Client Login
Pay Your Invoice

The U.S. Senate and House of Representatives have both unanimously agreed to extend the Paycheck Protection Program (PPP) by five weeks in an effort to continue providing relief for small businesses hit hard by the pandemic. Applications officially closed for the program on June 30 when the Senate voted for a last-minute extension. President Trump is expected to sign the bill.

This extension would give small businesses until Aug. 8 to apply for a share of the approximately $129 billion in remaining PPP funding through the Small Business Administration (SBA). Thanks to the PPP Flexibility Act passed on June 5, recipients have 24 weeks to use loan funds for payroll and other essential expenses like rent/mortgage and utilities. The Flexibility Act also lowered the threshold for payroll expenses to 60% to achieve full forgiveness with a few safe harbor considerations. Over 4.9 million loans have been approved by the SBA so far, worth more than $520 billion.

Contact us for assistance in compiling information for your PPP forgiveness application to present to your lender.

On June 22, 2020, the U.S. Small Business Administration (SBA) released the: Paycheck Protection Program (PPP) Revisions to Loan Forgiveness Interim Final Rule

This guidance details two noteworthy changes impacting PPP loan borrowers, including:

The updated regulations also make minor updates to existing guidance addressing the extension of the covered period derived from the June 5, 2020 enactment of the Paycheck Protection Program Flexibility Act (H. R. 7010).

Read our blog summary of changes from H.R. 7010 here.

When Can a Borrower Apply for Loan Forgiveness?
A borrower can apply for forgiveness at any time on or before the loan maturity date. However, if the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages by more than 25 percent, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period.

Expanded Limitations on Owner Compensation
The release of Revisions to the Third and Sixth Interim Final Rules on June 17, 2020, increased the maximum compensation for all employees and owners, which was summarized in our blog here. The new interim rules added that the employer portion of retirement plan funding for owner-employees of S-Corporations and C-Corporations is now capped at 2.5 months’ worth of the 2019 contribution amount. Furthermore, healthcare costs paid on behalf of owner-employees of S-Corporations are not eligible for forgiveness.

HT2 has established a dedicated PPP loan forgiveness team that is constantly monitoring new guidance from the SBA, as well as the Treasury, Congress, and the IRS, to ensure we have the latest information when advising our clients.

On June 16, 2020, the U.S. Small Business Administration (SBA) released the updated Paycheck Protection Program (PPP) Loan Forgiveness Application (see link below) which supersedes the application previously released on May 15, 2020. The new application incorporates changes to the PPP per the Paycheck Protection Program Flexibility Act (H. R. 7010), which was signed into law on June 5, 2020. The latest PPP loan forgiveness application, in conjunction with the June 17, 2020 release of the Revisions to the Third and Sixth Interim Final Rules, addresses some of the previously unanswered questions, including:

  1. Covered Period: All PPP loan borrowers will now have a 24-week Covered Period, unless borrowers of loans originated prior to June 5, 2020 elect to use the 8-week Covered Period as originally designed. The application instructs the borrower to state their covered period on the application, either the 8- or 24-week period. These new instructions do not suggest that there is an additional form required for the 8-week election.
  2. Maximum Cash Compensation Per Employee: PPP loan borrowers can obtain forgiveness for cash compensation in the maximum amount of $46,154 per employee, calculated as $100,000 as prorated over the 24-week Covered Period, or $15,385 over the 8-week Covered Period.
  3. Owner Compensation: Prior to this latest guidance, owner compensation was limited to eight weeks’ worth (8/52) of 2019 net profit up to $15,385. PPP loan borrowers using the 24-week Covered Period can now include 2.5 months’ worth (2.5/12) of 2019 net profit up to $20,833.

The SBA also released the PPP Loan Forgiveness Application Form 3508EZ (Form EZ) on June 16, 2020. The Form EZ is a simplified version of the loan forgiveness application and is applicable to PPP loan borrowers who are willing to certify they have met one of the following conditions:

  1. Borrower Has No Employees: The borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the PPP loan application form.
  2. No Salary or Hourly Wages Reductions or FTE Reductions: The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or compared to the period between January 1, 2020 and March 31, 2020, AND did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period.
  3. No Salary or Hourly Wages Reductions or Unable to Maintain Level of Business Activities: The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or compared to the period between January 1, 2020 and March 31, 2020, AND was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established 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, the Occupational Safety and Health Administration, or standards of sanitation, social distancing, and any other work or customer safety requirement related to COVID-19.

