CLA Livestream Series: PPP and EIDL – Your Questions Answered

Woman Gesturing by Laptop
  • 6/16/2020
  • Virtual

In this session, we'll be covering our most common PPP and EIDL questions with our  team of CLA professionals. Please be sure to submit your questions ahead of our session to livestream@CLAconnect.com and we will dive in and discuss what you need to know around these ever changing regulations.

Speakers:

In case you missed it:

 

What you missed:

Leslie Boyd: Hello CLA family, friends, colleagues, and community partners. Welcome back to our livestream. We sincerely hope that you are continuing to stay safe and healthy at this time. Since last week, the Treasury issued two new interim final rules (IFR), and also announced that the Federal Reserve’s Main Street Lending Program is now open for lender registration. It appears that this program still has some structural issues, but is making progress toward the start of lending.

Our session today will be a targeted toward answering more of your questions and some key topics that you’d like to address related to Paycheck Protection Program (PPP) Forgiveness and Economic Injury Disaster Loan (EIDL) updates. We will start by discussing the IFRs released on June 11 and 12. Jack Rybicki and Rick Krueger are here with me to navigate through these topics. Welcome back, gentlemen!

Jack, I’d like to start with you walking us through the IFRs that were released at the end of last week. I think that would help everyone understand where things stand as of now and what, if anything, additional we know.

Jack Rybicki: Thanks, Leslie. The IFR on the 11th brought certain terms of the PPP Flexibility Act into the rules governing the program. In addition to memorializing components of the PPP Flexibility Act, such as the extension of the loan forgiveness period to 24 weeks and the extension of the maturity date for new loans under the PPP to five years, major clarifications made by the SBA include:

  • The requirement that 60% of loan proceeds be used for payroll costs will be interpreted “as a proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount rather than as a threshold for receiving any loan forgiveness.” In other words, forgiveness will be reduced (but not eliminated) if less than 60% of the loan was used to pay payroll costs.
  • If a borrower submits a loan forgiveness application within ten months after the end of the covered period, no payments of principal or interest will be due until the SBA remits the loan forgiveness amount to the lender. If a borrower does not submit a loan forgiveness application within ten months after the end of the covered period, the borrower must begin paying principal and interest on or after the last day of the ten-month period. This extension of the deferral period for PPP loans beyond the six-month period contained in the CARES Act is retroactive to March 27, 2020, and applies to all loans under the PPP.
  • The last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.

The IFR on the 12th was in direct response to issues raised by Senator Corey Booker during the meeting of the Senate Committee on Small Business and Entrepreneurship on June 11th. It reduces the timeframe for the exclusion of “justice-involved” small business owners in the PPP from five years to one year for felonies that did not involve financial crimes, and also made modification to ensure that business owners who participated in a pretrial diversion program would be eligible for PPP loans.

Boyd: Thanks, Jack. I think that gives us a little more clarity. Now we’re going to do something different than in the past and really let the questions that the audience has sent to our livestream inbox define the course of our entire session. Most of the questions so far can be broken down into three distinct groups related to PPP: technical/administration, payroll, and utilities. We will answer some EIDL questions as well. Let’s talk technical first:

Patrick asked: Like many, we applied for and received a PPP loan in early April. Upon review of press coverage and our success at fundraising, we decided to repay our loan (which was over $2 million) to help others who did not get loan and avoid uncertainty of audit risk and bad press.

With the changes – especially the 24-week term – we are considering applying again. Will we be prohibited due to our round one PPP loan?

Rick Krueger: Unfortunately, while the CARES Act doesn’t explicitly limit PPP loans, the SBA set a limit of one PPP loan per eligible borrower. Repaying the loan may have qualified for the safe harbor regarding the necessity of the loan. However, it doesn’t undo the loan itself.

Boyd: Mark asked: The new PPP has been extended to 24 weeks. Do we apply for forgiveness for an eight-week period within the 24 weeks or do we apply for the entire 24-week period beginning on the date of the loan origination? For us, loan origination is April 20.

