. Finally, let me talk briefly about the tax rebates and refunds. The importance here is cash flow. This particular law is a mandate on employers to fund sick leave and family leave for employees, which is the quickest way to get money into the system for employees, but it does put a burden on employers in terms of cash flow. Work with your tax preparer here. There are particular opportunities, including a new refund form that was announced over the weekend, 7200 is the form number. It may allow you to apply for an early refund to support cash flow. The tax credits are provided in the reference section here. They mean you will be relieved of payroll tax liabilities until the amount that you advance employees under the sick leave is taken care of, or there are provisions for normal refunds. In addition to the materials that are available in the IRS release on this, which I provided a link to in the first video in this video series, you may want to check the 66 FAQs for COVID-19 that was released over the weekend by the IRS. This is one of these things, where the details in doing these loan applications, are nettlesome, a little irritating, but they are so very important. The details are vital here, as they are in most cases. As coach John Wooden said, "doing the details right will make big things happen" in these loan applications. I encourage you to work through these. I think they will be beneficial to your business. That's that. Please remember that the information that is presented here is not legal advice but just general information, and it is based on the rules in effect as of April 10th. You should be checking on those things because those rules and procedures change frequently. Be sure you keep yourself updated. Thank you for watching this video, and doing your part to navigate through the COVID-19 pandemic.

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Duration: 22 minutes and 45 seconds
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Posted by: arellanob420 on Apr 19, 2020

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