Further guidance and instructions are anticipated, especially as they relate to the PPP Loan Forgiveness Application. The HT2 COVID-19 Task Force is hard at work deciphering new regulations as they are published! Stay tuned for updates and contact us for assistance with your loan forgiveness application.

On June 10, 2020, the Small Business Administration (SBA) issued an updated interim final rule for the Paycheck Protection Program (PPP) in response to the PPP Flexibility Act passed on June 5, 2020. The updated guidance accounts for revisions made to the covered period, usage of funds changes, extended safe harbors, and more.

Here is a quick rundown of the changes made by the PPP Flexibility Act.

Also of note:

Further guidance and instructions are anticipated, especially as they relate to the PPP Loan Forgiveness Application. The HT2 COVID-19 Task Force is hard at work deciphering new regulations as they are published! Stay tuned for updates and contact us for assistance with your loan forgiveness application.

Helpful Links:

On May 23, the Small Business Administration (SBA) issued an interim final rule for the Paycheck Protection Program (PPP) that included the loan forgiveness application guidance released May 15, as well as other updated guidance.

The rule, Paycheck Protection Program – Requirements – Loan Forgiveness, is the formal guidance that accompanies the forgiveness application and should be used by borrowers and their advisors, as well as lenders, to ensure accurate completion and review of the forgiveness application. Since the passage of the CARES Act on March 25 and the opening of PPP loan applications on April 3, questions, concerns, and clarifications have abounded regarding loan forgiveness on all sides. The release of the interim final rule clarifies many questions, but guidance is still expected for borrowers and lenders.

Clarifications on borrower responsibility

Alternative payroll period – Until the application was released on May 15, the 8-week rule was strict for payroll. The interim rule now allows borrowers to establish the forgiveness period with the start of the first payroll period following loan disbursement, rather than the date of loan disbursement. This allows for greater flexibility for employers with less frequent pay periods and should make meeting forgiveness requirements for some businesses a little easier.

Eligible payroll costs – Payroll costs must make up a hefty 75% of the loan to qualify for forgiveness, but borrowers have questioned what qualifies because employee compensation can be paid in a multitude of ways. The rule clarified that eligible payroll costs include salary, wages, commission, bonuses, hazard pay, cash tips or equivalent, PTO/sick/family/medical leave, separation or dismissals, employee benefits related to group health care coverage and retirement, state and local taxes assessed on payroll, and independent contractor/sole proprietor wages/commissions/income paid by employers to contractors up to the pro-rated amount of a $100,000 annual salary.

Caps on eligible costs for self-employed/owner-employees – For these individuals, guidance on forgiveness was somewhat incomplete and unclear. The rule clarifies that forgiveness is capped at 8/52 of 2019 compensation up to $15,385 across all businesses and that retirement and health insurance contributions are not eligible for forgiveness for self-employed individuals (benefit contributions do qualify for owner-employees) which had been in question prior to guidance issuance.

Costs paid vs costs incurred – The 8-week-from-disbursement rule in the original PPP documentation created some unforeseen restrictions on claiming eligible non-payroll costs for businesses operating on a schedule that did not align with the 8 weeks. The May 15 guidance and the most recent interim rule clarified that non-payroll costs may be paid during the 8-week period or simply incurred as long as they are paid on or before the next billing date. These costs include interest payments on business mortgage on real or personal property, business rent on real or personal property under a lease, and business utility payments, including electricity, gas, water, transportation, telephone, or internet, all incurred, in force, or in service before Feb 15., 2020. The rule also clarified that advance payments on interest are not eligible for forgiveness.

Clarification on calculating FTE employees

The interim rule included much-needed clarification on calculating FTE employees considering the many possible changes and circumstances as a result of the crisis, which was a looming question for borrowers, including when and how safe harbors apply.

First, it is important to note that the FTE calculation for PPP forgiveness differs from previous legislation in that 40 hours is considered FTE status rather than 32 hours, like for the Affordable Care Act. FTEs are calculated by the average number of hours paid per week per employee / 40, rounded to nearest tenth. FTEs can be calculated using the formula available on the forgiveness application or contact us for assistance.

