PPP Program Changes Coming as Senate passes House Bill
6.4.2020 Last night the US Senate passed the House version of the Paycheck Protection Program Flexibility Act of 2020 and the President is expected to sign it soon. This bill has some very favorable provisions in it for those companies that have PPP loans.
There are two provisions I think are clients will get the most benefit from. First the extension of the period in which PPP funds must be used from 8 weeks to 24 weeks. Second, the relaxation of the amount of funds that must be used for payroll from 75% to 60%. This is welcome relief and should ensure that most if not all of you will qualify for full forgiveness on the PPP loans.
They did tighten up one provision regarding the payroll %. In the original law if you did not use 75% of the loan for payroll the loan forgiveness would just be reduced. Now under the new law, the requirement is only 60% but if you do not reach this amount, none of the loan can be forgiven. With the extended period to pay your payroll now at 24 weeks, I don’t see that as much of an issue for any of our clients.
There is a third provision that you will also want to take note of. The original CARES Act allowed companies to delay payment of the employer’s portion of payroll taxes for two years. Effectively a 2 year interest free loan. You could not take advantage of this provision if you wanted PPP loan forgiveness. Under the Flexibility Act, the prohibition has been removed. So now a business can take a PPP loan and also defer payment of employer payroll taxes. This may be a provision you want to jump on as soon as the President signs the new law and it is official.
If you have not already applied for a PPP loan, it appears there are still funds available from the 2nd funding and the application deadline is 6.30.20 unless funds run out sooner.
Now for the scary stuff. PPP borrowers should be aware that their loans are subject to government audits for 6 years. We recommend that all PPP borrowers prepare a substantiation memorandum to support and contemporaneously document the necessity for their loan. You should also keep all of your support for the forgiveness application and other loan certifications for the required 6 year period.
PPP Loan Forgiveness Application Released by SBA
5.18.2020 On Friday the SBA released the “Paycheck Protection Program Loan Forgiveness Application (see link below) that contains information on the forgiveness program.
Of note there is clarification on the “incurred” vs “paid” language regarding what counts for forgiveness. You can either count the payroll paid during the 8 week period, regardless when it was earned, or you can use the payroll earned during the 8 week period even if paid after the 8 week period as long as it is by the next regular payroll payment date.
Bonuses can be included in the calculation but for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100k, meaning $15,385 which is $100,000/52*8.
The instructions also clarified that payroll for owners could not exceed $15,385 or their 2019 wages /52*8, whichever is less. This would serve to limit the ability of a corporation to attempt to cram in a bonus to get an owner-employee who had less than $100,000 in 2019 cash compensation up to the $15,385 maximum amount per individual for the forgiveness calculation.
There is also clarification on the number of hours to be used in the FTE employee calculations. You are to use 40 hours for the calculation and someone who works more than 40 hours cannot be counted as more than 1 FTE.
The instructions also explicitly state that rent payments can be for real or personal property which is what we thought all along but now it is official.
There are still many questions and we expect more guidance to come possibly in a FAQ format. We will let you know when we know more.
Latest New on PPP Loans
4.27.2020 On Friday the President signed another stimulus package which will provide additional funding for the PPP loans and the SBA EIDL program. If you missed out on the first round of funding, you have another chance starting this Monday. Your bank probably still has your application in process just waiting for new funding but it might make sense to contact them to confirm that they don’t need anything further from you to proceed.
I am sure by now you have heard about the public outcry over public companies like Shake Shack, Ruth’s Chris, and Potbellies receiving large PPP loans which used up the funding from the first stimulus package and left many small businesses out in the cold. SBA and Treasury are coming down hard on these companies. The weapon that the SBA is using is the assertion that was required to obtain the loan “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”. The SBA takes the position that if the public company has substantial cash on hand that could be used for operations then they didn’t need the loan and have fraudulently obtained the loan. I see this as possibly filtering down to non-public companies. In response to the public outcry, the SBA has added a new question to the FAQ on PPP loans.
New Question 31 in the FAQ reads:
Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. (all emphasis added)
While the italicized text above is not highlighted in the document, it points out the key additional guidance found in this question. While the application process was simple there may be questions on the back end before these loans are forgiven. In essence the SBA is saying, if a company does not wish to risk having to demonstrate the need for the loan, they should repay the balance by May 7, 2020.