Rybicki: We should learn more about the forgiveness application process once SBA releases their new application. The PPP Flexibility Act changed the covered period to 24 weeks, but for borrowers with an existing loan, they have an option to elect to retain the eight-week period. As far as how to make that election and apply, we’ll need to see what instructions SBA gives us. It seems likely for borrowers who want to elect the eight weeks, there will be a process to do so earlier than the 24 weeks.

Boyd: Tulani asked: I have a question regarding the loan terms. We received the PPP loan on April 30 with the first wave of approved loans. Will our loan terms change to five years or stay at the two years?

Krueger: The extension from two years to five years only applies to new loans. Borrowers certainly can contact their lender to ask about extending the repayment. Unfortunately, I’m not sure many lenders will be enthusiastic about extending the term of a 1% loan.

Boyd: She also asked a question regarding the extension from eight weeks to 24 weeks. Do we have to submit our application based on the 24 weeks or can we submit it once we have fully spent the funds at 18 weeks?

Rybicki: That is a question we are being asked quite often now. Based on the way the law is currently written it appears that you have the option of either the original eight-week period or the new 24-week period, but nothing issued thus far appears to allow a period in between those two once all the loan proceeds are used. However, in testimony to the Senate Committee on Small Business and Entrepreneurship, Secretary Mnuchin seemed to allude to the potential opportunity to apply for forgiveness as soon as you have fully utilized the PPP loan proceeds. We’ll need to wait to see how or if something like this will be implemented, which will likely come out when Treasury issues the updated Loan Forgiveness Application over the coming weeks. Wish we knew the answer to your question for sure, but at this point all we can do is speculate.

Boyd: Jackie asked: If a client who received proceeds from the PPP Loan opts to take the 24 weeks because they did not meet the loan requirements in the eight weeks, but the 24 weeks goes over their fiscal year, does that pose any issues? Are there any guidelines regarding a fiscal year and the PPP loan?

Krueger: Specifically related to the PPP loan program, that shouldn’t cause any issues (other than ensuring you have supporting records for all periods that reconcile to the forgiveness application).

There are a couple related issues that come up. For taxes, the expenses related to forgiveness are not currently deductible. With the extended period, we’re not yet sure how this will impact tax returns when the expenses are incurred now, but could be forgiven up to 15 months after the end of the covered period. We’ll have to keep watching this.

For financial reporting, the American Institute of Certified Public Accountants (AICPA) recently issued a technical question and answer for PPP. They give a few different answers depending on the entity type. If you have any questions, definitely reach out to your CLA representative.

Boyd: Are we allowed to keep the PPP/EIDL funds in an interest-bearing account?

Rybicki: As far as restrictions on where to hold the funds, the SBA has been pretty silent. Tracking the use of funds and retaining supporting documenting seem to be the important part.

Boyd: Is there any reason not to apply for forgiveness as soon as we expend the funds? Are we better served in any way to wait the full 10 months even if we use the funds within three months?

Krueger: For timing of the application, it’s probably worth a little thought. First of all, even with the eight weeks, you probably have some time. Part of the required documentation include a Form 941, which likely wouldn’t be ready for a few more weeks. In the meantime, we’re hoping to get more information from SBA on their updated application and how they’ll apply some of the PPP Flexibility Act changes. That’ll help borrowers understand if they’ll be better off with the 8- or 24-week option.

Boyd: We have a lot coming in related to payroll. Let’s start with the question from Luis: Now that PPP program has been extended from 8 to 24 weeks. How do the FTE and Gross Salary requirements work? Which are the periods to compare to meet FTE and Gross Salary requirements for forgiveness if one chooses 24 weeks instead of eight?

Rybicki: We have not seen any guidance thus far that would make us believe that the FTE and wage tests work any differently now that the covered period has been extended to 24 weeks. You will still compare your FTE’s (now measured over a 24-week period) to the same pre-COVID periods (2/15 – 6/30/19 or 1/1 – 2/29/20) and average hourly wage or salary rates during the 24-week covered period to Q1 2020 hourly wage or salary rates. If you meet the safe harbors of returning the size of your workforce back to pre-COVID levels at prior rates by 12/31/20 then you will not be subject to FTE or wage reductions. We expect guidance out from Treasury over the next week or two.

