“You must never confuse faith that you will prevail in the end – which you can never afford to lose – with discipline to confront the most brutal facts of your current reality, whatever they might be.” – Admiral Jim Stockdale
Admiral Stockdale was the highest-ranking U.S. military officer in the “Hanoi Hilton” prisoner-of-war (“POW”) camp during the height of the Vietnam War, imprisoned there from 1965 to 1973. If you haven’t read Good to Great by Jim Collins, it’s worth the investment of your time. This quote was taken out of Chapter 4 where Collins talks about “The Stockdale Paradox.” Stockdale also says, “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”
Fortunately, what we are going through now is nothing like being in a POW camp; however, it is the worst economic climate that many of us have ever known. Couple that with the uncertainty surrounding us, the fact that many things that were familiar are now new (if I hear one more person say “new normal” I’m going to puke) and it all adds up to a very frustrating, stressful, and frightening time. The Stockdale Paradox holds true for us in business, as discussed in Good to Great, as it did for Admiral Stockdale’s time in Vietnam.
The reality is that we don’t know when we will be past this and therefore we need to focus and make our decisions based on our current brutal facts. We can’t look past the pandemic nor can we afford to make decisions based on what we hope will happen in the next month or two or three. This is not easy, but if we can do this, we and our teams will get through this and be stronger in the end.
One of the brutal facts many of us are facing is PPP money running out (if it hasn’t already) and ensuring that we get full loan forgiveness. Over the last two weeks, there has been additional information released regarding PPP loan forgiveness that is discussed below. Our updated workbook is also linked below.
If loans are on your radar – or even if they aren’t but should be (think “brutal fact”) – you should consider the interest-free loan relating to payroll tax deferral, the Economic Injury Disaster Loan (“EIDL”), and the Main Street Lending Program. We will briefly discuss the payroll tax deferral loan and EIDL below. The Main Street Lending Program is beyond the scope of this writing; however, we are happy to discuss this, so feel free to reach out to us for guidance.
With regard to the PPP loan, the recent guidance issued included:
1) An updated PPP loan forgiveness application indicating the following:
- The 24-week covered period as opposed to the original 8-week covered period;
- The maximum forgivable cash compensation per employee of $46,154 over the 24-week covered period;
- Owner Compensation, including compensation of S corporation and C corporation owners, is limited to the lesser of 2.5 months of 2019 compensation up to a maximum of $20,833; and
- There is no “cliff effect” for not spending at least 60% of PPP loan proceeds on payroll.
2) In addition to the updated PPP loan forgiveness application, an additional EZ PPP loan forgiveness application was also released if you meet one of the three following requirements:
- The borrower is a self-employed individual, independent contractor or sole proprietor with no employees;
- The borrower 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 (exceptions apply); or
- The borrower was unable to operate between February 15, 2020, and the end of 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, related to maintenance of standards of sanitation, social distancing or any other work or customer safety requirement related to COVID-19.
3) Other PPP items to consider:
- Currently, forgivable expenses are NOT deductible for income tax purposes;
- With regard to applying for forgiveness, for those companies that require financial statements, keep in mind that you will most likely need the bank’s forgiveness determination to issue such financial statements; and
- Please note that if you qualify for the EZ application referred to above, there is no need to complete the workbook linked below in its entirety. Please see the updated instructions.
With regard to the payroll tax deferral, EVERY BUSINESS that carries debt and has payroll should consider taking advantage of this opportunity. This option became more attractive with the Paycheck Protection Flexibility Act of 2020. Employers are permitted to defer the employer share of Social Security taxes for the period March 27, 2020 (practically July 1, 2020) – December 31, 2020. Since the second quarter ends today, June 30, 2020, you should notify your payroll company of the desire to take advantage of this IMMEDIATELY. The payroll taxes deferred are due 50% each on December 31, 2021 and 2022 without interest. Click here
for the link to the IRS FAQs regarding this program.
With regard to the EIDL, the program was recently reopened. We are suggesting businesses that carry debt to apply for this loan as the terms can be up to $150,000 to be repaid at an interest rate of 3.75% over 30 years.
Thank you for your time and please let us know if we can assist in any way.
– Alan R. Sasserath, CPA, MS
Download the workbook here.