Paycheck Protection Program
Paycheck protection update
On June 3, 2020, the Senate passed a bill which was passed in the House last week to provide flexibility for the Paycheck Protection Program. It is expected the President will sign the Bill.This Bill contains language which offers some additional important flexibility for the Paycheck Protection Program.
The provisions included are:
- Extends the period of time for recipients to spend the funds received from eight weeks to twenty-four weeks, but no later than December 31, 2020. Recipients can elect to retain the eight-week period if they choose.
- Payroll costs must be at least 60% of the funds received rather than the previous 75%. This allows recipients to spend up to 40% of the funds for rent, utilities and mortgage interest.
- The Bill extends any resulting loans for funds not spent, to a five-year term vs. the previous two- year terms by mutual agreement between lender & borrowers.
- The Bill allows for the deferral period for payments on any resulting PPP loan until the date on which the amount of forgiveness is received from the SBA which would in most cases be significantly longer than the previously six-month period.
- The deadline for rehiring employees has now been extended beyond the previous June 30th date up to December 31st and clarifies exemptions for recipients who were unable to rehire employees.
- PPP recipients are now able to defer the payment of the employer’s share of the social security tax (6.2%) with 50% now payable on December 31, 2021 and 50% due on December 31, 2022.
A few of the questions raised under the new bill:
- Will the banks/SBA be willing to change the loan terms to a five-year loan now for recipients who have already signed documents with two-year terms?
- Is the 60/40% parameters now an all or nothing calculation? This will be important!
- Is the cap on annualized compensation forgiven now $46,153 based on 24 weeks? ($100,000 divided by 52 weeks times 24 weeks)
- Will a recipient be able to apply for forgiveness at the end of the 24 weeks or will they need to now wait until December 31, 2020?
PPP Loan Application Deadline is June 30, 2020
For any companies who have not yet applied for the PPP loan, but would now consider applying with the broadened forgiveness criteria effective with this latest legislation – be aware that the Senate clarifies that the loan application period ends June 30, 2020. That program deadline has not been extended.
This is a short summary of what is contained in the bill. It does raise significant questions and we will let you know as these are clarified.
Paycheck protection program (PPP) loan forgiveness application Form
The SBA has released its easy to fill-out form for PPP forgiveness, Form 3508EZ.
paycheck protection program (PPP) loan forgiveness application
Make sure that you are on the right path for complete PPP loan forgiveness. Here's the loan forgiveness application to review and use as guidelines for returning your business to full operational status.
Information from the american institute of cpa's
Valuable information from AICPA on the Paycheck Protection Program (PPP) application and loan forgiveness process.
IMportant ppp Information
What You Will Need:
2019 payroll information including:
- IRS Form 941 for all four quarters of your 2019 payroll
- Health insurance premium information for 2019
- State & Local Taxes for 2019
- Retirement Plan contributions made in 2019
- Copies of business property lease and/or mortgage statements
- Current Organizational documents including:
- 2019 Utility bill statements
- Information required for the SBA PPP Application Form
- Additionally, you may need:
- General Liability Insurance Certificate
- Business Financial Statements, including tax returns
- COVID 19 impact statement
- 8-week forecast of payroll, rent or mortgage interest and utilities
The SBA rules continue to evolve. We will provide updates on this as they become available
When Can I Apply:
- Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
- Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
- All applications will be available online with your bank.
Paycheck Protection Program evaluation
It is best summarized that the PPP is a well-intentioned program that suffered from a flawed implementation resulting from its rush to market. Our elected federal officials accurately foretold an unprecedented hardship befalling small businesses, across all industries, coast to coast, and rushed to do something. They wanted to get funds to the hands of businessowners to help them weather an economic shut down. The $349 billion loan package, one piece of the much bigger $2 trillion CARES Act, went from enactment to accepting applications in one amazing week. Unfortunately, businesses had to react daily, sometimes hourly it seemed, to a constant barrage of misinformation from a wide variety of well-meaning parties.
The weeks proceeding the PPP legislative approval, resulted in the clarification of the Final Rules and Frequently Asked Questions (FAQs) by the Small Business Administration (SBA). Unfortunately, even the clarifications required clarification. In hindsight, misinformation was rampant on topics ranging from eligibility, to applications, to required supporting data, to loan maximum calculations and the definition of key terms as fundamental as what is “payroll”. Even after applications were being taken it seemed that everything you read and everyone you talked to had their own interpretation of the requirements. Through it all, many PPP loans were funded.
Now You're Funded! What's Next?
Lessons learned from the application process are many. It will be well-served to apply those lessons to the next phase – managing our businesses to maximize the forgiveness benchmarks.With planning and patience, we can be ready to apply for PPP loan forgiveness.
1. First and foremost, avoid the roller coaster of reacting to incorrect or incomplete information. Don’t assume that any and every article you read on the forgiveness process is factual and final. As of today, there has been no official guidance provided by the Treasury, the SBA or the Internal Revenue Service (IRS) that comprehensively answers the ultimate question weighing on every business right now: What do we need to do to ensure that the loan is forgiven? The Interim Final Rule and the FAQ’s to date have primarily focused on getting the loans issued. The Interim Final Rule section III.2(o) states that the SBA will issue additional guidance on loan forgiveness. Keep your eyes open for the official guidance that is yet to come from the SBA.
