Paycheck Protection Program - Regulations Explained

The Coronavirus Aid, Relief, & Economic Security Act (CARES Act), signed into law on 3/27/2020, includes expeditious relief for America's small businesses through loans funded at $349 billion.

§1102 of the CARES Act establishes the Paycheck Protection Program (PPP) under the SBA 7(a) Loan Program & §1106 provides forgiveness of up to the full principal of loan.

To fulfill the expeditious intent of providing relief to small businesses, the SBA issued its final rule on 4/2/2020 without the typical 30-day delay for effectiveness. 

We will be discussing the PPP in great detail on Real Estate Investing with Andrew Lieb this Sunday at noon on LI News Radio (WRCN / FM103.9) - If you are in business, don't miss this important segment - it could save your financial life. 

Here is a Summary of the Interim Final Rule found at 13 CFR Part 120: 

• Loan Terms:
• No collateral
• No personal guarantee
• No fees
• Loan payments deferred 6 months (interest accrues)
• 2-year maturity
• 1% interest rate
• Maximum loan $10MM
• Loan Amount (calculation methodology):
1. Aggregate payroll costs from last 12 months
2. Subtract amounts paid to employee over $100K
3. Divide net of steps 1 & 2 by 12
4. Multiply step 3 by 2.5
5. Add outstanding amount of an Economic Injury Disaster Loan made from 1/31/2020 to 4/3/2020 less advances
• Loan Forgiveness Availability:
• Employees are on the payroll for 8 weeks 
• Money used for payroll, rent (lease dated before 2/15/2020), mortgage interest (obligation incurred before 2/15/2020), or utilities (service agreement before 2/15/2020)
• 75% of loan forgiven must be used on payroll
• Payroll includes:
• Small business = Salary, wages, commission, cash tips, vacation / parental / family /medical / sick leave, allowance for separation / dismissal, employee benefits (health / retirement), state / local employment tax
• Independent Contractor = wage, commission, income, or net earnings
• Payroll doesn’t include: 
• Employee with principal residence outside US
• Salary over $100k (prorated)
• Fed employment tax from 2/15/2020 to 6/30/2020
• Qualified sick & family leave wages
• To prove proper payments, lenders can rely on borrower’s documentation without any verification requirements
• Application:
• SBA Form 2483 (lender submits SBA Form 2484)
• Applicant certifies that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.
• Available from 4/3/2020 to 6/30/2020 or until exhausted
• Borrower can only get 1 loan
• First-come, first service
• E-signature / consent permitted
• Eligibility:
• Must be small business, non-profit, independent contractor (sole proprietor)
• Must have < 500 employees (certain exceptions if bigger) with principal place of residence in US
• Must be in operations on 2/15/2020 with W2 employees
• Must submit proof of eligibility of:
• Payroll processor records
• Payroll tax filings
• Form 1099-Misc
• Income & expenses for sole proprietorship
• If don’t have above, bank records to demonstrate qualifying payroll
• Ineligibility:
• You are engaged in illegal activity under federal, state or local law (no legal marijuana) 
• Household employer of nannies / housekeepers
• Owner of 20% or more is incarcerated, on probation / parole, subject to indictment, criminal information, arraignment, or convicted of felony in last 5 years
• Delinquent / defaults on SBA loan within last 7 years
• Misuse Penalties:
• Knowingly using loan for unauthorized purposes is fraud
• False statements on application is up to 5 year imprisonment / up to $250K fine + up to 2 years imprisonment / up to $5K fine + up to 30 years imprisonment / up to $1MM fine
• Lenders Fees Paid from SBA:
• 5% of loans up to $350K
• 3% of loans over $350K & less than $2MM
• 1% of loans at least $2MM  
• Agent Fees Paid by Lender from its Fees:
• 1% of loans up to $350K
• 0.5% of loans over $350K & less than $2MM
• 0.25% of loans at least $2MM

·        Questions should be made to Lender Relations Specialist at the local SBA Field Office 

“Unemployment on Steroids”: Cares Act Extends Unemployment Coverage to Independent Contractors and Provides an Additional $600 to Individuals Receiving NYS Benefits

In response to many workers losing their jobs as a result of COVID-19, the federal government is providing unemployment insurance assistance in addition to what is currently offered by the States. Some members of Congress aptly referred to the new law as “unemployment on steroids.” The law provides the following additional unemployment insurance benefits:

• Extends eligibility to independent contractors, individuals who are self-employed, or cannot work (individuals who can telework are not covered) for a reason directly related to COVID-19. In order to apply for Pandemic Unemployment Assistance ("PUA"), you must first apply and be determined ineligible to receive New York State unemployment insurance benefits.
• Provides an additional $600 a week to all individuals receiving State unemployment insurance benefits. In New York State, if you are receiving the minimum benefits, the maximum benefits ($504 per week) or somewhere in between, you will receive an additional $600 per week. The federal benefits are retroactive to January 27, 2020 and expires on July 31, 2020. It is unclear from the information currently available whether you are entitled to the additional $600 if you are receiving partial unemployment benefits from New York State (hours/salary are reduced by employer).
• Provides an additional 13 weeks of benefits (NYS currently offers 26 weeks of unemployment benefits).

According to NYSAR - Real Estate Brokers Can Conduct Showings - What Are Your Business Ethics?

According to NYSAR, Empire State Development clarified that "[t]he following functions of real estate and/or realtors (sic) are considered essential: residential home and commercial office showings; home inspections; and residential appraisers."

Now that it's permissible, the question turns to whether real estate salespersons / associate brokers should be conducting showings?

This is the biggest ethical question for real estate brokers today.

Ironically, Lieb School is in the midst of creating a new CE course on ethical business practices, which is a required course for license renewal on and after 7/1/2021. We are now incorporating this situation into the course as a case study for our students to determine their own business ethics in real estate brokerage.

Unlike laws, business ethics refers to appropriate business practices on controversial subjects that are driven by moral concerns. Showing a house during the coronavirus pandemic is a practice that needs to be driven by your moral concerns.

When it comes to morals and values there is not a one size fits all answer to any question. This is the answer that I gave to a friend in response to his text requesting my take on the fact that "realtors were just declared essential services:"

It's not on the empire state development webpage so it's probably a responsive email to a clarification request from NYSAR. We got one today that my law firm can do in- person closings. That being said, we are trying to avoid them at all costs and have our office working remotely. It's good and bad that the clarification was issued. It's good that smart brokers are authorized to help people in need, but it unfortunately gives permission to the idiots in our industry to spread coronavirus and put their lives and the lives of others in jeopardy all for a dollar. I would not show a senior's house if they live there. I would not show an immunocompromised person's house if they live there. I would not do public open houses. I would limit my in-person contact to the extent necessary while always wearing PPE. If not for the business ethics that require it, at least for the fact that I refuse to bring coronavirus to my family. We will get through this, but we must be smart and pick health over money at each turn for money without health is useless. Stay safe my friend.

If you would like to further explore this topic, we have a special guest on our radio show this Sunday at noon on WRCN (FM 103.9) - www.listentolieb.com - iheart.com (LI News Radio).

Stay safe my friends.