- Recording: PPP and EIDL Insights from Washington D.C.
Our CLA professionals will be providing updates regarding the Paycheck Protection Program (PPP) in addition to Economic Injury Disaster Loan Emergency (EIDL) insights from Washington D.C.
- Leslie Boyd, CLA Principal, Manufacturing
- Jack Rybicki, CLA Managing Principal of Industry, Real Estate
- Omar Nashashibi, The Franklin Partnership
- Samantha Metcalf, CLA Managing Principal of Industry
In case you missed it:
Questions and Answers:
If we inadvertently paid one of the employees over the cap of $15,385 during the eight-week period, what should we do?
That’s okay, you just can’t get that excess paid amount forgiven. I
f we pay July’s insurance premiums billed before June 29th (eight weeks), can we include payment for forgiveness if paid before then?
Although we don’t have forgiveness guidance fully mapped out at this time, we recommend amounts paid and incurred.
We received money in our account in early May, but were notified of funding and signed loan papers several days before that. What is our actual funded date?
The date the money was deposited in your account.
Does telephone, internet and trash removal qualify for utility expenses?
We are waiting on full guidance for those items.
When does the eight-week period end?
It ends 56 days after you receive the money.
Do self-rental expenses qualify? Any additional safeguards put into place?
With the guidance we have now, we believe it does qualify as there is nothing that states it does not. You will need to have had a lease agreement in place before February 15, 2020. Stay tuned for a forgiveness application as more guidance will be released soon.
If we paid our sick pay due to COVID scares and don't take the payroll credit, can we use those wages for PPP forgiveness?
Any update on related party rent and if it is allowable?
No, nothing new yet.
We would like to pay restitution for reduced wages now that we have a PPP loan. Can I exceed the $1,923 weekly max if I do not exceed the 8 week $15,384 max?
We believe you can.
Our electric bill is paid via credit card. Once charged to the credit card would that qualify for payment or does the credit card have to be paid?
Once the payment has been charged to the credit card, you can consider it paid.
Has there been any more guidance on whether waste disposal is included as a utility and what types of transportation costs are considered utilities?
No new guidance has been provided at this time.
To be precise, when the law says "eight weeks" after receipt of the funds of the PPP, does that mean to be exactly 56 days after the receipt of funds?
Yes, 56 days from the date of cash deposit.
On PPP, any thoughts on submitting the interest expense on leased equipment?
At this point, we recommend keeping track of everything until we have clear guidance.
May PPP proceeds be used to buy out unused vacation time that was accrued prior to the 8 weeks?
You need to make sure you don't exceed total wages allowed.
I have people who received the PPP money after May 6 which puts their eight week ending date in July. I thought June 30 was the cutoff. Do they have to pay everything in June?
No, you get 56 days/8 weeks.
Has there been any more guidance on cash basis or accrual basis?
Not yet, we suspect it will be directly addressed in the forgiveness application which should be out shortly.
If we returned the funds, can we apply for a new loan if we want a smaller loan amount?
We recommend you ask your bank.
I received $9,000 EIDL advance three weeks ago and have not heard any more on rest of loan. How do I inquire?
You can go to the SBA website and contact. However, we are finding that it normally is a six to eight week process.
I have read that a “transportation utility” has been interpreted to mean fuel costs for business vehicles. Would this include my inventory for retail sale?
Not yet, we suspect it will be directly addressed in the forgiveness application which should be out shortly.
We understand that the loan must be used for payroll, rent, utilities, but if we do not use it within the eight weeks due to "incurred and paid" can it be used later?
You can use it whenever you want, you just have to use it in the 56 days for forgiveness.
Where do we find this new FAQ?
You can find it on the treasury.gov home page.
We sent an employee home for 14-day quarantine. We're in our eight-week PPP period. So, we're trying to determine if we pay him the COVID leave, or do we just pay him regular wages out of our PPP funds?
The important thing is not to double-dip.
Can you use the PPP funds for 2019 401(k) contributions?
Can I make a contribution to a 401(k) that wasn't in place prior to Feb. 15?
Yes, just make a payment.
We had several employees take EPSL and EFMLA. However we received our PPP loan. Can we still pay for those payroll items through the PPP or are we required to take the credit on our 941 for the quarter?
You can do one or the other, but it's important not to double dip and use the wages for forgiveness as well as for the 941 credit.
So if you get your S corp income as a K-1 you can apply now for PPP?
Your S corp would have to apply.
If I let an employee go before receiving the loan, would I have to rehire the same person? Or can I hire a different person and maintain the same salary?
It's FTE and doesn’t have to be the same person.
If we pay out some past years PTO instead of accruing them for future payout to employees if they want, is that eligible for forgiveness?
