SBA Blog posts

  • 05/02/2022 2:44 PM | Anonymous


    Earlier this year, the mayor of Miami proposed allowing people to pay property taxes or city fees with cryptocurrency. Shortly after, a Miami penthouse sold to an anonymous buyer for $28 million — paid entirely in cryptocurrency, “making it the most expensive known residential crypto real estate transaction in the U.S. to date.”

    I always have been a believer in the future power of digital assets. In 2017, I persuaded a seller client to accept Bitcoin as payment by arguing that it could be an even better anti-inflationist asset than real estate itself, thinking this would be an experimental sale. Four years later, today I am seeing more and more sellers and developers accepting cryptocurrencies as a form of payment. Four years from now, I predict that blockchain-integrated real estate will be implemented on a whole new level beyond payments in a digital currency.

    Automated Transactions

    Blockchain platforms associated with the real estate sector provide an answer in terms of speed and safety that can considerably reduce the risk of fraud. All stages of the real estate transaction are concerned by this innovative technology and its implications for simplifying the transmission of data and reducing the time between the signing of the preliminary sales agreement and the deed of sale before the notary.

    If this new digital architecture undoubtedly allows the automation of real estate transactions, you should know that its use has already gone beyond the project stage. This is extremely interesting in terms of places where corruption or lack of transparency complicate the question of who owns a piece of land. We can consider blockchain a tool to visualize the status of properties and deeds, granting full access to the history of the property or land. It can be consulted at any time and without limit by banks, real estate agencies, buyers and sellers.

    The Creation Of Real Estate Smart Contracts

    The blockchain offers unparalleled speed via the establishment of smart contracts, which do not require the intervention of third parties. These digitalized contracts are equivalent in some ways to paper contracts, however, they allow parties to secure all the information contained and to prevent their modification.

    In practice, the majority of smart contracts are used in the automation of value exchanges in the form of virtual currencies, the cryptoassets. All the accounting entries corresponding to these exchanges of digital values are automatically recorded in the blockchain, making the transfers visible and immutable. The conditions of these smart contracts leave no room for doubt or interpretation present in our everyday transactions.

    Buying Real Estate

    This advanced digital technology could facilitate future real estate transactions such as the acquisition of new properties via cryptocurrencies. In fact, some startups are now banking on buying and selling homes in cryptocurrencies as a means of payment.

    The arrival of new kinds of funding means that platforms dedicated to buying and selling goods online are being created. If buyers are in need of guidance and certainty in the face of these extremely volatile currencies, some investors see in these new payment methods an alternative to bypass the limits imposed on the amounts of international transfers enforced in some countries.

    Objectives Of Blockchain For Real Estate

    If at present, smart contracts could allow real estate transfers to be made, it is also possible to imagine that they could be programmed according to the assets and the different stakeholders. Transfers could thus be carried out in an automatic way according to the conditions previously defined in the contract. One could also imagine automatically paying the attorneys, appraisers, brokers and all involved parties when a property is sold.

    Blockchain significantly accelerates the usual processes of the real estate market. As users have access to all the information stored in the blockchain, they save a considerable amount of time in obtaining data relating to a property or land — title deeds, land registry, technical information and surveys, co-ownership information, all of it becomes available 24/7, with real-time data and instant validation. This technology is a real revolution for real estate professionals and investors alike.

    If the internet has revolutionized the commercial sector in recent years through the development of marketplaces, the blockchain stands to change the real estate sector in terms of fluidity and distribution of information and transactions. As the blockchain could shake up entire sectors of our global economy, all real estate professions are now concerned with the blockchain, from recording and funding to transactions, from real estate investment to appraisals to asset management.

    Hurdles To Adoption

    Transparency is at the core of every transaction. While we try, as much as possible, to incorporate it in everything we do, eventually the current, obscured way of buying and selling homes will be a thing of the past. Blockchain is, of course, not the answer to all the problems in the real estate business.

    However, with the blockchain, we now have a system that increases trust and reduces real estate broker dependency, while improving cost efficiency, accelerating transfers of homes and, most importantly, opening up avenues for networking by creating a digital platform other services can tie into. I am pretty certain that a decade from now, we will look at the current purchase process and wonder how we could even transact without smart contracts, the same way we hear brokers who worked 20 years ago wonder how they did it with no cell phone and a giant book of listings before the MLS became digital.

    Even if this seems a bit far away still, there is reason to believe it will soon be a norm for the real estate industry much sooner than one might have thought.

  • 04/20/2022 5:58 PM | Anonymous

    The $2 trillion CARES (Coronavirus Aid, Relief, and Economic Security) Act was passed on Friday, March 27th. How can I get my fair share of what is available to me as a small business owner?

