May 21, 2020

Webinar Recap: Using the Paycheck Protection Program to get Forgivable Loans for your Business

** Since our webinar on May 19th there have been many updates related to the PPP Program.

You can find ongoing updates here: https://home.treasury.gov/news/press-releases/sm1026

Here are some of the main updates:

SBA, in consultation with Treasury, will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP.  These modifications will implement the following important changes:

  • Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness.  Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
  • Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
  • Increase to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.
  • Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender. This looks to be up to 24 weeks after the loan was given as the earliest time to start paying back the loan since this is when the forgiveness covered period ends. Or, if the borrower does not apply for loan forgiveness, the deferral period to pay back the loan is 10 months after the end of the borrower’s forgiveness covered period, which looks to be around 16 months (the 24 week forgiveness covered period and 10 months after this period).
  • In addition, the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.

For ongoing updates and reliable information, please refer to the Treasury CARES Act resource site: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses.

On Wednesday May 19th, WendroffCPA Partnered with Atlantic Union Bank to host a webinar on how to get the Paycheck Protection Program Loan forgiven and to answer questions from business owners.

In the webinar, we discuss how the Paycheck Protection Program works and how to work with the PPP and Economic Injury Disaster Loans to get forgivable loans for your business.

Topics covered:

– Maximizing PPP Loan Forgiveness
– How to track expenses for PPP program
– What to do if an employee doesn’t want to come back to work
– How does PPP Loan Forgiveness work for Self Employed People
– Q&A session and more.

Presenters: Rafael A. Martinez, CTP is Vice President of Commercial Banking at Atlantic National Bank and has been working in banking for more than 17 years. He is an SBA Loan expert and works with business owners, specializing in SBA Lending, Commercial Lending and Acquisition Financing.

Eric Wilder is the Senior Tax Manager at Wendroff & Associates, CPA. He is an Army Veteran and has more than 20 years accounting and business management experience, specializing in Small Business Accounting, Government Contracting and NonProfit Accounting.

The following is the webinar recap and resources.

You can get access to the recorded webinar here:

And access to the presentation slides here:

Webinar Slides: Small Business and Self Employed Strategies for the Paycheck Protection Program

Some questions that were answered include:

Question: How can a self employed person track their salary payments out of the PPP funds for forgiveness?

You don’t have to track your payments, but you can make owner draws from your business bank account to be safe.

Question: What are the tax issues for an SCorp end of year tax planning if we choose to pay back the loan?

There are no specific tax issues, but the interest is an expense to the company and you will need to keep track of that on the balance sheet.

Question: I’ve heard there is news that portions of the PPP could be used for other business purposes, is that true?

We have not heard about that, but we would suggest confirming all news on the treasury website, as they are main source for info regarding the PPP. You can reach that site here: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses.

Question: What’s the best way to track PPP expenses? Should I be paying approved expenses through a special account to track the PPP payments?

Keep paying expenses through same bank account. If you have employees, we suggest working with a payroll provider such as Paychex, Gusto or ADP and tracking specific expense accounts such as payroll, health insurance, retirement, utilities, rent and mortgage. Expenses can be calculated on profit and loss report, general ledger and bank. Also, payroll reports, health, 401k, utilities, and other PPP bills can be used to back up ledger. Make sure to reach the 75% rule payroll rule.

Question: Can we provide mid-year bonuses that are paid through payroll to be applied to the PPP requirements?

Rules don’t say you cannot do this. It would be good also if you did this in the prior year to show a pattern. The rules do not say you cannot do this, but it may create an issue to prove that your business was hurting when you took the loan, which is what the loan is supposed to help with if you gave bonuses.

Question: What records to keep? (Should some expenses in QBO be classified differently in order to meet reporting requirements?)

Payroll info for records, the expenses can be revised to report payroll, benefits, etc. to be used for the reconciliation. You can spend the loan on very specific expenses. Ask your bank about what they need specifically. We know banks at least need payroll records, expense documents for benefits, the SBA application, etc.

