The landscape of the Paycheck Protection Program (PPP) has continued to change shape from the day that it passed, and it doesn’t seem to be settling down any time soon. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was the first to hit the floor at the end of March; then came The PPP Flexibility Act a couple of months later at the beginning of June, and along the way, there have been 24 Interim Final Rules issued by the Treasury; and 77 SBA FAQs. As we all wait with bated breath for the second round of stimulus to push through congress, questions continue to arise about all the gaps left by legislation. Here’s what we know now:
WITH LEGISLATION REGARDING PPP II STALLED IN CONGRESS, ARE THERE ANY OTHER LOAN OPTIONS FOR SMALL BUSINESSES THAT NEED FUNDING?
YES! The Economic Impact Disaster Loan (EIDL) offered through the Small Business Administration (SBA) are a great option for small businesses, and the SBA is currently accepting applications for businesses impacted by COVID-19; Businesses with less than 500 employees qualify (employees of all businesses under common ownership would be aggregated to determine if a business was under this threshold).
Qualified businesses can receive up to 2 months of Operating Capital which can be used to pay:
- Fixed debt in place before COVID-19
- A/P
- Payroll
But cannot be used to pay:
- For lost sales
- For lost profits
- To expand the business
- To refinance existing debt
- For the same items paid with PPP funds
PROS & CONS OF AN EDIL LOAN (ECONOMIC IMPACT DISASTER LOAN)
Pros:
- The loan is intended to maintain the operational expenses before COVID occurred so there is a much broader list of expenses that can be paid with the EIDL
- Payments can be deferred for up to 1-year
- Interest rate will not exceed 4% with terms up to 30 years
- Unlike PPP there are no time restrictions on when the funds must be used
Note: If the covered period is up, the EIDL can be used for payroll and other items paid with PPP loan proceeds during the covered period.
Cons:
- Unlike PPP this is a loan and must be paid back
- Collateral required on loans above $25,000
- Personal guarantee on loans above $200,000
Note: The application process can take up to 10 weeks and another 5-10 days to receive the loan proceeds after approval so don’t waste any time if this sounds like a good option for your business, apply HERE.
WATCH THE FULL VIDEO HERE:
FREQUENTLY ASKED QUESTIONS ABOUT PPP LOAN FORGIVENESS
SHOULD I USE AN 8-WEEK OR 24-WEEK COVERED PERIOD
The period that gives you the best result is the period that should be used when applying for forgiveness
CAN A BORROWER USE ONLY PAYROLL EXPENSES WHEN APPLYING FOR FORGIVENESS?
Yes, and this wills treamline the process for any borrower tha can do this becuase there are different reporting requirements for nonpayroll costs.
THE FORGIVENESS APPLICATIONS HAVE AN EXPIRATION DATE OF 10/31/2020, DOES THIS DATE HAVE ANY BEARING ON WHEN A BORROWER NEEDS TO APPLY FOR FORGIVENESS?
No, borrowers may apply for forgiveness anytime up until the maturity of the loan. However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred, and the borrower must begin making payments on the loan. For example, a borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins.
WHEN ARE BORROWERS REQUIRED TO BEGIN MAKING PAYMENTS?
The PPP Flexibility Act automatically applies to all PPP loans. Lenders are required to extend the date in which payments are due from the original 6 months after the loan disbursement date to 10 months from the end of the covered period (which can be 24 weeks). Furthermore, as long as a borrower submits their loan forgiveness application within ten months of the completion of the Covered Period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments.
WHAT HAPPENS IF MY FULL LOAN IS NOT FORGIVEN?
If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance, including accrued interest, due on the loan must be repaid by the borrower on or before the maturity date of the loan.
WILL I BE RESPONSIBLE FOR ANY ACCRUED INTEREST CHARGED BEFORE THE LOAN WAS FORGIVEN?
Interest accrues during the time between the disbursement of the loan and the forgiveness of the loan. However, the borrower is only responsible for paying the accrued interest on the amount of the loan that is not forgiven.
ARE THERE ANY EXEMPTIONS FOR RESTAURANTS THAT HAVE NOT BEEN ABLE TO GET BACK UP TO PRE-COVID STAFFING LEVELS?
Yes, FTE Reduction Safe Harbor #1 exempts businesses from the FTE reduction calculation that were impacted by restrictions set forth due to the COVID-19 pandemic, e.g. no indoor seating, limited indoor seating, and to-go orders only. YOU WILL NEED A COPY OF THE ORDER/NOTICE THAT LIMITED YOUR BUSINESS ACTIVITIES when applying for forgiveness to qualify for this safe harbor
IS THERE A PPP FORGIVENESS REPORT TO HELP WITH THE NEEDED DATA & CALCULATIONS IN THE APPLICATION PROCESS?
FOR RASI CLIENTS – RASI is currently working on a PPP Forgiveness report that is in development and will contain the calculations and data that are required on the PPP Schedule A and Supporting Tables, including:
- Cash Compensation(Line 1 & Line 4 PPP Schedule A Worksheet)
- Average FTE Count(Line 2 & Line 5 PPP Schedule A Worksheet)
- Salary/Hourly Wage Reduction Calculation(Line 3 PPP Schedule A Worksheet)
- Employer Paid State & Local Taxes (Line 8 PPP Schedule A Worksheet)
- Compensation to Owners, if paid through payroll (Line 9 PPP Schedule A Worksheet)
- Total Payroll Costs, with a couple of limitations(Line 10 PPP Schedule A Worksheet)
- FTE Reduction Quotient, if applicable (Lines 11, 12, and 13 PPP Schedule A Worksheet)
The reports are quite complex and require extensive time for development and testing – The best estimate for completion on this report is towards the end of November.
NOTE: There are limitations in the reporting as the employer contributions to health insurance and retirement plans are two pieces of data that are outside of the scope of this report and will need to be supplied by clients if applicable. Supporting documentation will be needed to claim these expenses as payroll costs on the PPP Loan Forgiveness Application, which includes statements from the accounts verifying contributions.
***Below is an example from testing of Table 1 from PPP Schedule A Worksheet; Table 1 contains data/calculations for Lines 1, 2, and 3 of the PPP Schedule A Worksheet.
WHAT DOCUMENTS ARE NEEDED TO CLAIM CERTAIN NONPAYROLL EXPENSES ON PPP LOAN FORGIVENESS APPLICATION (AND CAN START COLLECTING NOW)?
- Business mortgage interest payments: Copy of lender amortization schedule and receipts or canceled checks verifying eligible payments from the Covered Period.
- Business rent or lease payments: Copy of current lease agreement and receipts or canceled checks verifying eligible payments from the Covered Period.
- Business utility payments: Copy of invoices/account statements from February 2020 and those paid during the Covered Period and receipts, canceled checks.
HOW CAN YOU PREPARE FOR YEAR-END WITH PPP FORGIVENESS IN MIND?
“Your Tax Planning Moto for 2020: Hope for the Best Outcome and Tax Plan for the Worst Outcome.”
Brian Smith, RASI Director of Compliance
Under current law (IRC §265) expenses paid with forgiven PPP funds are not deductible, so make sure you follow the current law and take no deduction for expenses paid with forgiven PPP funds if the law changes an amended return can be filed to obtain a refund. Remember, while still following the law, you have the option to delay filing your return as long as possible in hopes that Congress makes the necessary changes to the legislation before you file to avoid amendments!