Wages incurred and paid.
What is included in utilities? Does internet count?
We are waiting on guidance at this time.
What are the chances that a full list of all PPP borrowers are made public in the future?
Jack says that he is confident it will happen.
Can we pay for permanent PT employees with our PPP?
You can pay W-2 employees.
Can payroll processing fees be included as part of the payroll costs?
We don't see any guidance that would allow them to be included, but it’s worth asking when you submit your application.
On the S corp issue, if the owner did let more income flow as S corp income in the past rather than take as salary (wages), can he now increase the compensation during the 8 week period (cap $100,000)?
There is nothing saying you cannot, just keep in mind the cap as you mentioned.
Can we use labor staff people that are working full-time as part of our FTE count?
Yes, if they are W-2 employees.
Where and how do you apply for forgiveness on your PPP loan?
You apply through the bank where you got the loan.
What is the comparison period for FTE - last year or prior to PPP loan funding?
Feb 15 to June 30 2019 or Jan/Feb 2020
Please clarify that compensation during eight weeks caps at annualized $100k level.
That is correct.
Is the cap on $100,000 salary "during the eight weeks" or "$100,000 for January 1 to the end of the eight weeks"? YTD basis?
$15,384 can be paid to a single person.
Can you count 2 PT employees for 1 FTE for your employee comparison or are PT not counted at all?
Stay tuned for guidance in the forgiveness application as we suspect that a PT person can be either a fraction of 40 hours or 0.5.
If we received the $10,000 from EIDL and the PPP loan as well how do we account for this?
You should track it all separately.
Can we use some of the PPP funds to bonus our employees for working during the peak of this pandemic?
Yes, just remember the cap per employee during the 8 weeks is $15,384.
If we received an EIDL advance, do we need to complete the loan process if the PPP took care of us?
Please confirm that if $20,000 is paid for the 8 weeks that $15,384 will be forgiven, not $0.
We believe that is the case.
Where is it published that the Safe Harbor deadline was extended to May 18?
It's on the treasury.gov website
Is there a cap on my 401(k) contribution or if I were to give out bonuses?
Wages are capped, nothing on 401(k) being capped.
Has there been updated guidance on bonuses being included in the forgivable portion?
We're still waiting on guidance related to forgiveness, but it is clear wages and bonuses are treated the same, capped at $15,382 for the 8 weeks.
How do we calculate FTE? Is it a straight headcount or calculated by hours worked?
We believe it to be FT being 1 and then PT being a fraction up to one based upon hours up to 40.
If my EFEs are good and my payroll is low, can I pay employees a "hazard pay" bonus to get more of the PPP loan forgiven?
Yes, just keep in mind the $15,384 cap.
How do self-employed (Schedule C) people that have PPP loans qualify for loan forgiveness?
You get a fixed amount forgiven.
Can you sneak a 5th payroll into that 8 weeks by paying a day early? Or are you strictly limited to 4 bi-weekly payrolls?
Yes you could.
What we talked about:
Boyd: Good afternoon to our CLA family, clients community partners and friends. Welcome back to our livestream series. Even though we haven’t gotten the highly anticipated PPP Forgiveness guidance, there is no shortage of lending legislative updates to bring you today. (timestamps of topic discussions included in parentheses):
Today’s episode will include:
- PPP Frequently Asked Questions Safe Harbor Provisions (1:58 – 8:55)
- Legislative updates on bills moving through Washington DC and status of forgiveness guidance (8:56 – 17:45)
- Economic Injury Disaster Loan (EIDL) program (17:46 – 28:10)
Joining our discussion we have Jack Rybicki who will cover recent updates to PPP guidance, Omar Nashashibi with the Franklin Partnership, bringing us the latest from Washington DC, and Samantha Metcalf talking about the EIDL.
Jack, I think we should start the conversation with the breaking news on everyone’s mind. On May 13, Treasury released additional guidance about the safe harbor provisions, which have now been extended to May 18. Please talk about what this latest guidance means for borrowers.
Rybicki: Two FAQ’s came out yesterday related to the safe harbor. The second one pushed the safe harbor date back again, this time extending the date to May 18 to give borrowers the time to properly consider the impact of the other FAQ issued earlier in the day.
- FAQ #46 was issued around 11a.m. EST yesterday and the phones started ringing immediately. This FAQ provides some insight into how the SBA will review borrowers’ required certification concerning the necessity of their loan request, the now infamous topic of “economic uncertainty” raised by FAQ’s #31 and #37. There was good news in this FAQ for all borrowers.
