Looking For an Investor?

Every deal is different, but here are some basics.

There are three main ways investors can provide funding to your small business: equity investment, debt investment, or convertible debt.

With equity investment, an investor will buy an ownership stake in your business. For instance, an investor might provide $100,000 in cash for a 10% ownership stake, meaning they will receive 10% of whatever profits you make down the road.

Debt investment is different in that an investor loans your venture money in exchange for eventual repayment of the loan, plus interest income. Debt capital is most often provided either in the form of direct loans with regular amortization (reduction of interest first, then principal) or the purchase of bonds issued by the business, which provide semi-annual interest payments mailed to the bondholder.  Debt investment is considered less risky for the investor. If your venture fails, debt investors recoup their investment before equity investors. However, debt investors also have no ownership stake, meaning if your business is wildly successful, they won’t see the same escalating profits that an equity investor will.

The third option, convertible debt, is a hybrid of debt and equity investment. Your business borrows money from investors under the agreement that the loan will either be repaid or turned into an ownership share at a later point. This conversion typically takes place after an additional round of funding or once your company reaches a certain valuation.

Posted in Tips

IRS offers further guidance on ERC, and Congress may end it

The Internal Revenue Service and the Treasury Department released guidance for employers who pay qualified wages after June 30, 2021, and before January 1, 2022, and Congress considered a proposal to end the tax break next month.

The employee retention credit was included last year as part of the CARES Act by offering tax credits to encourage more businesses to retain employees at the height of the COVID-19 pandemic in March 2020. However, the Paycheck Protection Program, with forgivable loans from the Small Business Administration, proved to be a more popular way for businesses to get help from the federal government. Initially, businesses couldn’t take advantage of both programs, but later legislation passed last December allowed them to use both the PPP and the ERC.

 Under the American Rescue Plan Act, the employee retention credit was extended until the end of the year, but the bipartisan infrastructure bill that the Senate is taking up this week proposes to end the tax credit in September. Lawmakers contend the program hasn’t been used by enough businesses to justify keeping it for the rest of the year.

 The new notice explains changes made by the American Rescue Plan Act of 2021 to the employee retention credit that are applicable to the third and fourth quarters of 2021.  It also explains that the employee retention credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant.

Form 941, the employer’s quarterly federal tax return, is one way to claim the credit whereby employers can report their total qualified wages and the related health insurance costs for each quarter on a Form 941 for the period in question.

The IRS seems to have been holding up many of the tax credit claims due to the backlog at the resource-constrained agency.

Frequently asked questions and updates on the employee retention credit, tax credits for required paid leave and other items can be found on the coronavirus page of IRS.gov.

Posted in IRS

Gross Receipt Exclusions for ERC

A taxpayer is permitted to exclude certain items from “gross receipts” for determining eligibility to claim the ERC under the CARES Act and other recent relief legislation including:

  •  amount of the forgiveness of a PPP loan
  • grant from the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
  • restaurant revitalization grant under the American Rescue Plan Act
Posted in Tips

Colorado Workers’ Compensation Insurance

All businesses with employees operating in Colorado are required to have workers’ compensation insurance, regardless of the number of employees, whether the employees only work part-time, or if they are members of the same family. All workers’ compensation insurance in Colorado is sold by private insurance carriers; there is no state fund. Employers should contact their insurance agent to seek quotes and get coverage.

 

Posted in Colorado, Tips

SBA Defers EIDL Payments Until 2022

Small businesses that received a COVID-19 Economic Injury Disaster Loan (EIDL) won’t have to start making payments on the loan until 2022. The SBA announced extended deferment periods for all of its disaster loans, including the COVID-19 EIDL loans. The deferral details differ depending on the calendar year the disaster loan was made.

  • For all SBA disaster loans made in 2020, the first payment due date is 24 months from the date of the note.
  • For all SBA disaster loans made in 2021, the first payment due date is 18 months from the date of the note.

The SBA also granted an additional 12-month deferment of principal and interest payments for existing disaster loans approved prior to 2020 that were in regular servicing status as of March 1, 2020. 

Borrowers may voluntarily make payments during the deferment, as interest will continue to accrue on the outstanding loan balance during this period.

The SBA has approved in excess of $200 billion in COVID-19 EIDL loans to more than 3.7 million small businesses and not-for-profit organizations. The loans have a 30-year maturity with interest rates of 3.75% for small businesses, including sole proprietors and independent contractors, and 2.75% for not-for-profits.

 

Posted in Uncategorized

Restaurant Revitalization Fund Closed

The U.S. Small Business Administration (SBA) announced the closure of the Restaurant Revitalization Fund (RRF) after awarding the program to more than 100,000 restaurants, bars, and other businesses that provide on-site food and drink.

Demand for the funds far outstripped the supply, with restaurants and other eligible businesses submitting more than 278,000 applications seeking more than $72.2 billion in funding, as of June 30, the SBA said in a news release issued July 2.

Most of those applications were submitted in the first few days after the RRF application window opened May 3. Less than 10 days after the RRF’s launch, the SBA reported that it had received requests for more than twice the $28.6 billion Congress provided for grants.

The program was to provide the vast majority of its funding to eligible businesses owned by women, veterans, and socially and economically disadvantaged individuals. The priority policy was challenged with lawsuits alleging that the policy discriminated against white men. Several judges ruled in favor of those claims, leading the SBA to stop processing applications from members of prioritized groups and to rescind some approvals already made. So while more than 60% of all applications were denied funding, thousands of restaurant owners had the SBA approve their applications only to be notified that they would not receive the funding.

The average size of grant awards was $283,000.