Boyd: Rava asked: When calculating the forgivable amount of payroll, would FICA and Federal taxes be included in the payroll and considered forgivable?

Krueger: The employee portion would be included as part of their gross compensation (you wouldn’t separately add the amounts). You do not get to include the employer portion of FICA.

Boyd: Antonio asked: I heard that the Paycheck Protection Flexibility Act of 2020 provisions such as the minimum amount required to be spent on payroll for loan forgiveness purposes was reduced from 75% to 60% retroactively to loans disbursed before June 5. I thought this change was optional, not mandatory.

Krueger: This is an update that applies to everyone (no option to avoid), but that’s not a bad thing. Those limits were effectively caps on nonpayroll. Previously the cap was 25% of forgiveness and now the cap for nonpayroll is 40% of forgiveness. This gives flexibility, but it’s totally fine if a borrower spends less than 40% of the forgiveness amount on nonpayroll.

Boyd: Alyce asked: If you terminate an employee for cause and give them a severance package, is the percentage of the severance that is in the eight-week period allowable? Or if it is paid within the eight-week period is it all deductible, or none?

Rybicki: Great question. We believe that severance paid during the covered period is eligible for forgiveness subject to the total being paid to the employee during the eight-week period being limited to the $100,000 annualized equivalent ($15,385 for the eight-week period). Amounts over that amount would not be eligible for forgiveness.

Boyd: For the lookback period do you include overtime, and if not, do you include it in the covered period? Do pension benefits also need to be adjusted for those earning over $100,000?

Krueger: As the total wages paid to an hourly employee is somewhat irrelevant, you don’t need to factor in overtime. For the wage reduction test for hourly employees you are comparing their hourly wage rate pre-COVID to their covered period hourly wage rate.

As long as the covered period rate is 75% or more of the pre-COVID rate then there is no reduction in forgiveness as a result of wage rates. Regarding your second question, pension benefits do not need to be adjusted for non-owners who earn more than $100,000. If a non-owner employee earns more than $100,000 annualized wages, only the cash comp portion is limited; the health care and retirement contributions can still be included.

Boyd: Dean presented an example related to seasonal employees: We operate a school with seasonal employees who normally do not work or get paid during the summer months (After May 15 until the start of the new school year).

These seasonal employees appear in our FTE calculations for either of the two base periods (2/15/19 - 6/30/19 --- at least through mid-May of 2019 and 1/1/20 - 2/29/20).

However, based on the timing of our loan and original eight-week loan period, the last couple of weeks of the eight-week period extended beyond the last day of school (May 15, 2020) by a few weeks. In order to maintain forgiveness eligibility (no FTE reductions compared to the base periods), we continued to pay those seasonal employees for a few extra weeks as it was generally immaterial in relation to total payroll and the PPP Loan on the whole and it kept our FTE counts in line with either of the two base periods.

Now, with the extension to 24 weeks, we would like to take advantage of the additional weeks in order to use all of the PPP loan funds (we will have some left if we stop at eight weeks).However, do we have to continue to keep the seasonal employees on payroll for additional weeks that they would not ordinarily be on payroll in order to preserve full loan forgiveness potential?

Also, if we were to exhaust all PPP funds in week 10 or 11, can we stop tracking FTE counts at that point or do we have to keep up the FTE for the full 24 if we used some portion of the 24 weeks?

Rybicki: Right now, the rules seem to indicate that you can either use the original eight-week covered period or the new 24-week covered period. However, if you use the 24-week period, then you will need to measure all the FTE and wage tests for the 24-week period. We have heard there might be some flexibility introduced to allow a shorter period if you spend all the money before the 24-week period ends, but that was just based on comments in committee hearings. Nothing formal has come out from Treasury to support that position.

If you aren’t getting 100% forgiveness when using eight-weeks, then using the 24-week period might be beneficial. You do not need to retain seasonal employees when they normally aren’t working, while this may hurt you overall FTE retention percentage, since you will be applying the retention percentage to a much larger number, you will likely get a better forgiveness answer. For instance, if you had a $1 million loan but only spent $800k and had a 75% retention rate, you would only be eligible for $600k in forgiveness during the eight-week period. However, if the weeks 9 – 16 you had another $500k in payroll and 50% retention and then got back to $800k and 75% retention in weeks 17 – 24, your total payroll would be $2.1M and your weighted average retention would be 66%. Factoring down for the lower retention percentage, you would now still be eligible for $1.4M of forgiveness using the calculation, so your whole $1M loan would be forgiven.

