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Paycheck Protection Program could help MSPs make payroll

A Small Business Administration lending program could help cash-strapped MSPs, but demand for the loans will be high and some details still need to be worked out.

A small business lending program that could benefit MSPs facing coronavirus-wrought financial hardship is scheduled to begin processing applications on April 3.

The Small Business Administration's Paycheck Protection Program, established through the $2 trillion economic stimulus package called the CARES Act, aims to help small firms meet their payroll costs. Small businesses with fewer than 500 employees, including sole proprietorships, independent contractors and self-employed individuals, are eligible to apply. Many MSPs fall into the small business category.

The program will provide loans in amounts 2.5 times a business' average monthly payroll costs. In making the payroll cost calculation, applicants must exclude employees' annual compensation in excess of $100,000. Small businesses may apply the loan to rent, mortgage interest or utilities payments in addition to payroll costs. Businesses may qualify for partial or total loan forgiveness if they meet certain criteria. Loan amounts are capped at $10 million.

Dave Wilkeson, CEO of MSP Advisor, a company that coaches MSPs on financial performance and service delivery, said he believes the Paycheck Protection Program, of all the government's relief initiatives, has the potential to provide the largest benefit for most MSPs and IT services companies.

Speaking at a CARES Act webinar hosted by SolarWinds MSP, Wilkeson suggested MSPs act quickly to prepare their application and collect supporting documentation, citing the anticipated flood of companies likely to seek loans.

I would immediately put your documentation on your payroll costs together.
Dave WilkesonCEO, MSP Advisor

"I would immediately put your documentation on your payroll costs together," he said. "This is what you should be doing today."

MSPs can obtain the Paycheck Protection Program application from the SBA's website, but the application must be submitted to an SBA-authorized lender. Wilkeson said SBA, as of April 2, had yet to release formal guidance on documentation but he suggested a list of documents MSP can start collecting, based on his interpretation of the program:

  • 2019 IRS quarterly 940, 941 or 944 payroll tax reports
  • Last 12 months of payroll reports, beginning with your last payroll date
  • Net owner compensation documentation for the same period, if compensation is paid through disbursements
  • Trailing 12-month income and expenses for sole proprietorships/partnerships
  • State and local taxes assessed on employee compensation for each employee
  • 2019 1099s for independent contractors of your business who would otherwise have been an employee of your business
  • Documentation showing the total of all health insurance premiums paid by the company/owner under a group
  • Retirement plan match paid for each employee, including owners

Wilkeson said his CARES Act pointers are intended to give MSPs a general sense of direction, adding service providers should engage with their accountants to address their specific situations.

While the Paycheck Protection Program is set to launch April 3, some banks may not be ready to process loans. Several media outlets reported JPMorgan Chase & Co. has told its small business clients the bank will most likely not be able to accept applications on April 3, pending SBA and Department of Treasury guidance.

Another caveat for MSPs applying for the small business lending program: Avoid double-dipping with other federal relief programs. The SBA's Economic Injury Disaster Loan (EIDL) program, for example, offers an immediate $10,000 grant. But those funds can't be used to cover the same expense categories that the Paycheck Protection Program encompasses. In addition, the Paycheck Protection Program's loan forgiveness amount would be reduced by the amount of the EIDL grant, Wilkeson said.

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