Question: I work as a contractor for my spouse? How should I claim PPP loan forgiveness?

Apply through your bank like any 1099 contractor and follow the same rules for forgiveness.

Question: Can payroll and benefits be forgiven for 2% SCorp owners?

Yes, up to 100% of payroll for the covered period.

Question: Are payroll expenses calculated before taxes and deductions?

No, Payroll is gross meaning the employee deductions and taxes are part of the calculation.

Question: What documentation do I need to submit if I have been granted a PPP loan based on my 1099 income?

Your health insurance, utility expenses, mortgage, rent and retirement bills.

Question: What are forgivable expenses the loan can be used for?

  • Employee wages, salaries, commissions, or similar compensation, including tips and payment for vacation, parental, family, medical, or sick leave.
  • Payment required for the provisions of group health care benefits, including insurance premiums.
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave.
  • Employee salaries, commission, or similar compensation
  • Interest on any other debt obligation that were incurred before the period.
  • Allowance for dismissal or separation.
  • Payment of retirement benefits.
  • Payment of state or local tax assessed on the compensation of employees.
  • For owner-employees, self-employed individuals, and general partners, any amounts paid to owners, capped at $15,385 per person.

Question: What non-payroll expenses are eligible for forgiveness?

  • Business mortgage interest payments on real or personal property (but not payment of principal).
  • Business rent or leases on real or personal property.
  • Business utilities (electricity, gas, water, transportation, telephone or internet access).
  • Note: for these non-payroll costs to be eligible, the obligation must have begun prior to February 15, 2020 (e.g., the lease agreement or utility contract must have been signed prior to that date).

Question: Are there timing requirements of non-payroll expenses?

Forgivable non-payroll costs such as mortgage interest, rent, and utilities must be paid during the eight-week forgivable period that starts on the day the borrower receives the PPP loan proceeds, but borrowers are entitled to count a payment made in the month after the eight-week period if it was incurred during the 8-week period. It appears the intention is to provide flexibility while limiting borrowers to forgiveness of two regular monthly payments (not three).

Question: I need help stretching my working capital. Am I able to defer payment on this loan?

You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment.

Question: How do I determine how much of my loan can be forgiven?

The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan.

Not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs.

There is ongoing guidance from the SBA related to loan forgiveness.

Question: What if my pay period falls after the 8 week period?

Under the law as written, the eight-week forgiveness started on the day the PPP loan proceeds were disbursed. It also stated that costs were forgivable to the extent they were “incurred and paid” during the eight weeks.

The SBA and Treasury, in drafting the loan forgiveness application, listened to the suggestions of a number of commentators and recognized the difficulty this poses for millions of employers who pay workers a number of days after the close of a pay period.

Employers who pay biweekly or more frequently can elect to calculate forgivable “payroll costs” using “Alternative Payroll Covered Period” that runs eight weeks, starting on the first day of the next full pay period after the borrower receives the PPP loan proceeds. Additionally, the borrower can count pay for the work in the final pay period even if it is paid after the 8-week period.

Question: How do you determine what a Full Time Employee is?

The application’s instructions adopt a set full-time equivalency (“FTE”) employee calculation formula. “For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0.” There is an alternative, “simplified” method an employer can use, assigning a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours. These calculations are important because they will be used to determine whether the loan-forgiveness amount will be reduce pro rata for a reduction in workforce during the eight-week period compared with test periods defined in the law.

Question: What if an employee won’t come back to work?

  • Make a written offer to rehire employee in good faith
  • You must have offered to rehire for the same salary/wage and number of hours as before they were laid off
  • You must have documentation of the employee’s rejection of the offer
  • NOTE: Employees who reject re-employment offers may no longer be eligible for continued unemployment benefits

Question: If an employee won’t return, how is that treated in terms of loan forgiveness?