Boyd: Shiela asked: If a payroll pay date falls early within the covered period, does it need to be adjusted for the number days the payroll refers to the "incurred".

Many have said that this payroll would be fully included as well as the last payroll, which would be incurred costs paid on the next regular pay date. Others have said it must be adjusted to include only a total of 56 days incurred for any individual.

Rick: Great question. Wish I could give you a definitive answer. Based on a literal reading of the Loan Forgiveness Application, it would appear that you do not need to prorate the payroll on the front end (i.e., you can include amounts paid during the covered period), and that you are allowed to prorate on the back end as long as the payroll at the end of the covered period that will be paid after the covered period is paid in the normal payroll cycle. Thus, it does appear that it is possible that more than 56 days will be eligible for forgiveness. We hope that SBA issues an FAQ or IFR on this matter to provide clarity, as this is a question we get a lot that we can’t answer with 100% certainty.

Boyd: We have a nonprofit question from Monica: As a non-profit, our payroll allocations are spread over grant and non-grant programs. If an employee is partially funded by a grant, say 15%, am I to count them as .85 for FTE calculation purposes instead of 1.0 if using the 1.0/.5 method?

Rybicki: Unfortunately, there is no clear guidance on how to handle payroll (or other) costs that are reimbursed through grants/contracts. Each grant/contract may contain its own unique language regarding costs that can be reimbursed and may disallow certain costs to be included under the grant/contract. We are hopeful that this issue will be addressed in the long-awaited FAQs on forgiveness that we are expecting from Treasury/SBA.

Boyd: Those are all great questions and I’m told there are more coming in from the audience as well. Let’s answer some common questions about expenses. First, Cindy asked: Please clarify what is contained in allowable transportation costs, along with if cell phones are covered.

Krueger: So, here’s what we know. We know utilities include transportation and telephone. We also know that a borrower needs to have had a service agreement in place for the utility prior to February 15. Of those two, cell phones seem slightly easier to me. If the organization had a contract for service directly with the provider, it’d seem includable. If they reimbursed employees, then probably not. Transportation is definitely grayer. The service contract requirement would disqualify some items that people think of such as filling up the tank of a company vehicle at a gas station. However, there are many items that might be includable.

Boyd: Rick asked: What is status on floor plan interest? Is it a qualified expense? If so, is it forgivable?

Rybicki: The CARES Act allows interest on mortgage obligations incurred before February 15. Many borrowers and advisors are wrestling with whether or not other secured debt obligations (which would include floor plan) are includable too. We’re really not sure. The allowable use section permits other debt obligations beyond mortgages. However, the forgiveness sections specifically use the term mortgage, which makes us think it might be more restrictive. We’re hoping for further clarification.

Boyd: Carol asked: One question I have is, we are a church who received a PPP loan. My pastor has talked with other pastors who informed him they are using postage for mailings to parishioners about suspension of Masses and re-opening the church, cleaning and other supplies they had to purchase to disinfect, etc.; as part of the expenses for the PPP loan. Are these expenses that can be used when reconciling the 25% utilities?

Rybicki: We have not seen any guidance that would permit the inclusion of incremental operating costs such as postage, cleaning supplies, personal protective equipment, etc. as eligible costs for forgiveness. I have seen articles that some of our legislators would like to see these types of costs included within the scope of the program, but nothing like that has been written into the laws or rules that we are aware of.

Boyd: For EIDL, can you give us a quick update on the development from yesterday?

Krueger: SBA announced yesterday that they were opening back up the EIDL portal to a broader array of businesses and nonprofits. The system was completely overwhelmed and had suspended taking applications for loans and advances a couple months back. For the last month, it was only accepting applications from agricultural businesses since they were originally excluded from EIDL. Now SBA announced it is back open for eligible entities. More information is available on the SBA site, where eligible borrowers can apply directly with them.