Wage reductions must be analyzed on a per employee annualized basis – Employers may reduce wages and still qualify for forgiveness as long as they follow certain restrictions. Salary or hourly calculations should be done on an average annualized basis compared to period of Jan. 1, 2020, to March 31, 2020. If the average for the 8-week period is 25% less than first quarter of 2020, loan forgiveness will be reduced, unless the reduction is restored at equal to or greater levels by June 30, 2020, then forgiveness will not be reduced. 

Rehiring employees – Similar to the above, borrowers who rehire employees and/or reverse reductions to salary and wages by June 30 are still eligible for forgiveness. The guidance also clarified that, for hours and wage reductions on the same employee, loan forgiveness will not be reduced.

Employees who reject return – What happens if employees refuse to return to work for reasons such as personal or familial high-risk health concerns or other reasons? The guidance states that employers will not be beholden to employees who reject returning to work in their total FTE count. Key here is that borrowers will be required to demonstrate they made a good faith effort to rehire the employee with a written offer and must receive a written rejection. Employers must also notify the state unemployment office within 30 days following an employee’s rejection to return to work.

Cause or voluntary employee changes – Concessions have also been granted for employers whose reduction in FTE account was out of their control. The rule clarifies that borrowers who fired employees for cause, employees who voluntarily resigned, or voluntarily requested and received reduction in hours will not be counted against forgiveness. All these procedures should be documented in writing.

Clarification on loan forgiveness procedures

When working with lenders and the SBA, borrowers should be aware of additional guidance and clarification on the procedures for loan forgiveness. Most notably, all forgiveness applications must be submitted to the lender, not the SBA or other entity, and your lender will notify you of your forgiveness amount. Other points to note include:

Understanding non-forgiveness – Borrowers concerned about unforgiveable expenses received clarification that they will have 2 years at 1% interest to repay portions of the loans not forgiven by the maturity date. These terms are more generous that most SBA loans.

Factoring in EIDL – Some borrowers also qualified for, applied, and received Economic Injury Disaster Loan (EIDL) grants from the SBA. How this impacts PPP forgiveness has been a hot topic among borrowers and their advisors, but the guidance has clarified that EIDL grants will be factored into forgiveness calculations. If you want to avoid EIDL grants impacting your PPP forgiveness, they may be paid back prior to forgiveness, if applicable to your circumstances.

SBA may review any loan – While earlier guidance indicated that loans under $2 million will not be audited for economic need, the rule clarified that the SBA still has the right to review any loan, regardless of size, to ensure it meets eligibility requirements and is calculated correctly and funds are used properly. A separate ruling is expected on these procedures. Proper documentation will be essential here. Contact us for assistance.

Borrowers may appeal – Even if you feel you have all your ducks in a row, the SBA may still think differently. Fortunately, the interim rule allows borrowers 30 days to appeal SBA determinations. More guidance is expected on this.

Lenders have a deadline – The interim rule also issued clear guidance and deadlines for lenders and the SBA to handle the forgiveness applications. Lenders have 60 days to decide on loan forgiveness from receipt of application (and to notify the borrower of forgiveness amount), followed by 90 days for the SBA to review the application. Borrowers may be asked questions by the lenders and the SBA during these reviews, so they should be prepared with accurate documentation.

The first PPP loans were disbursed on April 3, so early borrowers are closing in the final weeks of the 8-week period. More guidance is expected in the coming days and weeks, but borrowers should begin preparing their documentation now. Contact us for assistance with your loan forgiveness application.

The Small Business Administration (SBA) has released its long-awaited Paycheck Protection Program (PPP) forgiveness form for borrowers. The release on May 15 brought with it significant changes to the interpretation of some components of forgiveness that were not previously known.  

Clarity is still needed on many of the components of forgiveness. Changes were made to the following components of the program based on the release of the form.

Covered payroll periods – Until this release, the guidance indicated the covered payroll period began immediately after loan disbursement and lasted eight weeks. For those with payroll schedules that did not align with the disbursement and covered period, this generated many questions and concerns. However, this latest guidance indicates that the eight-week period may begin starting with the borrower’s first payroll following disbursement, not necessarily on the day of disbursement. This alternative period only covers payroll costs, not other allowable expenses, although adjustments do exist for other allowable expenses.

Incurred and/or paid expenses – The CARES Act originally indicated that, for costs to be covered under PPP, they would need to be incurred and paid during the eight-week period. The latest guidance, however, forgives costs that are incurred, but not paid, as long as they are paid on or before the regular billing date. This expansion applies to costs such as mortgage interest, rent, utilities, and payroll incurred during the loan period. Payroll costs incurred during the last payroll period but not paid during the covered or alternative periods (mentioned above) may be forgiven if those payroll costs are paid on or before the next regular payroll date.