    Sections addressed below include the following:

    I. PAYCHECK PROTECTION PROGRAM

    II. ECONOMIC INJURY DISASTER LOANS AND EMERGENCY GRANTS

    III. DEFERRAL OF EMPLOYER PORTION OF SOCIAL SECURITY TAXES

    IV. TAX CREDIT ON EMPLOYER PORTION OF SOCIAL SECURITY TAXES FOR EMPLOYEE RETENTION RELATED TO COVID-19

    Note that the Q&A statements below are what we understand in a fluid situation. For example, Congress has yet to explicitly release guidelines for the implementation of the PPP program described immediately below. Please address any outstanding concerns with the representative handling your application(s).

    I. PAYCHECK PROTECTION PROGRAM

    Q1: What is the SBA Paycheck Protection Program (PPP)?

    A1: Grants. Yes, the government is calling them loans, but as long as the loan proceeds are used to maintain payroll and fund necessary operating expenses (e.g. utilities, lease and rental payments, mortgage obligations), the loans are completely forgivable. The PPP program is in place to encourage businesses to keep their workers employed at their existing pay levels and reduce the strain on the unemployment system.

    Q2: How much money can I apply for?

    A2: 2.5 times monthly payroll, * capped at $10 million.

    *Monthly payroll is computed as follows:

    • For non-seasonal employers, the average payroll per month over the 12 months prior to applying
    • For seasonal employers, the average monthly payroll costs for either
    • the 12 weeks beginning on February 15, 2019

    – OR –

    • From March 1, 2019 to June 30, 2019
    • Individual employees’ salaries / wages are capped at $100,000 annual compensation
    • Employees who reside outside of the U.S. are excluded from the calculation
    • Calculation of payroll can include the following:
    • Cash payments
    • Payment for vacation or sick leave
    • Group health care benefits, including insurance premiums
    • Retirement benefits
    • State or local tax assessed on employee compensation

    Note that subtracted from 2.5 times monthly payroll will be the outstanding amount of a loan made under the SBA’s Economic Injury Disaster Loan (EIDL) Program between January 31, 2020, and the date on which the Disaster Loan may be refinanced into a forgivable PPP loan. Businesses are not eligible for both the PPP program and Disaster Loan program simultaneously. For more information on Disaster Loans, see “II. Economic Injury Disaster Loans and Emergency Grants” below.

    Q3: Is my business eligible?

    A3: If you have fewer than 500 employees, the short answer is yes, your business is most likely eligible. If you have more than 500 employees but still meet the SBA’s employee-based size standard of your industry’s NAICS code, your business is also eligible.

    For your reference, other requirements include the following:

    • Business was in operation on February 15, 2020
    • Has a place of business in the U.S., and operates primarily in the U.S. or makes a significant contribution to the U.S. economy
    • Affiliation rules apply. “Affiliation” exists when Company A has the power to control Company B, or when a third party can control both businesses. If affiliated, the employee counts of Companies A & B are combined for the purposes of determining size.

    There are other eligibility rules for non-profits, veterans’ organizations, and self-employed or sole proprietorships.

    Q4: Is collateral or a personal guarantee required?

    A4: No.

    Q5: Are there application fees or closing costs?

    A5: No.

    Q6: What can I use the loan proceeds for?

    A6: If you use the loan (or a portion thereof) for approved expenses, the entire amount of the loan used on approved expenses is forgivable, i.e. a grant. Note, however, that at least 75% of the total forgiven amount must have been used for payroll.

    Following are approved expenses:

    • Payroll, as defined in A2 above
    • Costs related to continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums
    • Payments of interest on any mortgage obligation (but not prepayments) which began before February 15, 2020
    • Rent obligations for a lease which began before February 15, 2020
    • Utility Payments for services which began before February 15, 2020
    • Interest on other debt obligations assumed prior to February 15, 2020

    Unapproved expenses:

    • Anything not written above
    • If you were to use some proceeds for, say, inventory purchases, the amount spent on inventory would have to be repaid

    Q7: What interest rate is charged for the portion of the loan not spent on the “approved” expenses detailed in A6 above?

    A7: 1.0% fixed rate

    The borrower is not responsible for the interest accrued on the forgivable portion of the loan principal. The remainder of the loan that is not forgiven will operate according to the loan terms agreed upon by you and the lender.

    Q8: How long is the loan term?

    A8: 2 years

    Q9: When are interest and principal payments due?

    A9: For the portion of the loan not forgiven, the first 6 months of payments – principal and interest – are automatically deferred. Deferral can be extended up to an additional 6 months, i.e. 12 months of deferrals in total.

    Q10: Can I pay my loan earlier than 2 years?

    A10: Yes. There are no prepayment penalties or fees.

    Q11: When can I apply?