Boyd: Unfortunately, that’s all we have time for today. Thank you to our guests today, to you for your questions, and to our moderators for all the support, great information, and answers.

Please continue to send us your questions. We will be back next week with more information.

Questions and Answers

 

Is the maximum allowed to be paid to owner-employees $15,385 per owner in order to qualify for forgiveness? Can owner-employees be paid more than this max, but then anything over $15,385 isn't forgiven, or will zero be forgiven if it exceeds $15,385?

You can pay an owner-employee – or any employee for that matter – more than the $100,000 annualized equivalent during the 8- or 24-week period. Only the $100,000 annualized equivalent ($15,385 for the eight-week period) is eligible for forgiveness though.

If you terminate an employee for cause and give them a severance package, is the percentage of the severance that is in the eight-week period allowable? Or if it is paid within the eight-week period is it all deductible, or none?

We believe that severance paid during the covered period is eligible for forgiveness, subject to the total being paid to the employee during the eight-week period – being limited to the $100,000 annualized equivalent ($15,385 for the 8-week period). Amounts over that annualized equivalent would not be eligible for forgiveness.

Are we allowed to keep the PPP/EIDL funds in an interest-bearing account? Is there any reason NOT to apply for forgiveness as soon as we expend the funds? Are we better served in any way to wait the full 10 months, even if we use the funds within three months?

Currently, the guidance is that you either need to use the eight-week original covered period or the new 24-week covered period. It is unclear regarding whether or not you will be able to use a period that is longer than eight weeks, but shorter than 24 weeks. I’m sure there will be more guidance forthcoming in this area, so stayed tuned to our livestreams.

If you are getting 100% forgiveness, you would likely be better off asking for forgiveness as early as possible. If you are not getting 100% forgiveness, then waiting will increase the deferral period. Although it will also shorten the period, you’ll have to pay the loan back.

Regarding holding the funds in an interest-bearing account, I’m not aware of rules precluding that.

Like many, we applied for and received a PPP loan in early April.  Upon review of press coverage and our success at fundraising, we decided to repay loan in order to help others who did not get loan and avoid uncertainty of audit risk and bad press. With changes – especially the 24-week term – we are considering applying again.  Will we be prohibited due to our round one PPP loan?

There is no guidance out directly on point that I am aware of. However, with that said I believe that the applications states that you are precluded from having multiple PPP loans. The sixth certification on the current loan application reads:

During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program.

You obviously no longer have that original loan outstanding, but the question would be since that initial loan was originated and funded, would the SBA consider another loan as a second loan even though the first is not outstanding. I’d suggest you speak with your bank to get their input on this.

I heard that the Paycheck Protection Flexibility Act of 2020 provisions such as the minimum amount required to be spent on payroll for loan forgiveness purposes was reduced from 75% to 60% retroactively to loans disbursed before June 5, 2020. I thought this change was optional not mandatory.

The reduction in the minimum amount required to be spent on payroll is not optional, it is the new law retroactive for all loans. However, the 60% amount is a minimum requirement, so you can spend a higher percentage of your loan amount on payroll without any penalty. This change provides more flexibility in the spending for borrowers, and is not restrictive in any way.

I take it the same applies for the 40% non-payroll expenses.

The non-payroll expenses are an inverse, so the maximum you can include in forgiveness is 40%, but it is fine to have less.

For the lookback period, do you include overtime? If not do you include it in the covered period?

As the total wages paid to an hourly employee is somewhat irrelevant, you don’t need to factor in overtime. For the wage reduction test for hourly employees, you are comparing their hourly wage rate pre-COVID to their covered period hourly wage rate. As long as the covered period rate is 75% or more of the pre-COVID rate, then there is no reduction in forgiveness as a result of wage rates.

Do pension benefits also need to be adjusted for those earning over $100,000?

Pension benefits do not need to be adjusted for non-owners who earn more than $100,000. If a non-owner employee earns more than $100,000 annualized wages, only the cash comp portion is limited. The health care and retirement contributions can still be included.

Please clarify what is contained in allowable transportation costs, along with if cell phones are covered.

