Paycheck Protection Flexibility Act

Late yesterday, the Senate passed the House version of the Paycheck Protection Flexibility Act (“PPFA”), adjusting some of the rules under the Paycheck Protection Program (“PPP”). The bill will now go to President Trump, who is expected to sign it. Like much of the guidance that has been issued by the Treasury since the PPP was originally enacted, this bill is a further relaxing of the PPP rules, permitting more borrowers the opportunity to secure PPP loan forgiveness.

Below are some of the key provisions of the legislation:

  • The covered period (the timeframe for the borrower to pay or incur forgivable PPP loan expenses) has been extended to the earlier of 24 weeks or December 31, 2020. Pre-PPFA borrowers can choose to retain the original eight (8) week period.
  • With regard to the reduction in forgiveness due to the reduction in full time equivalent (“FTE”) employees, there are additional exceptions not previously discussed in the law or Treasury guidance. There are exceptions to the FTE reduction calculation if the borrower can document in good faith that: (1) the business could not rehire terminated employees and find qualified employees for unfilled positions by December 31, 2020 or (2) the business was unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating and compliance safety standards.
  • The payroll cost requirement was lowered from 75% to 60%. Based on our reading of the law, the 60% is the minimum amount that must be spent on payroll costs, otherwise there would be no loan forgiveness.
  • With regard to loan forgiveness reductions, the deadline for rehiring has been changed from June 30, 2020 to December 31, 2020.
  • Borrowers are permitted to defer the payment of 2020 employer payroll taxes until December 31, 2021 (50%) and December 31, 2022 (50%).
  • The loan is deferred until the date on which the amount of forgiveness determined under the CARES Act is remitted to the lender. Originally, the period was six (6) months. If the borrower fails to apply for forgiveness within 10 months after the covered period as described above, then the borrower will begin to make payments at that point.
  • The term of all PPP loans issued after the date of enactment of the PPFA (the date President Trump signs the bill into law) shall be a minimum of five (5) years and not the current two (2) years. The interest rate remains at 1%. Lenders are not prohibited from modifying loans made prior to the date of PPFA enactment to a five-year term instead of their current two-year term.
Generally, this means that almost all that received the loan will receive full forgiveness if the forgiveness application is properly submitted to the lender. There will most likely be cases where all is not forgiven, but most should receive full forgiveness.
From this point, there are still some unanswered questions and we find ourselves in a familiar spot regarding the PPP: waiting on guidance. Some of the questions are:

 

  1. Was the “cliff” effect of not spending 60% of PPP loan funds on payroll costs resulting in no loan forgiveness an intended consequence or the result of rushed legislation?
  2. Will an updated loan forgiveness application be issued, or will we have to work with the application that is currently in existence?
  3. Does the extension of the covered period to 24 weeks also increase the forgivable, per-employee wage amount to $46,154 from $15,385? We believe it should be increased.
  4. Will the expenses related to loan forgiveness be tax deductible? This was not discussed in the PPFA.
Once we see how this unfolds over the next few days, we will update our forgiveness workbook and make it available.
Thank you for your time and please let us know if we can be of assistance.

PPP Loan Update – June 1, 2020

We hope you are all well and getting back up and running in a safe manner.

As you know, there is more to this pandemic than the Paycheck Protection Program (“PPP”).  Things have been and continue to change rapidly.  If you are not ahead of the curve, you are behind.  Keep vigilant.

In late March and April, many businesses lived off existing receivables and made tough changes to their businesses.  As the calendar turned to May, PPP money was a temporary life preserver.  Now, as we stare at June, some are looking at PPP loan money being exhausted and opening for business or continuing their businesses amid a lot of uncertainty.  In a lot of respects, for many, it is like starting your business all over again – only with a bigger (albeit uncertain) customer base, more established relationships, new rules that are constantly changing, and bigger overhead.  Just like in Rocky III, we all need to get back to our roots and find the “Eye of the Tiger.”  We have built a business before; now we must do it again with a head start and within a different set of rules.

The primary principles and planning points we discussed early on still hold true: (1) Monitor your cash flow as closely as possible, as it is your life blood; (2) Look for opportunities and jump on them quickly; (3) Keep in close contact with your customers, vendors and team/staff, as communication is key; and (4) Fortify your IT and security measures.  We will expand on these in a series of emails over the coming weeks.

For now, the focus is cash flow.  With that, let us start with the PPP and then discuss other measures.

Below is a link to an Excel workbook that will help you calculate loan forgiveness.  We have also linked a short instructional video to show you how to use it.  As the calculations are involved and we are accountants and not programmers, there are some limitations to the workbook (please see “Instructions” tab); however, it should give you a good picture of where you stand regarding PPP loan forgiveness.