Full-time equivalent (FTE) employee counts and wages – The guidance also included several clarifications to the FTE employee count and wage calculations necessary for forgiveness including:

Amounts paid to owners (owner-employees, a self-employed individual, or general partners), capped at the lower of:
1) $15,385 (the eight-week equivalent of $100,000 per year) for each individual; or
2) the eight-week equivalent of their applicable compensation in 2019

We expect further guidance to be issued from the SBA on PPP forgiveness beyond the changes outlined above. Borrowers will be required to submit the information in the forgiveness form through their lender, but your CPA can help with calculating and completing your form. Contact us for assistance.

In an update to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) FAQs, the SBA and Treasury have announced that borrowers with an original principal amount less than $2 million “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”

Released just ahead of the May 14 repayment deadline, the SBA indicated in FAQ #46 that this safe harbor was introduced because borrowers who requested less than $2 million were less likely to have access to alternative funding options. The access to other capital was the sticking point in FAQ #31, which requested businesses that could not certify in good faith their need for funds to repay them by May 14.

Borrowers with a principal amount greater than $2 million can still meet the good faith certification. Still, the SBA continues to emphasize that they will be reviewing those larger loan applications for compliance with program requirements. See question 47 for update source .

Contact us for assistance with your PPP loan obligations.

For those of our clients who have received their PPP loan and endured the painful application process, we have just one word to share – Congratulations!!!! Now what?

Now, you are on the clock! You have 8-weeks to determine how much of that loan will have to be returned and how much of that loan may be forgiven.

In our opinion, we think most of our clients will be left with some amount of loan. We hope that this article will provide some guidance that can be used to help you through this 8-week time period and to maximize what your loan forgiveness will be. With that said, we must qualify our comments in that there remains many unanswered questions and the SBA still must provide guidance to those answers. Accordingly, some of our comments and observations could be incorrect based on our present interpretations.

Based on our experience with the application process, the banking industry had developed their own due diligence rules and the documents required varied from bank to bank and how they interpreted what was includible costs. Be prepared for potential conflicts once the 8-week time period ends and you enter the “loan forgiveness” stage.

WHAT SHOULD I DO WITH THE LOAN PROCEEDS?

The SBA guidance provides that the PPP loan must be used only for qualified expenditures and if not used properly, the fine print of the loan document has a very heavy statement. “If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud”. We know that our clients would never knowingly misuse the funds, but we would be negligent if we did not share that statement with you.

WHAT ARE QUALIFYING EXPENDITURES FOR PURPOSES OF THE LOAN FORGIVENESS?

The good news is that the categories of what you can use the loan proceeds for are limited. They are made up of “Payroll Costs” and “Non-Payroll Costs” which are defined as follows:

PAYROLL COSTS- At least 75% of PPP Loan

NON-PAYROLL COSTS – Remaining 25% of PPP Loan

As mentioned above, you have 8-weeks starting from the time your loan hits your bank account. Unlike a tax return, no extensions are allowed.

DOCUMENTATION REQUIREMENTS:

With respect to documentation, go overboard with organization and expect that you will have to provide your banker with copies of everything. Here are some of the steps we are recommending to our clients:

LOAN FORGIVENESS TRAPS

The computations for purposes of the loan forgiveness creates some traps and could result in a significant portion of the PPP loan not being forgiven. In the mad rush to apply for the PPP Loan, many businesses did not spend a lot of time on the loan forgiveness computations. The following are some of the traps that will limit the forgiveness amount and we will spend time doing a deeper dive into each of the traps.

If you maximized your PPP loan by using your “average monthly payroll” costs from 2019 and then multiplied that by 2.5 to determine your loan it will be difficult to achieve 100% of forgiveness unless everything aligns in your favor. With that said, let us address each of the above items that may limit your forgiveness.

“Full-time Equivalents (FTE)” CALCULATION IS IMPORTANT:

FINALLY, AND MAYBE THE MOST IMPORTANT STEP, IS TO TRACK WHERE YOU ARE AT WITH THE LOAN FORGIVENESS. HERE ARE THE STEPS WE WOULD RECOMMEND:

QUESTIONS THAT NEED SBA GUIDANCE

We understand the PPP Loan Forgiveness step is confusing and we are here to help you and answer any questions you may have. We anticipate additional guidance from the SBA to be released in mid- May and will keep updating the information as it becomes available. As always, visit our dedicated COVID-19 Resource Page for continued updates and alerts.