We are unclear what constitutes transportation utilities at this point. Regarding cell phones, we believe that since telephone is considered a utility, if the company provides cell phones and has the contract with the cell carrier, then we believe the cost of cell phones would be considered a utility.

If we hit the 60% payroll cost threshold in the 8-week period but not the 40% are we better off choosing the 24-week period even though the rules may change during that time?

Regarding the 60% payroll/40% non-payroll tests, those are not targets you need to achieve. The 60% payroll test basically means that of the amount for which you request forgiveness, at least 60% must be for payroll. You can spend a higher percentage on payroll and still get forgiveness. If your total payroll and non-payroll costs during your original eight-week period do not get you to 100% of your loan amount – and therefore you won’t get 100% forgiveness – then you should definitely consider using the longer 24-week period, as it will give you move time to use the loan proceeds, and may give you a higher forgiveness amount.

Now that PPP program has been extended from 8 weeks to 24 weeks.  How does the FTE and Gross Salary requirements work? What are the periods to compare to meet FTE and Gross Salary requirement for forgiveness, if one chooses 24 weeks instead of 8?

We have not seen any guidance thus far that would make us believe that the FTE and wage tests work any differently now that the covered period has been extended to 24 weeks. You will still compare your FTE’s (now measured over 24-week period) to the same pre-COVID and average hourly wage or salary rates during the 24-week covered period to Q1 2020 hourly wage or salary rates. If you meet the safe harbors of returning the size of your workforce back to pre-COVID levels at prior rates by December 31, then you will not be subject to FTE or wage reductions. We expect guidance out from Treasury over the next week or two.

As a non-profit, our payroll allocations are spread over grants and non-grants programs. If an employee is partially funded by a grant – say 15% - am I to count them as .85 for FTE calculation purposes, instead of 1.0 if using the 1.0/.5 method?

As you know, we haven’t really seen any clarification yet related to NFP’s that have federal or state grant programs. However, since the FTE calculation focuses on retention of employees, I would suggest using an FTE count without adjustment for how the employees are funded. The important thing is to apply whatever method you use consistently during the covered period and the pre-COVID reference periods. You will already be impacted by the payroll costs eligible for forgiveness for those employees whose compensation is funded under the grant program.

If the 8-week period is selected, is it confirmed that June 30 will be the final FTE calculation date, and furloughs or layoffs will not impact forgiveness if occurring July 1 or later?  In our case, June 30 will be after the end of our eight-week period.

It has not been confirmed yet that if you use the eight-week period the safe harbor dates remain as June 30. Treasury has yet to issue a revised Loan Forgiveness Application or any FAQs on the matter.

Please confirm if bonus pay is paid on the last pay period of the alternate covered period, this will be eligible for forgiveness.  No bonus amounts will push any employees past the $100,000 annualized limit.

Confirmed.

Could a bonus payroll be paid as a separate pay run within the alternate covered period? Or, should any bonus amount be on the fourth (last) normal pay check during the alternate covered period.  We are able to remove PEO admin fee costs from normal bonus checks, if paid separately.  This cost would be significant.

I don’t see a reason that you couldn’t do a separate check run for bonuses to avoid the PEO admin fees. I would suggest that those checks should be paid the same date as your last bi-weekly payroll included in the eight-week alternative payroll covered period.

Please confirm that any employees paid in excess of $15,385 during an eight-week covered period will still be allowed forgiveness for up to $15,385.

Confirm, only amounts above the $15,385 are not eligible for forgiveness.

Any update on transportation utility and what is included? Vehicle lease payments? Fuel costs (auto gas and propane)?

No updates as of yet on transportation utilities. Vehicle lease payments should be eligible for forgiveness under the rent provisions.

Please confirm in rent/lease payments (for forgiveness) would include leases for other storage containers/units, fork trucks, other leases of any property type?

There is currently no guidance that would specifically excluded lease payments for things other than facilities, so we believe lease payment on other property types are eligible for forgiveness.

I’ve been trying to learn more about owners as W-2 employees related to PPP Forgiveness Application.