 There are no reductions in loan forgiveness, despite a reduction in FTE, for (1) any positions for which the Borrower made a good-faith, written offer to rehire an employee which was rejected by the employee; and (2) any employees who (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours. In addition, the application reiterates the law’s safe harbor for borrowers who restore FTE by June 30, 2020, to the same average FTE during the pay period that included February 15, 2020. Loan forgiveness for such an employer is not reduced, even if it was not able to restore FTE fully during the 8-week forgiveness period.

Question: How long should I keep documentation related to the PPP loan forgiveness?

The borrower must keep backup documentation for six years. A description of the required documentation is listed in the application’s instructions and includes banks statements, tax forms, canceled checks, and receipts.

Question: Are there issues with the PPP that still don’t have clear guidance?

  • Retirement and Health Care Benefits: While the application makes clear that an employer’s contributions to a self-insured group health plan is eligible for forgiveness, borrowers continue to wait for any further clarification on how exactly health care costs and retirement costs will be defined.
  • Compensation to Owners: The application treats compensation to owners, including “owner-employees” differently, and such compensation is segregated from the payroll costs paid to other employees. But it is not immediately clear whether this has ramifications for otherwise forgivable payroll costs.
  • Numbers of Employees: The application asks that the borrower calculate the number of employees at the time of the PPP application and the number of employees at the time of the loan forgiveness application. It is not immediately clear what relevance these figures have, given that the law’s pro-rata reduction for workforce cuts involves carefully defined FTE calculations at other defined periods. The application also does not state whether employees should be reported based on head counts or full-time equivalency, whether only employees resident in the United States should be included, or whether employees of affiliates should be included.
  • Review Standards: No guidance has yet been provided to Lenders on the standard of review they are expected to undertake in reviewing the application. In also remains possible that smaller PPP borrowers will be provided additional safe harbors in submitting forgiveness applications.

Question: What documents do I need to provide to my lender to be considered for loan forgiveness?

  • Evidence verifying the number of full time equivalent employees on payroll.
  • Pay rates by employee including payroll tax filings reported to the IRS.
  • State income, payroll, and unemployment insurance filings.
  • Mortgage obligation, lease obligation, and utility payment evidence including: Documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments (documentation including cancelled checks, payment receipts, transcripts of accounts, or other)
  • Any other documentation the administrator determines is necessary.

Question: When will I know if my loan is forgiven?

Your lender will issue a decision on loan forgiveness within 60 days after receiving an application for loan forgiveness.

Question: Where can I get a copy of the loan application?

The SBA has issued an early copy of the loan forgiveness application here:

Question: Is the forgiven part of the loan taxable?

Any amount of loan forgiven as part of the PPP is excluded from gross income, and as such, is not taxable.

Question: If I would like to make a prepayment on this loan, is there a penalty? And what is the interest rate on the loan?

Notwithstanding any other provision of law, there is no prepayment penalty for any payment made on a covered loan.

The interest rate will be 100 basis points or one percent.

Question: Do Independent Contractors Count as Employees?

No. Independent contractors can apply for a PPP loan on their own so they do not qualify for purposes of a borrower’s PPP loan forgiveness. Your independent contractors can apply for their own loan.

Question: Can I Get More Than One PPP Loan?

No.  If you are an owner in multiple businesses, please read: Can I Apply for EIDL or PPP for Multiple Businesses?

Question: What Happens if PPP Loan Funds are Misused?

If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.

Keep good records of how you use these funds.

Question: What If I Have Already Laid Off Employees or Cut Pay?

If you have already laid off workers, you have until June 30, 2020 to restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. This part of the law is confusing and additional guidance from the SBA and Treasury is needed, so be sure to get professional advice if you are hoping to obtain full loan forgiveness.

Wendroff & Associates has a special program to help business owners calculate their loan amount, apply for the PPP loan and discuss the parameters to make sure you get the loan forgiven. This is a 3 hour consult, and the fee is $500. If you would like to set up a consult, please click on the button below.

Question: How do I keep track of future changes to the PPP program?

Members of Congress and administration officials have continued to discuss other possible changes to the PPP, including the possibility of expanding the forgiveness period.

 For the most reliable information, please refer to the Treasury CARES Act resource site: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses.

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