- For borrowers with loans under $2 million, the guidance basically says that you will be deemed to have made the certification regarding necessity in good faith. A couple things to point out on this. One, the $2 million threshold is determined based on the loans received at the “affiliate group” level, so if you have affiliates you will need to add up all the loans at all the affiliates to see if you fall into this category. Also, this “safe harbor” of sorts only applies to the necessity certification, so the SBA could still challenge other certifications such as loan size, eligibility based on # of employees, ineligible businesses, etc., so this is not a complete free pass.
- For borrowers with loans over $2 million, concerns around fraud and criminal charges were addressed by this guidance. The SBA has indicated that in the event their review determines a borrower “lacked an adequate basis for the required certification concerning necessity”, they will request the borrower to return the funds and, if the borrower repays the loan after receiving this request, the SBA will not pursue administrative enforcement or referral to other agencies. Again, this is not a 100% pass, as other agencies could choose to pursue action on their own or whistleblower complaints could raise other actions, but at least now borrowers have a path to avoid SBA action by repaying the loan in the “forgiveness review” process rather than by the revised May 18 deadline.
Boyd: So, generally positive guidance from the SBA that de-escalates the need to take action by the new May 18 date if you have uncertainties around the “necessity” certification. Anything else to bring our audience up to speed on related to PPP?
Rybicki: There was also an IFR (interim final rule) that came out related to increasing loan sizes.
- Generally this was not allowed and guidance was that you could only have one loan. However, because the guidance related to loan sizing with respect to seasonal employees and the way to treat active owners in a partnership came out after many borrowers sized and applied for loans, the new IFR provides that if you undersized your loan when considering the new guidance that a borrower can work with the bank to apply for an incremental loan amount based on a loan sized under the subsequently issued guidance.
- For partnerships this could be significant, as we know many applicants did not include the K-1 compensation for active owners in the company’s application for the PPP, thinking the partner would have to file their own PPP application. For an entity with 10 active owners that each made $100,000 or more, such as a doctor practice, this would increase the eligible loan amount by over $200,000, so something to clearly consider if you were impacted.
Boyd: Thanks, Jack, we’re going to keep you around for questions as well. I’d like to direct the conversation now to Omar for updates from Washington. Omar, we’re eagerly awaiting for this forgiveness guidance. What can you tell us?
Nashashibi: We did hear from multiple small business committee members on Tuesday that we can expect forgiveness guidance this week.
- Next week Friday hits the 7-week mark.
- What we are hearing is that we may get more flexibility in the guidance and delays because of push back on IFR.
- Also program was written back in March, the economy then was very different than it is now in May.
- We also know there will be legislative changes in the next round specifically on forgiveness, and possibly extending 8 weeks to 16 weeks.
- If forgiveness does not address the 75% threshold for spending the loan on payroll, some in Congress want to make that change.
- Congress not done with PPP.
Boyd: In addition to that, we know that there are other lending programs being considered, like the Restart Program. What can you tell us about that?
Nashashibi: With Congress back in town, many proposals are floating around. Some are listed as restart programs or loosely described as that.
- Auto suppliers have had conversations with Mnuchin from the United States Treasury.
- Suppliers want "special purpose vehicle" serving auto suppliers
- Short-term loans to help them pay for raw materials and other costs needed to resume production
- Concern is as we ramp up suppliers for any industry we will not receive full payment for several weeks, often two months.
- Question whether more funding for PPP as over $100 billion left.
- If the 8 week forgiveness gets extended, likely more funding needed.
- Restaurants likely will get some relief, not sure about autos.
- Democrats blocking oil.
Boyd: We all know there’s some legislation going through the House right now. Without getting too much into the political strategies behind this, can you give us a quick update about what that is and any expected timelines and outcomes?
Nashashibi: The legislation was drafted by Speaker Pelosi and House Democrats, the bill is 1,800 pages, it is $3 trillion and the federal government outlays for FY 2020 is $4.7 trillion and we bring in $3.6 trillion, and this proposal proposes to spend $3 trillion.
- Vote could happen as early as tomorrow, May 15 at 10 a.m.; meeting scheduled at 9 a.m.
- Political marker, starter for negotiations.
- No one expects it to pass but have to start
- Senate GOP feels they need to respond.
- Employee retention tax credit very popular on Capitol Hill; possible increase, Disney is going to claim $150 million in the quarter.
- Democrats want to relook at Net Operating Loss (NOL), especially since it goes back to 35% rate.
- They may knock off 2018 year
- Hearing business tax extenders is on the table.
- Pelosi forces GOP to start sooner than McConnell wanted.
- No bill will likely move until June.