Regarding owner-employees that receive W-2’s, the best guidance we have comes out in the Interim Final Rule on Loan Forgiveness issued on May 22nd, which stated:

c. Are there caps on the amount of loan forgiveness available for owner- employees and self-employed individuals’ own payroll compensation?

Yes, the amount of loan forgiveness requested for owner-employees and self- employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual in total across all businesses. See 85 FR 21747, 21750.

In particular, owner-employees are capped by the amount of their 2019 employee cash compensation, and the employer retirement and health care contributions made on their behalf. Schedule C filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. Three general partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners – as such expenses are paid out of their net self- employment income.

Based on the above, we believe that wages paid to owner-employees in S-corps or C-corps are eligible for forgiveness but are limited to the $100,000 annualize cap ($15,385 for the eight-week period) and must be based on 2019 compensation levels (i.e., not allowed to give themselves a raise during the covered period if they took a wage less than $100k in 2019). For owner-employees, it does appear you can include group healthcare costs and group retirement plan contributions on their behalf as well, but generally we believe this would only be eligible if the owner-employee participates in the same plans available to all employees.

When calculating the forgivable amount of payroll, would FICA and Federal taxes be included in the payroll and would be considered forgivable?

The employee portion of FICA and federal taxes are included in payroll and eligible for forgiveness. So, if you pay some $1,000 and they have $85 reduction for FICA/FUTA and then $200 withheld for federal income tax and receive a net check of $715, the $1,000 is the amount that is eligible for forgiveness. The employer portion of federal income taxes – the $76.50 for the $1,000 employee – is not eligible to be included in the forgiveness calculation.

We have been contacted by a few business owners who thought they only applied for the up to $10,000 grant, but then get surprised when much larger amount hit their bank account – along with an SBA email and loan closing package to sign. Can discuss the difference between the grant and loan. Any insight on how the SBA is making EIDL loan decisions?

Great observation, we are hearing the same thing. The way the EIDL was supposed to work is that the Emergency Grant would be funded up to $10,000, and then once the SBA determined the eligible loan amount, the company would make a decision regarding whether or not they wanted to accept the EIDL loan. My guess is if the SBA pre-funded the loan amount and the company decided they did not want the EIDL loan, then when they reject the EIDL loan documents, the loan component would be withdrawn from the account. Our understanding is that the Emergency Grant component should not be affected by the rejection of the EIDL loan.

If a client who received proceeds from the PPP Loan opts to take the 24 weeks because they did not meet the loan requirements in the 8 weeks, but the 24 weeks goes over their fiscal year, does that pose any issues? Are there any guidelines regarding a fiscal year and the PPP Loan?

There are no requirements in the CARES Act or related PPP amendments that relate to the fiscal year of the borrower, so we don’t see any issues with the PPP itself.

With that said, from a financial reporting basis having a June 30 fiscal year end will present a number of potential reporting issues. We doubt that the loan forgiveness on any loans will be fully adjudicated by June 30, so in most cases, we would expect the full loan balance to be reported as outstanding with footnote disclosure on the potential for forgiveness. The AICPA and FASB have projects related to PPP reporting, what the proper timing will be for forgiveness recognition, and what enhanced disclosures related to participation in the PPP will look like that may need to be carried forward for the six-year review period. Look for more to come from the standard setting bodies on this topic, once they have an opportunity to fully consider the issue.

We are a church who received a PPP loan.  My pastor has talked with other pastors who informed him they are using postage for mailings to parishioners about suspension of Masses, re-opening the church, cleaning, and other supplies they had to purchase to disinfect, etc., as part of the expenses for the PPP loan.  Are these expenses that can be used when reconciling the 25% utilities?

We have not seen any guidance that would permit the inclusion of incremental operating costs such as postage, cleaning supplies, personal protective equipment, etc. as eligible costs for forgiveness. I have seen articles that some of our legislators would like to see these types of costs included within the scope of the program, but nothing like that has been written into the laws or rules, so far as we know.

I have question regarding the extension from 8 weeks to 24 weeks.  Do we have to submit our application based on the 24 weeks, or can we submit it once we have fully spent the funds at 18 weeks?