As some of you may have seen, the House passed the Paycheck Protection Flexibility Act of 2020 last Thursday.  This is a separate bill that relaxes some of the PPP loan and forgiveness requirements as follows:

  • Extending the expense forgiveness period from eight weeks to twenty-four weeks
  • Reducing the 75 percent payroll ratio requirement
  • Eliminating 2-year loan repayment restrictions
  • Allowing payroll tax deferment for PPP recipients
  • Loosening the FTE reduction loan forgiveness provisions
  • Extending the June 30 rehiring deadline

As SBA and Treasury guidance has been issued, it has generally been borrower-friendly, and this is no different.  There is a similar bill in the Senate, and we are hoping to see this passed, reconciled, and signed into law shortly.  Again, this is NOT law yet, but are hoping that it will be as soon as this week.  For the moment, our advice is to continue to plan for the worst (the current PPP forgiveness rules) and hope for the best (Paycheck Protection Flexibility Act of 2020).

If these rules change, we will update our workbook and send it out when available.  At that point, for most of us, it should be more a matter of doing everything you need to do to ensure that the full PPP loan will be forgiven and less of a question of how much of the PPP loan will be forgiven.

With regard to cash flow, there are other Federal and New York State loan programs available which are not forgivable but have favorable terms.  They are listed here.

In addition to the programs above, continue to monitor your cash flow and adjust your revenue, expense, and cash flow budgets frequently.  With regard to receivables, a few ideas are to accelerate them where possible, review payment terms, give incentives for early payment where practicable, and ask for deposits up front.  With regard to payables, review your contracts and expenses, defer payments where possible, and prioritize suppliers and vendors that are critical to maintaining status quo and top line growth.  Keep in close contact with your bank and lending sources as they are an integral part of this process.

There is no one-size-fits-all answer to the many questions we have.  These paragraphs are meant to give you some ideas but are not a cure-all.  You should continue to work with your professional team to work through these issues.

The goal right now is to get through this critical period with as little debt as possible to get to a time when we can all make money again. Please let us know if we can help.

To download our updated workbook, click here.

View the video below for an in-depth tutorial on how to use our workbook.

 

COVID-19: Summary of Several Available Loan Programs

 

Covid-19 Small Business Administration and New York State

Summary of Several Available Loan Programs

  1. Economic Injury Disaster Loan (EIDL) – This program is currently only accepting applications from agricultural businesses but is expected to open again soon. Applications are completed directly with the SBA. Originally, this was supposed to be a loan of up to $2 million but due to the high demand, they have limited it to $150,000 per applicant. This is a 30-year term loan with a 3.75% interest rate. There is also a grant portion of this loan that is available. You can receive up to $10,000 as a grant ($1,000 per employee). The grant portion does not need to be paid back; however, if you received a PPP loan. it will reduce the amount of forgiveness. Personal guarantees are not required for all loans less than $200,000 although collateral is required for any loans over $25,000. To be eligible for the EIDL loan, you must be considered a small business with fewer than 500 employees (some businesses with more than 500 employees can also qualify, contingent upon SBA’s size standards for the industry).

 

  1. Main Street Lending Program – Applications are completed through FDIC-insured lenders. Businesses that have fewer than 15,000 employees or less than $5 billion in total revenues in 2019 qualify for this program. Certain industries such as non-profits, financial businesses, life insurance companies, passive businesses owned by developers and landlords, etc. do not qualify. This program includes 3 different loan options:
    1. Main Street New Loan Facility (MSNLF) – This loan has a 4-year maturity. Principal and interest payments are deferred one year. The interest rate is the 1- or 3-month adjustable LIBOR rate plus 300 basis points. The principal is amortized one-third in the second year, one-third in the third year, and one-third in the fourth year. The minimum loan size is $500,000.
    2. Main Street Priority Loan Facility (MSPLF) – This loan has a 4-year maturity. Principal and interest payments are deferred one year. The interest rate is the 1- or 3-month adjustable LIBOR rate plus 300 basis points. The principal is amortized 15% at the end of the second year, 15% at the end of the third year, and a balloon payment of 70% at the end of the fourth year. The minimum loan size is $500,000.
    3. Main Street Expanded Loan Facility (MSELF) – This loan has a 4-year maturity. Principal and interest payments are deferred one year. The interest rate is the 1- or 3-month adjustable LIBOR rate plus 300 basis points. The principal is amortized 15% at the end of the second year, 15% at the end of the third year, and a balloon payment of 70% at the end of the fourth year. The minimum loan size is $10 million.

 

  1. New York Forward Loan Fund (NYFLF) – This is a loan available to New York small businesses with 20 or fewer full-time equivalent employees and less than $3 million per year of gross revenues. There is no restriction on what industries can apply for this loan. Applications for these loans are completed directly through New York State. Companies that received either PPP or EIDL loans are not eligible. The loan amount is the lesser of $100,000 or the average monthly revenues in a 3-month period prior to COVID-19. This loan would need to be paid back over 5 years. The interest rate on these loans is 3%. Only interest payments are required for the first year and the loan balance is amortized over the remaining 4 years. No collateral or personal guarantees are required.

PPP Webinar Workbook: Updated

We hope you are all well and getting back up and running in a safe manner.

As promised, attached is our Paycheck Protection Program (“PPP”) loan forgiveness workbook. We have also attached a short instructional video to show you how to use it. As the calculations are complicated and we are accountants and not programmers, there are some limitations to the workbook; however, it should give you a good picture of where you stand regarding PPP loan forgiveness. Before using the workbook, please familiarize yourself with the limitations, which can be found on the “Instructions” tab.

