New Treasury Guidance Provides Safe Harbor for PPP Loans

For companies that received funds but were worried they could be subject to SBA or Treasury audits or potential penalties and damages, these new guidelines provide welcome relief. The post New Treasury Guidance Provides Safe Harbor for PPP Loans appeared first on AllBusiness.com. Click for more information about Neil Hare. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

New Treasury Guidance Provides Safe Harbor for PPP Loans

As small business owners begin looking towards applying for forgiveness of their SBA Paycheck Protection Program (PPP) loans, the Treasury Department issued highly sought-after guidance on May 13, providing a “safe harbor” from audits or penalties for companies that received a loan under $2 million.

The new guidance was posted in an updated version of PPP loan FAQs. The guidance states the following:

Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity.

Previous to this guidance, many companies were worried that under the “good faith” certification requirement on the PPP lending application, they would be subject to SBA or Treasury audits and potential penalties and damages. The PPP loan application requires the borrower to certify in “good faith” that they are requesting the loan due to “economic uncertainty,” and that they have no access to credit elsewhere. Traditional SBA loans require written documentation that the borrowed tried and failed to access credit from other sources.

With no real definition of “good faith” or “economic uncertainty” in a business environment that no one in either the private or public sector has seen before, business owners were concerned about their future legal exposure. While it defied credulity that the government would have the bandwidth to audit many loans or the political will to narrowly define “economic uncertainty” after it shut down the economy, business owners were nevertheless concerned.

This anxiety was further exacerbated by media reports that publicly traded companies and major brands like Shake Shack, Sweetgreen, the LA Lakers, and Harvard University received PPP loans when seemingly they would have access to capital elsewhere. Many of these companies and organizations returned the funds, while others did not. The negative press also had a chilling effect in which the flow of loan applications and amounts requested slowed down, leaving many billions of dollars left in the program, for better or worse. This is partly because smaller firms are finally in the queue for PPP loans, which is good, but the entire point of the program was to introduce liquidity into the economy and to protect workers’ wages. Therefore, having this money sit on the sidelines is not helpful to businesses, workers, or the U.S. economy.

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It is worth noting that these larger brands met the requirements of the PPP program but still faced pressure from the court of public opinion. Arguably, the shutdown of the NBA season caused plenty of “economic uncertainty” for the Lakers, along with no real end in sight for social distancing, making attending sporting events unlikely well into the future. The team is not, however, a mom-and-pop corner shop, so perhaps the backlash was justified.

Based on the new guidance, businesses with loans under $2 million no longer have to worry about an audit or possible penalties for not meeting the “good faith” requirement. And, while loans over $2 million might be scrutinized or audited, there will not be severe penalties or criminal charges, outright fraud excepted. The worst-case scenario would be a request to repay the loan with interest.

The new guidance did explain that for all borrowers, there could still be scrutiny that the loans were used appropriately to meet the forgiveness requirement: 75% for payroll and 25% for expenses such as rent, mortgages, utilities, and interest payments, tracked for 8 weeks immediately after receipt of funds. If lenders or the government determine the borrower did not use the funds as such, a portion of the loan could potentially not be forgiven and could convert into a 2-year loan at 1% interest. However, banks do not want to carry small, 1% loans on their balance sheets, nor does the government want to encumber small firms with debt, so the overwhelming majority of these loans should be forgiven if administered correctly.

Despite this much-needed safe harbor, many questions still remain about PPP loan forgiveness, which will hopefully be answered in future Treasury guidance. Meanwhile, on May 15 the House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, a new relief bill worth $3 trillion. The legislation does look to change some of the PPP requirements that have elicited objections from small business owners. This includes expanding the current 8-week period to use the funds to 24 weeks instead; reducing the 75% payroll requirement; extending the PPP program through the end of the year; and making 501c(6) organizations like chambers of commerce as well as small media companies also eligible for PPP. And, if the Republicans in the Senate have their way, any new legislation will include a new safe harbor for potential lawsuits against companies based on Covid-19 along with no additional funds for PPP until the current round is exhausted and its benefits measured.

One additional relief measure on the horizon is the Main Street lending program. This will look like a traditional loan and have an application process with lending institutions with standard due diligence. The loan amount will be a minimum of $500,000, so it is aimed at larger firms. Eligibility requirements for the Main Street program are still evolving.

In the meantime, this new safe harbor will hopefully lead to many more small businesses feeling more confident about applying for and receiving PPP funds, with less worry about problems down the road.

RELATED: Loan Forgiveness Under the PPP and SBA EIDL Programs: 10 Things Small Businesses Need to Know

The post New Treasury Guidance Provides Safe Harbor for PPP Loans appeared first on AllBusiness.com. Click for more information about Neil Hare. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

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4 Retirement Plans Designed for Small Business Owners

Setting up a retirement plan for your company doesn’t have to be complicated. Here are four easy-to-use plans designed specifically for small business owners. The post 4 Retirement Plans Designed for Small Business Owners appeared first on AllBusiness.com. Click for more information about Guest Post. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

4 Retirement Plans Designed for Small Business Owners

By Kehan Zhou

Running a small business is challenging. From generating revenue to managing your employees, it’s easy to forget to take care of the most important person of all: you. Retirement, a distant worry, is not a priority for many small business owners. However, it’s hard to deny that retirement requires planning.

Fortunately, there are several retirement plans which are designed specifically for small business owners (with or without employees) to meet their unique retirement needs.