2. Keep communication open with your lender. The application process has shown us that even with a national program and a single application form, documentation requirements and internal lender processes have varied significantly from bank to bank. I expect similar variations will be found in the forgiveness process. I recommend that you touch base regularly with your banker, and always ask for any official guidance on what they expect and/or require for the PPP forgiveness process. Get everything in writing, so that you can properly attribute the source.
3. Safeguard the PPP proceeds received. Some companies are opening separate bank accounts to hold funds; others are holding the proceeds in limited access accounts. Consider isolating your loan proceeds and transferring funds to your operating account only in amounts equal to the eligible costs being paid out. I believe that lenders vary in their expectation of what may be required if the loan proceeds exceed the 8 weeks of eligible expenses. Be prepared in case it becomes advisable to repay “unused” proceeds.
4. Plan to maximize the forgiveness. This is obviously critical, yet the details remain subject to unconfirmed and often inconsistent interpretations while we wait additional SBA guidance. What I do know is that there are several different requirements that must be met to secure the full loan forgiveness amount. Following are the general requirements as stated in the CARES Act or the Interim Final Rule.
- In the 8 weeks immediately following receipt of the loan proceeds, all the proceeds must be used to pay eligible costs – payrolls, mortgage interest, rent, utilities.
- At least 75% of the eligible costs must be in the “payroll” category The number of full time equivalent employees (FTE) paid over the 8-week period must not fall below the number of FTE paid in the designated base period.
- Wages paid to each individual employee during the 8-week period must not be less than 75% of that employee’s wages paid during the preceding quarter.
I know that all the foregoing must be satisfied to obtain full forgiveness of the PPP. With the absence of clear definitions, guidance and examples, managing your business to satisfy those thresholds is going to be very challenging.
Questions abound. Here's a few that continue to cast confusion;
- What are the final definitions of eligible payroll costs, eligible interest, and rent?
- Base periods for the FTE test were defined in the CARES Act, but lenders may have asked for data from differing periods as part of the application process.
- Interpretations vary on the mechanics of the calculation that test for maintaining each employee’s wage level. The list of questions will continue to grow as businesses, and lenders, turn their attention to the forgiveness phase of the PPP.
3 Steps to prepare for ppp loan forgiveness
Similar to what was experienced during the PPP application process, we expect to see several additional official interpretations of the forgiveness criteria.
Currently, our advice to businesses is three-fold:
- Model a few different scenarios that you are contemplating.
- For each scenario, schedule cash flows on eligible costs over the next 8 weeks.
- Do your expected eligible costs equal or exceed the loan proceeds?
- Does the sum of the payroll costs represent 75% or more of the total? If not, what other strategies could you follow to mitigate the shortfalls?
- Payroll costs
- Translate your employee decisions into gross payroll estimates that you expect for pay dates falling within your 8-week period.
- Do not add in the employer share of FICA or Medicare taxes.
- Do not consider federal unemployment taxes but do schedule in state unemployment taxes.
- Schedule the cost you will pay for health insurance premiums. Don’t forget to reduce that invoice total by the amount of employee withholding for health insurance.
- Schedule the cost of any employer contribution to retirement plans that you will make during the 8 weeks.
- Payroll costs
- Other eligible costs
- Schedule the interest portion of any mortgage payments or debt incurred prior to 2/15/20 to be made during the 8 weeks.
- Schedule rent that will be paid during the 8 weeks.
- Estimate utilities that will be paid during the 8 weeks.
- Track your progress regularly. Create spreadsheets to capture actual cash payments for all eligible costs paid in your 8-week period. Keep as much detail as possible: payment dates, check numbers, reference numbers. For payroll information, note the pay date, the period covered, and track amounts for gross payroll, details of withholdings, and net payrolls. Remember to reduce payroll dollars paid for any amount paid to an employee that equates to a wage level in excess of $100,000 annually.
- Assemble reports and summaries that will track your progress and very likely may be required to support your application for forgiveness.
- Organize electronic copies of payroll registers, payroll tax filings, bills for eligible costs (mortgage payments, rents, utilities).
- As soon as the base periods are confirmed, assemble the relevant base period payroll reports and analyses.
- Prepare a spreadsheet of payroll by employee that will enable you to compare the wages during the base period to the wages paid during the 8 weeks.
Expect questions to arise as you plan and track your expenses. Again, call your CPA for guidance. We continue to monitor this evolving topic and scrutinize each new interpretation issued by the U.S. Treasury, the SBA, and the banking community at large. Over the coming weeks we expect many terms referenced in the PPP loan documents tobe better defined by the SBA and by the various PPP lenders. Additionally, we expect the IRS to clarify income tax consequences arising from the PPP and other pandemic relief programs. As official guidance and clarification is received, you should revisit your scenario planning and your tracking documents to ensure they remain on track to maximize the available loan forgiveness.
The PPP loan program offers small businesses an unprecedented benefit to help fund their employee payrolls during the COVID-19 disruption. You can reduce anxiety through aforward-looking analysis, contemporaneous tracking, and organizing supporting documents now – so you will be prepared for the next phase, the forgiveness application.
paycheck protection program (PPP) information
All of the information you need to know right here about the Paycheck Protection Program
paycheck protection program (PPP) Application
You've read the PPP Information Sheet and now you're ready to apply, here's the form.