Over the last several days, there have been some developments and clarifications related to the Paycheck Protection Program (PPP).

The PPP program loan funds were increased by $310 billion to a total of $659 billion on Friday, April 24, 2020, when the President signed the Paycheck Protection and Healthcare Enhancement Act (PPHE). The PPP program has faced an immense amount of scrutiny and has been wrought with delays, changes, and a lack of clarity. Most small businesses did not receive funding in the initial round. While we have diligently supported our clients in their efforts, the Lenders have generally struggled with the massive amount of applications being submitted. While the law extends the funds, realistically, it will not be enough to fund every small business. Below, we outline some critical provisions from the most recent Act and changes as well as suggestions on what else you could do if you don’t anticipate receiving the PPP or have not applied yet.

PPP Program Changes

PPP Forgiveness

For many businesses that have or will receive PPP funds, the forgiveness part of the loan program creates a lot of questions. There are still more questions than answers, and we anticipate the coming days will provide some clarity. The treasury published additional guidance on Thursday related to who qualifies after many large businesses with access to liquidity received PPP funds.

Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: 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 the required certification carefully 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.

There is still a lot of unknown about how exactly the lenders will evaluate loan forgiveness around the forgiven uses versus approved uses.

What should business owners do now?

Start by evaluating whether you meet the conditions that certify you for the PPP loan in light of the additional guidance issued. This is a decision each business will need to make based on your facts and circumstances. If you don’t feel like you meet the conditions, you should return any funds received by May 7, 2020. If you have already submitted your PPP application, you may contact your lender to rescind your application.

For anyone that has received their PPP loan funds and plans on keeping those funds, you should be focused on documenting your use of funds based on guidance provided by your lender.

Other Sources of Liquidity

For those that don’t qualify for the PPP, there are other options for creating liquidity available. The

PPHE act also increased the SBA Economic Injury Disaster Loans (EIDL) funding by $10 billion and also added am additional $50 billion in funding for EIDL loans related to COVID-19.

There are also many other considerations companies can explore, such as tax credits, small business loans, and other local grants.

We continue to monitor the PPP and EIDL. All information contained in this article is based on information currently available and is subject to change. Please contact our firm with any questions about the PPP loan as well as other alternatives.

Meet our dedicated COVID-19 Task Force:

Tina Tharp, Judy Hamilton, Kim Spinardi and Jessica Jordan
Our Team is diligently working to keep abreast of all the changes and assisting clients!

Small businesses are now eligible for up to $2 million in Economic Injury Disaster Loans from the Small Business Administration (SBA) after President Trump called for an additional $50 billion in funding to the SBA’s lending program from Congress in response to COVID-19. While the $50 billion has not yet been approved, the SBA is able to issue an Economic Injury Disaster Loan declaration thanks to the Coronavirus Preparedness and Response Supplemental Appropriations Act recently signed by the president.

These low-interest loans may be used to pay fixed debts, payroll, and accounts payable that cannot be paid as a result of the virus outbreak at an interest rate of 3.75% for small businesses without available alternate credit, and 2.75% for nonprofits. Businesses with available credit are not eligible. While up to $2 million is available per business, the SBA will determine the amount based on “your actual economic injury and your company’s financial needs, regardless of whether the business suffered any property damage.”

Businesses must be located in designated states and territories where ‘substantial economic injury’ has occurred or is occurring as a result of the Coronavirus. The state or territory’s governor must submit a request for the SBA to issue an Economic Injury Disaster Loan declaration for their area. Currently, 29 states and the District of Columbia have been declared SBA disaster areas due to COVID-19.

Small business owners are reminded that applications will be processed in the order received, so it is best practice to submit as soon as possible as relief will not be immediate. The SBA’s goal is to make decisions on applications within 2 to 3 weeks and, upon approval, issue $25,000 within 5 days. With high demand, however, processing times will likely increase.

To find out if your state is an SBA-declared disaster area and to get a loan application, visit https://disasterloan.sba.gov/ela. You must be located in an SBA-declared disaster area to be eligible for the SBA disaster loan.

We are available to provide guidance and assistance with your SBA loan application. Call us today.