Retirement plans for smaller businesses

When you are an army of one, your time is precious, and you never seem to have enough of it. From accounting to marketing, all the burdens fall on your shoulders. That’s why saving for retirement should be simple and convenient. A solo 401(k) plan and a SEP-IRA are both great options designed to meet the retirement needs of solo entrepreneurs and business owners.

Solo 401(k) plan

As its name suggests, a solo 401(k) plan is designed for solo entrepreneurs. If you work for yourself with no employee,s you are eligible for a solo 401(k). If you have employees, you aren’t eligible for this type of retirement account. The only exception is given to your spouse, who may also work for your company and participate in this plan.

With a solo 401(k) plan, you can contribute up to $57,000 in 2020 to your retirement. Moreover, you can contribute to your solo 401(k) with either pre-tax dollars or post-tax dollars. A pre-tax contribution grants you tax-deferral on your savings, but you must pay taxes later when you withdraw during retirement. With after-tax dollar contributions, all your earnings and income are wonderfully tax-free.

Additional features:

  • You can contribute up to $19,500 as an “employee” (in 2020).
  • As an “employer,” you can make an additional contribution as high as 25% of your compensation or your net self-employment income. Sole proprietors and partners of LLCs need to use their net self-employment income instead of compensation to account for self-employment taxes and plan contributions.
  • Your spouse’s contributions follow the same rules. This allows you to potentially “double up” on contributions as your spouse has the same limits.

SEP-IRA

The SEP-IRA or Simplified Employee Pension Individual Retirement Arrangement is a retirement plan designed for small business owners with fewer than 100 employees. One immediate benefit of a SEP-IRA is that this plan is easy to set up, with no filing requirement from the employer. Upon closer inspection, SEP-IRA allows for a generous contribution limit of $57,000.

You can contribute to your SEP-IRA as both the employee and employer. However, there are two caveats to your contributions: First, your contributions as an employee will use the same contribution limit of all your IRA type accounts, a total of $6,000 in 2020. Second, when you contribute to your own SEP-IRA as the employer, you must contribute the same percentage for all your employees.

Because of this contribution rule, entrepreneurs tend to avoid SEP-IRA if they have employees. However, SEP-IRA’s generous contribution limit works great for solo entrepreneurs.

Additional features:

  • As the employer, you can contribute up to 25% of your compensation or $57,000 (whichever is lower).
  • All employees over age 21 and who have worked for you for three of the last five years must be eligible for employer contributions, if they receive more than $500 in compensation in the current year.
  • You must contribute the same percentage to your employees’ SEP-IRAs as you contribute to your own (e.g., if you contribute 10% of your salary to your plan, you must also contribute 10% of your employees’ salary to their plans).

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Retirement plans for growing businesses

Solo 401(k) and SEP-IRA plans work great when you have no employees. However, as your business grows, you need other plans to effectively cover you and your team. While you can consider a traditional 401(k), it comes with many administrative burdens. A SIMPLE IRA plan can be a great alternative for you.

SIMPLE stands for Savings Incentive Match Plan for Employees. There are two types of SIMPLE plans: SIMPLE IRA and SIMPLE 401(k). They are mostly similar with a few differences to cater to different business needs.

SIMPLE IRA

The SIMPLE IRA is an easy-to-use retirement plan and is available to employers with 100 or fewer employees. Setting up an SIMPLE IRA is easy. All you need to do is to sign an initial document and share an annual disclosure with your employees. The rest is taken care of by the financial institution you choose to oversee the IRA assets.

Both employees and employers contribute to SIMPLE IRAs. While employees can skip contributions, employer contributions are mandatory.

Additional features:

  • Employees may contribute up to $13,500 (in 2020). If you are age 50 or older, you can make an additional $3,000 catch-up contribution.
  • Under a SIMPLE plan, employer contributions are mandatory. You can choose to match employee contributions up to 3% of their compensation. Or you can choose a flat 2% nonelective contribution for each employee for the first $285,000 of their compensation.
  • SIMPLE IRA is easy to set up with minimal administrative burdens.

SIMPLE 401(k)

Similar to SIMPLE IRAs, SIMPLE 401(k)s are designed for businesses with less than 100 eligible employees. The contribution rules for SIMPLE 401(k)s are almost identical to SIMPLE IRAs.
While the SIMPLE 401(k) has more administrative requirements, it also allows the employees to take out loans on their 401(k) savings.

Additional features:

  • Employees may contribute up to $13,500 (in 2020). If you are age 50 or older, you can make an additional $3,000 catch-up contribution.
  • Employers with SIMPLE 401k plans can choose between a 3% matching contribution or a 2% non-elective contribution. Both contributions are subject to the $285,000 compensation cap.
  • You must file a Form 5500 each year
  • Loans are permitted.

It’s easier than it seems

Having a retirement plan for your business not only automates your retirement savings but also gives you valuable tax benefits. Additionally, offering retirement plans to your employees may encourage them stay longer with your company.

While setting up a retirement plan for your business can seem daunting, it is easier than it appears. With the help of these four small business retirement options, you can quickly set up a plan that works for you and your schedule.

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About the Author

Post by: Kehan Zhou

Kehan Zhou is a financial market expert and entrepreneur with years of experience in investment banking and fintech ventures. He is the founder of Wall Strategies, which offers light yet insightful investing and personal finance articles written by qualified Wall Street traders, investment bankers, and financial advisors.

Company: Wall Strategies
Website: www.wallstrategies.com
Connect with me on Twitter and LinkedIn.

The post 4 Retirement Plans Designed for Small Business Owners appeared first on AllBusiness.com. Click for more information about Guest Post. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

Source : All Business More   

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