    A11: Small businesses and sole proprietorships can apply April 3, 2020, through June 30, 2020

    *Note that while technically the CARES Act is lawful and active, it will likely take 1-2 weeks for banks to be ready to accept applications. Banks will process loan applications on a “first-in, first-out” basis. They will be inundated with requests.

    Q12: How do I apply?

    A12: You can apply at any lending institution that is approved to participate in the program through the existing U.S. Small Business Administration (SBA) 7(a) lending program and additional lenders approved by the Department of Treasury. This could be the bank you already use or a nearby bank. In fact, on Wednesday, March 25th, Treasury Secretary Steven Mnuchin said the department plans to issue new regulations that will make it possible for almost all FDIC-insured banks to make SBA loans. There are thousands of banks that already participate in the SBA’s lending programs, including numerous community banks. You do not have to visit any government institution to apply for the program. You can call your bank or find SBA-approved lenders in your area through the SBA’s online “Lender Matcher” tool.

    Request a PPP application by going to the sba.gov Website

    Q13: What documents should I be preparing now?

    A13: The most important item to begin preparing are payroll records, by employee, by month, for 2019 and year-to-date 2020. Other items to begin preparing include the following:

    • Consolidated 2019 financials (Income Statement and Balance Sheet)
    • Full schedule of liabilities
    • Tax return for 2018
    • Capitalization table

    Q14: What is the covered period of the loan?

    A14: The possible covered period during which expenses can be forgiven extends from February 15, 2020, to June 30, 2020. Borrowers can choose which 8 weeks they want to specifically count towards the covered period.

    Q15: When is the loan forgiven?

    A15: Upon application by the borrower at the end of the 8-week covered period, the lender must decide on forgiveness within 60 days. Borrowers will work with lenders to verify covered expenses and the proper amount of forgiveness.

    Q16: Is the forgiven loan amount taxable?

    A16: No. Whereas any amount of loan forgiveness under normal circumstances is taxable, loan forgiveness will not be taxable under the PPP program.

    Q17: How will the “forgivable” portion of the loan be calculated?

    A17: Using the key* below, the formula is as follows:

    Loan Forgiveness = T x X/Y – Z

    Note that at least 75% of the total forgiven amount must have been used for payroll

    *Key:

    T = Approved Expenses

    X = Average # of full-time equivalent (FTE) employees during 8-week covered period of loan

    Y = Average # of FTE employees during elected pre-loan period of borrower, which can either be

    • February 15, 2019, to June 30, 2019

    – OR –

    • January 1, 2020, to February 29, 2020

    Z = Reduction in salaries/wages in excess of 25% of the employees’ full salaries/wages during the most recent full quarter prior to the loan

    As an illustration of the formula at work,

    Suppose Joe’s Hardware has $300k of eligible forgiveness amount, comprised of $230k of payroll costs, $50k of rent obligations, $10k of utility obligations, and $10k of mortgage interest obligations.

    Thus, T = $300k.

    Joe has on average 25 FTE employees during the covered period, which we will assume is the 8-week period beginning on the date of his PPP loan, e.g. April 3, 2020 – May 29, 2020.

    Thus, X = 25.

    Joe had an average of 30 FTE employees during the elected pre-loan period, e.g. January 1, 2020 – February 29, 2020.

    Thus, Y = 30.

    All of Joe’s employees are paid the same average wages and salaries – except that he has decreased Tom’s salary by 50%. So, Tom’s annualized salary goes from $40k during the most recent full quarter to $20k annualized during the 8-week covered period.

    Thus, Z = $10k. ($40k x (100%-25%) – $20k)

    Loan Forgiveness = T x X/Y – Z = $300k x 25/30 – $10k = $240k

    If you have already laid off some employees, you can still be forgiven for the full amount of your payroll cost if you rehire your employees by June 30, 2020.

    If you receive a PPP loan and plan to be forgiven for it, you must pay your employees even if your business is shut down due to a government mandate. Yes, you must pay your employees not to work.

    Q18: What constitutes a full-time equivalent employee?

    A18: (i) Salaried workers and (ii) hourly-wage workers amounting to 30 hours/week.

    For example, if you employ 20 salaried workers and additionally pay for 300 weekly work hours by hourly employees, you employ 30 FTEs (300/30 = 10 hourly + 20 salary).

    Q19: How can I apply for forgiveness on the loan after my 8-week covered period?

    A19: You can anticipate pulling together the following, detailing your use of received loan proceeds:

    1. Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings

    2. Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities

    Q20: If I have applied for, or received an Economic Injury Disaster Loan (EIDL) related to COVID-19 before the Paycheck Protection Program became available, will I be able to refinance into a PPP loan?