Based on the way the law is currently written, it appears that you have the option of either the original 8-week period or the new 24-week period, but nothing issued thus far appears to allow a period in between those two once all the loan proceeds are used. However, in testimony to the Senate Committee on Small Business & Entrepreneurship, Secretary Mnuchin seem to elude to the potential opportunity to apply for forgiveness as soon as you have fully utilized the PPP loan proceeds. We’ll need to wait to see how, or if, something like this will be implemented, which will likely come out when Treasury issues the updated Loan Forgiveness Application in the coming weeks. Wish we knew the answer to your question for sure, but at this point all we can do is speculate.

The new PPP has been extended to 24 weeks. Do we apply for forgiveness for an 8-week period within the 24 weeks or do we apply for the entire 24-week period beginning on the date of the loan origination?

We believe you will have one of two periods that you can look at for forgiveness based on the origination date of your loan. First, you can elect to use your original 8-week period. If you haven’t used all the loan proceeds and maximized forgiveness during that period you can choose to use the extended 24-week period. You would not choose an 8-week period during the 24-week period, but rather look at the full 24-week period. We expect guidance on the Loan Forgiveness Application for the 24-week period to be coming soon from Treasury.

We have a PPP, but find we will still be short a good $500k - $1M+ in our capital requirements.  The EIDL is only offering $150k at present. What is likely ‘the next best loan’ for us?

The Main Street Lending Program will likely be coming online over the next couple of weeks. This might be another source of liquidity for you. The loans are sized based on EBITDA though.

Is there a time limit for when the forgiveness application must be filed?

There isn’t a time limit at this point, unless you have specific guidance from your bank.

We have received the $10k EIDL advance.  Then we got the loan paperwork.  Do we complete that for the $10k, if we don’t want to receive any additional funds?  I only want the $10k we have received, not to end up with $20k.

No – if the term sheet has a 30-year term note in the language that is for the loan.  You will not reply or provide any further information if you don’t want the EIDL Loan.

I applied for an EIDL loan and received $3,000. Later on, I applied for the PPP loan for about $10,000 and only received $7,000. I received an email from SBA asking to start the loan process. What should I do if I don’t want to pursue the EIDL loan? What will happen?

Nothing, you are fine if you only accept the grant.

Still 8 or 24 weeks only, or are interim periods (10 weeks/12 weeks) allowable?

You are correct. No news about the interim periods at this point.

Can you get loan forgiveness for both the PPP and EIDL if you receive the full amount for both? (PPP received first and EIDL second, so full eligible amounts received) If so, what is EIDL restricted for?  Timeframe for spending?

No - forgiveness does not exist for the EIDL Loan.  The amount that is forgivable is the PPP loan principal – if certain qualifications are met – and the EIDL grant.

If there is a second PPP, will our EIDL loan keep us from getting a second PPP loan?

We have not guidance at this at this point.  If we have clarity on a second PPP, we will look to provide that information.

Have you heard any updates regarding the issue of an updated forgiveness application form?

There is an updated form on the Treasury website as of June 12.

I hear that an EIDL advance will now reduce loan PPP forgiveness?  Will this hold true?  Some people have applied for EIDL and received the advance prior to this announcement.

Correct, at this point the EIDL advance will reduce the amount of forgiveness.

If you got a $15,000 PPP Loan April 15 and a $10,000 EIDL Grant April 25, is your total PPP Loan Forgiveness $15,000 or $5,000 (taking $10,000 EIDL grant out)?

Your loan is going to be net the amount of the EIDL Grant – the $10,000. Your forgiveness would be $5,000.

Can I use all of the PPP for payroll only, or do I have to split it up for payroll and other expenses?  If I have to split the funds, what non-payroll items will fall into the category that will allow for full forgiveness?

You can use it for payroll and qualified expenses. However, this will impact forgiveness. They discussed these items on the livestream today, which hopefully helped.

When should I apply for forgiveness of the loan?  What is the link, or where can I obtain the application?

The new application has not been made available yet.

If I utilize/spend the funds within the guidelines, can this loan be fully forgiven?  How much could be forgiven? Is the process forgiven automatically or will I need to apply?

No – there is not forgiveness on this loan. There is an EIDL grant that is forgiven.

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    • Heather Kloster
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