Armanino Blog

Small Business Interruption Loans (Paycheck Protection Program) 7(a) Loan Checklist

by Matt Petroski
March 29, 2020

On March 25, 2020, the US Senate passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). This act would increase the max Small Business Administration’s 7(a) loan amount to $10 million and would expand allowable uses of 7(a) loans to include various additional costs.

To help our clients understand what they are eligible for and how they can use these loans, Armanino's team of experts have created this checklist to help explain some of the intricacies of this law.  
Let’s get started:

Is your business eligible for the SBA 7(a) Loan from the CARES Act? If you meet the following conditions, YES.

  • Is your business one of the following?
    • For profit business
    • Sole proprietorship
    • Nonprofit
    • Veterans organization
    • Tribal business concern
  • Does your business have less than 500 employees?
    • Count: Full-time, part-time, or other basis employees
    • Note: There are certain industries for which the SBA may allow more than 500 employees.

How much of a loan am I eligible for?

  • Generally, the maximum loan amount is the lesser of:
    • Average monthly payroll costs during the 1-year period before the date on which the loan is made * 2.5, or
    • $10,000,000
  • Payroll costs:
    • Includes:
      • Salaries, wages, commissions and other similar compensation,
      • Cash tips (or equivalent);
      • Pay for vacation, parental leave, family/medical/sick leave;
      • Allowance for dismissal or separation;
      • Payments for group health care benefits;
      • Payment of retirement benefit; and
      • Payment of state or local tax assessed on the compensation of the employees
    • Excludes:
      • Compensation in excess of $100K for individual employee, prorated for covered period;
      • Compensation for employee whose principal place of residence is outside of the US;
      • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116-127); and
      • Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116-127)
Is a portion of your loan forgivable? If you meet the following conditions, YES.
  • Has your business has been substantially impacted by COVID-19?
    • Supply chain disruptions (quantity and lead time, quality, technology)
    • Staffing challenges
    • Decrease in sales/customers
    • Closures
  • Will your 7(a) loan be granted from February 15, 2020 to June 30, 2020?
How much of my loan can be forgiven?
  • The total of the following costs incurred, and payments made during the covered period:
    • Payroll costs
    • Payment of interest on any covered mortgage obligation
    • Any payment on any covered rent obligation
    • Any covered utility payment
How do I start the process?
  • Inquire at your local bank
  • Ask Armanino to assist you with the application and subsequent compliance process
While waiting for the appointment date, what Information should I gather?
  • Prepare for good faith certification:
    • Indicate that uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations;
    • Acknowledgement that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments; and
    • Indicate that you don’t have an application pending for another SBA 7(a) loan or have received cash under another SBA 7(a) loan, for this same purpose.
  • Complete the Paycheck Protection Program Application and gather corresponding payroll data to support your payroll costs.
    • If sole proprietor, independent contractor, or self-employed, you’ll need:
      • Payroll tax filings
      • 1099-MISC
      • Income/Expense from the sole proprietorship
      • Other documentation (pending Administrative guidance)
    • Additional items related to forgiveness:
      • Documentation verifying number of full-time equivalent employees on payroll and their pay rates from February 15, 2020 to June 30, 2020, including:
        • Payroll tax filings
        • State income, payroll, and unemployment insurance filings
    • Cancelled checks, payment receipts, transcripts of accounts or other documents verifying payments on covered mortgage obligations, lease obligations and utilities.
    • Certification that the documentation presented is true and correct and that the amount for which forgiveness is requested was used for the “allowable purposes” below.
Once you have access to the cash, what are the allowable uses?
  • Payroll support (paid sick leave, family leave, and corresponding costs related to group health care)
  • Employee salaries
  • Mortgage payments
  • Rent/Lease payments
  • Utilities
  • To pay off any other debt obligation entered into prior to February 15, 2020.

March 29, 2020

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Matt Petroski, Director, Tax - Armanino
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