Boyd: Thanks so much, Omar. I know we have questions coming through the chat about this and we’ll get to those before we close. A topic, like Main Street Lending, that we haven’t given much attention to so far but warrants our time is the Economic Injury Disaster Loan Program (EIDL). Sam, thanks for joining us to discuss this. Can you start by giving us a quick refresher on this program?
Metcalf: Absolutely – EIDL has been in the background to the PPP program for obvious reasons, one of them being the forgiveness element. But EIDL does have a purpose and can be a great alternative lending source to assist with working capital needs. The main purpose of this loan is to provide funding to pay expenses relating to the operations of the business. The loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. Some of the other key terms you need to be aware of is that:
- The loan is directly through the SBA – application is done online through the SBA which is different than the PPP loan where you apply through the bank.
- There have been a lot of questions on if you are able to apply for the PPP loan at the same time, however you cannot utilize the loans to cover the same expenses. Think of the payroll for the PPP period in the 8-week covered period.
- The interest rate for the loan is 3.75% for profit and 2.75% for nonprofit.
- There is an ability to get a grant, which I will talk about in a little bit but no other part of the loan is forgivable. The terms for these loans are up to 30 years and have the ability to defer your first payment for one year while interest accrues.
- It is unclear how the loan amount is sized, but the company needs to demonstrate a loss resulting from the disaster, need and the capacity to repay.
- While the PPP program does not have guarantees or collateral requirements, the EIDL program does require a UCC lien for loans over $25,000 and potential guarantees over $200,000. With some of the changes in the loan program the guarantee requirement may not be required
Boyd: There seems to have been a lot of changes with this program, can you talk about those changes and where we are at as of today?
Metcalf: With the limited funding for these programs we have seen the SBA make some pretty significant changes around eligibility and the maximum loan amount.
- Initially the maximum loan amount was $2 million – now reduced to a maximum of $150,000. This was due to the high demand and limited available funds. The Enhancement Act authorized $310 billion in PPP loans and only $60 billion for EIDL.
- I think that we are all pretty well aware that there is a grant that you are able to apply for as a part of the loan application process. Initially the SBA stated that the grants could be “up to” $10,000 then were clarified to be an advance of $1,000 per employee before the disaster with a maximum of $10,000.
- Initially the eligibility for the EIDL loan was similar to the PPP loan but was actually more favorable to some non-profit organizations. Unfortunately the SBA said that starting on May 4 the SBA would only accept applications for agricultural organizations.
- Initially agri-business organizations were not eligible to apply for the EIDL, but based on need and other funding available they moved this program to support them.
Boyd: I think one question that everyone has about any of these programs is whether there is funding available and what that looks like?
Metcalf: It is a good question and a reasonable concern given all that we have seen with the EIDL changes and how quickly the relief funds are being utilized. I can’t give any certainty that those that have applied will be approved for a loan. What I do know is that the Enhancement Act authorized $60 billion in loans and grants. As of May 7 there was a total of $9.8 billion disbursed. Though a lot happens in seven days the SBA said that applications made before May 4 would be reviewed on a first-come first- serve basis.
Boyd: Have you seen any clients go through the full loan process and what it was like?
Metcalf: Yes we have just recently started seeing clients get approval for the grant and the loan. The most recent example is of a company that applied on March 29 for the EIDL and grant, in this situation they submitted all their information up front with the application.
- Three weeks later they received an email notification regarding the grant.
- Three weeks after that they received a notification from the SBA, had some back and forth through email and then finally received a DocuSign loan agreement. Was funded the next week.
- There were inquiries around how the money would be spent and specific language in the loan document around eligible expenses. Were also told that they need to keep support for expenses but not yet clarity around what that process will look like.
Boyd: Thanks, Sam. We’re going to bring Jack back and cover some of the questions coming in from the audience, the chat is hopping with questions on forgiveness, and what’s happening right now. One question is related to self-employed individuals. There is a cap with their payroll reimbursement up to $15,000, if I have that gap piece, what are some of the strategies or options I can take advantage of?
Rybicki: The only forgiveness a self-employed individual can get, whether they have employees or not is only that $15,385.
Boyd: Another big discussion on the chat is related to rent, can I prepay rent, what do I do with related-party rent? Any insight related to rent?
Rybicki: We don’t have any new guidance on related-party rent. Right now if you have a lease with related parties that was in place as of February 15, the assumption is that related-party rent would be allowed in that non-payroll bucket. We have clear guidance on prepayments.
Boyd: Unfortunately, that’s all we have time for today. Please continue to reach out to us at CLAconnect.com for answers to your questions. We will continue to provide you with information about what you need to know and we can also connect you with an advisor for your specific needs. We’ll look forward to seeing you on Tuesday when we cover the most critical topics of the moment depending on the news we have. Thanks for watching, and be well.