As well, while the question only discusses public companies, it does so purely as an example. It may be risky to assume that nonpublic companies are safe from being asked the same questions—nothing in the document specifically limits the necessity to consider sources of liquidity solely to public companies. Will this truly result in any actions against borrowers? And, if so, how many borrowers will face these consequences? Could this have any effect on whether the loans will be forgiven or not? Only time will tell.
Getting back to the good news in all of this, if you missed getting a needed loan the first time around, I hope you will now be successful this next week.
Preparing for the Worst, Planning for the Best
4.22.2020 Due to the recent economic and social challenges we are all facing, financial partner Jared Asay, updated this Arizona Society of CPAs article to specifically include the latest catastrophic event, COVID-19, and how to prepare your companies to find success during and after this pandemic. Stay healthy, personally and financially.
2nd Quarter Estimates
4.10.2020 The IRS issued notice IR-2020-66 yesterday extending more tax deadlines. One of the items included, is the due date for 2nd quarter estimates for those of you that make quarterly estimated tax payments.
Early on, they said that 1st quarter estimates due 4/15 did not have to be paid until 7/15. They did not address the 2nd quarter due date which is normally 6/15. Creating the odd situation, where the 2nd quarter estimate was going to be due before the 1st quarter estimate this year.
Now both have been extended until 7/15. This is something we expected but now it is official.
Payroll Protection Program Loan applications being accepted today
4.3.2020 The U.S. Small Business Administration on Thursday issued an interim final rule for the Paycheck Protection Program (PPP), which is offering $349 billion in forgivable loans that small businesses impacted by the coronavirus pandemic can use to cover costs including payroll and rent.
The interim final rule lays out additional implementation guidelines and requirements for the PPP, which Congress created as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The new rule provides greater clarity on several issues and changes the interest rate on loans made under the program from 0.5% to 1%.
Small businesses and sole proprietorships can apply for PPP loans beginning today. Independent contractors and self-employed individuals can apply beginning April 10. PPP loans will be available through June 30 or until the funds run out. Due to expected high demand, Teasury recommends that applications be submitted as soon as possible. The application can be found here on the Treasury site, along with details for borrowers and lenders.
We expect the PPP funds to run out today. If you are an Independent contractor or are self-employed and therefore cannot apply for the PPP until next Friday, We suggest you apply for the Economic Injury Disaster Loan (EIDL) program today. You can always apply for the PPP next Friday if funds are still available. You apply for the EIDL directly BA instead of your bank.
The Payroll Protection Program PPP
4.1.2020 The Payroll Protection Program or PPP was part of the CARES Act passed last Friday. This is probably the program that our businesses will have the most interest in. This program will provide loans to businesses so that they can continue to pay employees during this crisis. There is a forgiveness component to the loan, to the extent employers maintain number of employees and employee pay rates.
This summary provides some details on the loan, which are different than previously reported. Loan interest rate is now .5% instead of 4% and loan maturity is 2 years instead of 10 years. Of course, these provisions are a moot point if the loan is forgiven. These loans are obtained from your bank and there is a link to download a sample application form so you can see
what information you will need to provide to apply for the loan. The site says that lenders may begin processing loan applications as soon as April 3rd so contact your bank to get the process started. This is a brand new program so timing on when funds will be available is unknown.
I have found no details on how a company has to be affected by this crisis in order to qualify for the loans or loan forgiveness. The application has a very vague requirement that “the current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Based on this, we would imagine virtually every business would qualify but cannot say with any certainty.
Here is a link to the SBA website which discusses the PPP
Economic Injury Disaster Loan EIDL
4.1.2020 The Economic Injury Disaster Loan (EIDL) program is available directly from the SBA. These are low interest, long-term loans but do not include a loan forgiveness program. However, a $10,000 grant available does not have to be repaid. Under the EIDL program, an applicant may request an advance within 3 days of filing with the SBA for the loan. The $10,000 advance is in essence a grant that must be used for allowed uses only. This includes paid sick leave for Covid-19 reasons, maintaining payroll during disruptions or slowdowns, increased costs due to supply chain interruption, and rent or mortgage payments or repaying obligations due to revenue loss. The advance does not have to be repaid even if the EIDL request is ultimately denied. If the EIDL is approved it can be transferred into the PPL loan and will be netted out of any grant provided in that program. The EIDL is an established program and loans should be processed in 2-3 weeks.
It is allowable to receive EIDL funding and then apply for a PPP loan for covered PPP payroll costs that were not applied for and received under the EIDL grant. It is allowable to then roll the le to apply for the PPP and then the EIDL. If you receive the EIDL loan, you do not have to accept and usually have 60 days to decide.