As some of you may have seen, the House passed the Paycheck Protection Flexibility Act of 2020 yesterday. This is a separate bill that relaxes some of the PPP loan and forgiveness requirements as follows:

  • Extending the expense forgiveness period from eight weeks to twenty-four weeks
  • Reducing the 75 percent payroll ratio requirement
  • Eliminating 2-year loan repayment restrictions
  • Allowing payroll tax deferment for PPP recipients
  • Loosening the FTE reduction loan forgiveness provisions
  • Extending the June 30 rehiring deadline

As I mentioned in the webinar, as guidance has been issued, it has generally been borrower-friendly and this is no different. There is a similar bill in the Senate and we are hoping to see this passed, reconciled and signed into law shortly. Again, this is NOT law yet, but we are hoping that it will be law as soon as next week. For the moment, our advice is to continue to plan for the worst (the current PPP forgiveness rules) and hope for the best (Paycheck Protection Flexibility Act of 2020).

If these rules change, we will update our workbook and send it out when available. At that point, for most of us, it should be more a matter of doing everything we need to do to ensure that the full PPP loan will be forgiven, without the planning and scrambling going on now and potentially only receiving partial PPP loan forgiveness.

Thank you for your time and please let us know if we can be of further assistance.

To download our updated workbook, click here.

View the video below for an in-depth tutorial on how to use our workbook.

For a replay of the webinar, click here.

To download our PowerPoint, click here.

WEBINAR RESOURCES: Breaking Down the PPP Loan Forgiveness Application

Thank you for joining us for yesterday’s webinar, “Breaking Down the PPP Loan Forgiveness Application,” presented by Alan Sasserath. Below are links to our PowerPoint and a recording of the webinar. Our updated workbook will be posted here in the next few days.

View the webinar replay here.

Please contact us with your follow-up questions:

PPP Update – May 16, 2020

By Alan R. Sasserath, CPA, MS

Over the last week, we have received further guidance on the Paycheck Protection Program (“PPP”) regarding:

1. Certification including clarity on safe harbor provisions,
2. An extension of time to May 18, 2020 to return PPP loan proceeds under the certification safe harbor provisions,
3. Clarification of partnership loan calculation rules including the ability to increase PPP loan proceeds to partnership borrowers under such rules, and
4. PPP Loan forgiveness guidance.

Our original intention was to send an update today discussing the first three issues mentioned above; however, those issues seem to be old news considering the information regarding loan forgiveness that was released yesterday. While we are available to discuss the issues mentioned above on an individual basis, we will use this opportunity to discuss the information released yesterday regarding PPP loan forgiveness below.

Yesterday, the SBA in conjunction with the Treasury released the PPP Loan Forgiveness Application (the “Application”). While there is a lot to digest in the Application itself, some of the more critical items are the following:

1. The CARES Act defined forgivable costs as those “incurred AND paid.” The Application defines forgivable costs as those “incurred OR paid” and gives further guidance on when an expense is forgivable.
2. Full Time Equivalent (“FTE”) definition. While previously thought to use the SBA definition of FTE which is 30 hours per week, the Application clarifies the definition to be 40 hours per week.
3. With regard to loan forgiveness reductions related to either reductions in FTE’s or wages, the Application gives guidance as to how to calculate such eliminations.

We are planning to have a webinar later this week to discuss these and other items in the Application. We will also update our excel workbook to be released in conjunction with the webinar. Be on the lookout for the webinar announcement.

Additionally, as per the SBA website, the Application form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

• Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
• Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan
• Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
• Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30
• Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined

The Application is accessible here: 3245-0407 SBA Form 3508 PPP Forgiveness Application (1).

In addition to the release of the Application as discussed above, the House of Representatives passed the HEROES Act yesterday as well. While several Republican Senators have made statements that this bill is dead on arrival to the Senate, the HEROES Act has several interesting provisions related to the PPP that may not be DOA. Here are some of the key PPP provisions:

• Extension of the covered period from June 30 to December 31 allowing the current 8-week period from the date of PPP loan funding to be permitted to extend past June 30.
• Repeal of the requirement that 75% of the loans be spent on payroll.
• Clarification that expenses paid or incurred with proceeds from PPP loans that are forgiven are also deductible for federal income tax purposes.
• Extends the 8-week period to pay forgivable expenses to 24 weeks.
• Establishes a minimum maturity on PPP loans of 5 years to enable borrowers to amortize loans over a longer timeframe.
• Extension of the eligibility to all nonprofits.
• Allows payroll tax deferrals for recipients of forgiven PPP loans.

As with the CARES Act, there are many provisions in the HEROES Act other than those related to the PPP; however, these are some that are pertinent to the PPP. Please note that if some of the provisions in the HEROES Act discussed above pass, there will be revisions to the Application.

As seems to be the case all too frequently, this was another big week of news regarding the PPP. We will continue to keep you informed so please stay close.

As always, please feel free to reach out if we can be of assistance.