Under the RRF, food and beverage providers could apply for grants equal to their pandemic-related revenue loss, up to $10 million per business and no more than $5 million per physical location. The funds could be used for eligible expenses, such as payroll and rent.

The SBA said it would keep the RRF application platform open until July 14 to allow applicants to check their status, address payment corrections, or ask questions.

Posted in Uncategorized

Cash Basis of Accounting

The cash method is the simplest and most common  for small businesses to use. With the method, the business reports income in the tax year is is actually received and deducts expenses in the tax year that they are actually paid (for example the date a check is written)
However, expenses paid in advance can only be deducted in the tax year it covers, not necessarily when it is received.
Posted in Uncategorized

PPP First Draw Forgiveness Application

The CARES Act AND the Economic Aid to Hard-Hit Small Business, Nonprofits, and Venues Act  (signed into law on 12/27/20) lists the items that can be used to calculate Payroll Costs for a new loan request and “Eligible payroll costs” and “Eligible nonpayroll costs” for a forgiveness request. This means that a PPP loan is forgivable to the extent the proceeds of the loan are spent on these two categories, headcount and salaries of employees are maintained at the same pre-Covid-19 level. Another important requirement is that these expenses are paid during the “covered period” or “alternative covered period”.  At least 60% of the PPP Loan must be spent on “Eligible payroll costs” and up to 40% can be spent on “Eligible nonpayroll costs”.

Eligible Payroll Costs – For New Loan and Forgiveness Request

  • Compensation to employees including salary, wages, commissions or similar compensation
  • Cash tips or the equivalent
  • Vacation, parental, family, medical, or sick leave (except those paid leave amounts for which a credit is allowed under FFCRA Sections 7001 and 7003)
  • Allowance for separation or dismissal
  • Employer contributions for employee group healthcare coverage, group life, vision, or dental (including insurance premiums paid by employer)
  • Employer contributions to employee retirement plans
  • Employer state and local taxes assessed on employee compensation
  • For Independent Contractors and Sole Proprietorships - wage, commissions, income, or net earnings from self-employment of similar compensation

​​​​​​Eligible Nonpayroll Costs – Appropriate Use of Loan Funds to Support Forgiveness Request

  • Interest on covered mortgages
  • Expenses for rent or lease payments
  • Utility expenses
  • Covered operations expenditures
  • Covered property damage costs
  • Covered suppliers costs
  • Covered worker protection expenditures

Covered Period: The Covered Period begins on the date the loan was originally disbursed. It ends on a date selected by the Borrower that is at least 8 weeks (56 days) following the date of loan disbursement and not more than 24 weeks (168 days) after the date of loan disbursement. For example, if the Borrower received their PPP loan proceeds on Monday, April 20, 2020, the first day of the Covered Period is Monday, April 20, 2020 and the final day of the Covered Period is any date selected by the Borrower between Sunday, June 14, 2020 and Sunday, October 4, 2020.

Posted in IRS, Taxes

New Round of Economic Injury Disaster Loan (EIDL) Advances

The SBA is launching a new round of Economic Injury Disaster Loan (EIDL) Advances – called Targeted EIDL Advance – which provides eligible businesses with $10,000 in total grant assistance. If you received the EIDL Advance last year in an amount less than $10,000, you may be eligible to receive the difference up to the full $10,000. The combined amount of the Targeted EIDL Advance and any previously received Advance will not exceed $10,000.

Businesses eligible for the Targeted EIDL Advance must meet ALL the following eligibility criteria:
• Located in a low-income community, as defined in section 45D(e) of the Internal Revenue Code. The SBA will map your business address to determine if you are in a low-income community when you submit your Targeted EIDL Advance application.
• Suffered economic loss greater than 30 percent, as demonstrated by an 8-week period beginning on March 2, 2020, or later, compared to the previous year. You will be required to provide the total amount of monthly gross receipts from January 2019 to the current month-to-date.
• Must have 300 or fewer employees. Business entities normally eligible for the EIDL program are eligible, including sole proprietors, independent contractors, and private, nonprofit organizations. However, agricultural enterprises, such as farmers and ranchers, are not eligible to receive the Targeted EIDL Advance.

To help applicants determine if they are located in a low-income community, as defined in section 45D(e) of the Internal Revenue Code, the SBA is making available a mapping tool at https://sbaeidl.policymap.com/app. Note that the business address must be located in a low-income community to qualify for the Targeted EIDL Advance. You are encouraged to check the map to see if your business address meets the low-income community eligibility requirement before you apply.

To assist you in completing the Targeted EIDL Advance questions, have available a copy of your 2019 Federal Tax Return and the business’ monthly gross receipts for each month from January 2019 through the most recent month-to-date period. The information you provide will be used to determine if your business meets the economic loss greater than 30 percent requirement above. You will also be asked to confirm that the information provided in your original EIDL application is still accurate. If there are any changes, you may be asked to provide documentation to determine if you are eligible for a Targeted EIDL Advance. Applicants that pass the initial eligibility requirements will also be required to electronically sign an IRS Form 4506-T allowing the SBA to obtain tax transcripts directly from the IRS.

All application decisions will be communicated via email. If your request is approved, you will receive an email notification and an ACH deposit to the bank account you provided in your application.

Posted in Tips

Businesses Can Deduct 100% for Food or Beverages from Restaurants Beginning 1/1/2021

The Treasury Department and the Internal Revenue Service issued Notice 2021-25 providing guidance under the Taxpayer Certainty and Disaster Relief Act of 2020. The Act added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception allows a 100% deduction for food or beverages from restaurants.

1/1/2021 – 12/31/2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.

Restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. Restaurants do not include grocery stores and convenience stores.

Posted in IRS, Taxes