    A20: Yes. If you received an EIDL loan related to COVID-19 between January 31, 2020 and April 3, 2020, you would be able to refinance the EIDL into the PPP for loan forgiveness purposes. However, you may not take out an EIDL and a PPP for the same purposes. Remaining portions owed under an EIDL, for purposes other than those laid out in loan forgiveness terms for a PPP loan, would remain a loan. If you took advantage of an emergency EIDL grant award of up to $10,000, that amount would be subtracted from the amount forgiven under PPP.

    II. ECONOMIC INJURY DISASTER LOANS AND EMERGENCY GRANTS

    Q1: What are the Economic Injury Disaster Loans (EIDLs)?

    A1: Loans available through the SBA up to a maximum of $2 million. Unlike the PPP program, EIDL loans are not forgivable. In other words, they are true loans, not grants.

    Q2: What interest rate do the loans carry?

    A2: No more than 3.75% for for-profit companies.

    Q3: Can I defer loan repayment?

    A3: Principal and interest can be deferred for up to 4 years. Note, however, that interest will accrue during the deferral period.

    Q4: What is the maturity of the loan?

    A4: 5-15 years, or 10-30 years for businesses with real estate.

    Q5: Is a personal guarantee or collateral required?

    A5: Not for loans issued before December 31, 2020, on loan amounts less than $200k. Loans greater than $200k will require collateral.

    Q6: What can the loan proceeds be used for?

    A6: The loans may be used to pay for expenses that could have been met had the disaster, e.g. COVID-19, not occurred, including payroll and other operating expenses.

    Acceptable uses of loan proceeds include the following:

    • Payroll expenses
    • Operating and working capital expenses
    • Short term notes and balloon payments due within the next 12 months

    Cannot use loan proceeds for the following purposes:

    • Long-term loan prepayment (but you can use loan proceeds to make required monthly payments on long-term debt)
    • Business expansion
    • New asset purchases
    • Real estate repairs
    • Long-term debt refinancing

    Q7: Is my business eligible?

    A7: The CARES Act expanded the eligibility to access Disaster Loans to businesses with fewer than 500 employees. Eligible recipients must have been in operation on January 31, 2020.

    Q8: How do I apply?

    A8: The application process is administered directly through the SBA. You can apply online. This differs from the PPP loan application process, which will be administered not directly through the SBA, but rather through SBA-approved bankers/lenders.

    Processing times for EIDL loans will be at least 3-4 weeks.

    Q9: What are the emergency grants?

    A9: The grants are emergency advances of up to $10k on the EIDL loan for employers in the middle of applying. These grants are supposed to be distributed within 3 days of a request.

    Q10: Am I required to repay this grant? What if my Disaster Loan application is ultimately denied, but I was already advanced the grant?

    A10: The emergency grant does not need to be repaid if the grantee is subsequently denied an economic Disaster Loan.

    —————————-

    For the policies outlined below, please consult with your tax advisor. We have listed them here to make you aware of them, but we are not tax experts.

    —————————-

    III. DEFERRAL OF EMPLOYER PORTION OF SOCIAL SECURITY TAXES

    Q: What taxes can I defer?

    A: Employers may defer the employer share of Social Security tax deposits (Code section 3111(a)) due for the period beginning on date of enactment (the date the President signed the bill, i.e. Friday, March 27, 2020) through 12/31/2020

    Payment schedule for deferred taxes:

    50% due 12/31/2021

    50% due 12/31/2022

    This deferral option is not available if you have indebtedness forgiven under the PPP loan program detailed above.

    IV. TAX CREDIT ON EMPLOYER PORTION OF SOCIAL SECURITY TAXES FOR EMPLOYEE RETENTION RELATED TO COVID-19

    Q1: Do I qualify for tax credits?

    A1: A credit is available for 2020 against the employer’s share of the 6.2% Social Security payroll tax for any employer…

    …who was carrying on a trade or business in 2020

    – AND –

    With respect to any calendar quarter:

    • had its operations fully or partially suspended under government orders due to COVID-1

    – OR –

    • had a decline of at least 50% in gross revenue as compared to the same calendar quarter in the prior year

    Credit is not available if the eligible employer receives a covered loan under the PPP program detailed above.

    Q2: How much is the credit?

    A2: Amount of credit = 50% of “qualified wages”** with respect to each employee for the quarter.

    Maximum wages taken into account per employee per quarter = $10,000 (Max credit = $5,000 per employee per quarter)

    **“Qualified wages” mean:

    • For employers with >100 FTEs: wages paid to employees not performing services due to COVID-19-related circumstances (either suspension of operations or reduction in gross revenue)
    • For employers with <100 FTEs: all employee wages paid
    • Includes employer’s “properly allocable” qualified health plan expenses
    • Excludes wages considered under paid sick/family leave (Families First Coronavirus Response Act or FFCRA)


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