WEBINAR – Loan Forgiveness Under the Paycheck Protection Program (PPP)

Presented by Alan Sasserath, CPA, MS – Partner, Sasserath & Zoraian, LLP

Sponsored by Campolo, Middleton & McCormick, LLP and CMM Strategies

The Paycheck Protection Program (PPP) application process has been one of the most fraught experiences for the business community – reminiscent of the saying, “Ready, Fire, Aim!” For those businesses fortunate enough to have received a PPP loan, managing the forgiveness aspect is just as challenging. Fortunately, the team at Sasserath & Zoraian dove in headfirst to break down the PPP’s forgiveness provisions and has developed a workbook to help entrepreneurs and business owners calculate their loan forgiveness and plan accordingly.

Join us for a webinar introducing this critical tool and a primer on how to use it. Any business that has received or is still awaiting PPP funds must understand how to maximize their loan forgiveness so they can chart their next steps. With this personalized workbook and guidance, business owners can deepen their understanding of the PPP’s forgiveness provisions and put their business on the right path to maximize forgiveness of the loan.

Date: Friday, May 8

Time: 10 a.m.


Registration is limited to the first 100 participants.

PPP Loan Update – April 29, 2020

By Alan R. Sasserath, CPA, MS

As I have said before, this whole Payroll Protection Program (“PPP”) process is one of the most frustrating processes I have gone through in my career. It reminds me of the saying, “Ready, Fire, Aim.” Fortunately, our practice is focused on working with entrepreneurs, so the saying is familiar to us.

The unusual part of the PPP is that there are tremendous stakes for a widespread audience. Because of that, it was clear that every other tax or cash flow benefit of the CARES Act paled in comparison to the benefits of the PPP, which is why we dove headfirst into helping our clients and contacts with it.

While there are many that have not yet received the PPP loan, many have and are thinking about working through the loan forgiveness calculation. Below we discuss the general calculation related to loan forgiveness and some of the issues related to it. We also reference an article (linked below) that unpacks some of the issues in more detail. This is meant to be a practical document to assist you in calculating an estimate of the amount of PPP loan forgiveness and will evolve as more guidance is issued. This article is a little longer than usual because there are so many moving parts.

Be very wary of any person or webinar that gives you absolutes regarding the loan forgiveness calculation. We are waiting for full guidance on many issues. As poorly as the law was written related to the calculation of the PPP loan, the forgiveness provisions of the law were written that much worse. Unfortunately, we don’t expect to have what we hope will be final guidance until mid to late May at the earliest. However, since many already have the PPP loan proceeds, have a plan for loan forgiveness and adjust as needed.

As we said in an earlier article, forgiveness is not a god given right. The banks will have more say in the determination of the amount of loan forgiveness than they had about the loan amount. Once required support is submitted to the bank, they will have 60 days to determine the amount of loan forgiveness.

To calculate forgiveness, we must first understand what we do not know about the subject. The final sentences of the article we linked below are: “We don’t know what costs are forgiven. We don’t know what will determine which costs are allowed – is it incurred, paid or both? We don’t understand the time frames. We don’t know if we can deduct the expenses paid with forgiven dollars. We have no idea how to compute the reduction in forgiveness related to lost employees or reduced salaries, or how to restore that reduction if it occurs. And lastly, NONE of it may matter, because the banks are going to make the rules, and they don’t know what the hell they’re doing. Other than that, we’ve got this all figured out.”

Just like the loan calculation, we all had an initial opinion about how the loan amount should be calculated. As more guidance was released, we had to pivot. Once we had sufficient guidance as to how to calculate the amount of the PPP loan (new guidance has come out as recently as April 24th), the general feeling was that this was a one-time opportunity to calculate the amount of the loan, so take an aggressive position and if guidance is subsequently issued contrary to a position included in the calculation, then adjust. Because there are so many unknowns, we are going to have to do the same with regard to loan forgiveness.

From a high level, here is our interpretation of how the PPP loan forgiveness calculation is supposed to work:

1.      Once you receive the PPP funds, the following “costs incurred and payments made” that occur in the subsequent 8-week period will be eligible for forgiveness:

a.      Payroll costs using the same method to determine payroll costs included in the calculation of the PPP loan (salary, wages and other cash compensation limited to $100,000 on an annualized basis per employee; group health insurance premiums; retirement benefits…)

b.      Any payment of interest on any mortgage obligation that was incurred before February 15, 2020,

c.      Any payment of rent under a leasing agreement in force before February 15, 2020,

d.      Any utility payment, including payment for the distribution of electricity, gas, water, transportation, telephone or internet access for service that began before February 15, 2020.

2.      No more than 25% of the amount paid used for forgiveness may be for items 1.b., 1.c. and 1.d. above.

3.      There are two possible reductions to the forgiveness amounts above:

a.      If there is a reduction in full-time equivalent employees when comparing the period 2/15/2020 – 6/30/2020 to either the period 2/15/2019 – 6/30/2019 or 1/1/2020 – 2/29/2020. The period chosen to compare the 2/15/2020 – 6/30/2020 period to be determined at the borrower’s choice, and

b.      If there is a reduction in the salaries of employees that earn less than $100,000 by more than 25%.

Please note that if you restore the reduction in either of 3.a. or 3.b. above that occurred during the period 2/15/2020 – 4/27/2020 by 6/30/2020, then you don’t have to include that as a reduction when calculating the amount of forgiveness.

There are several questions related to the calculations above raised in the article linked below.  We have also linked a list of questions both from the article and our own additional questions. We hope to be able to answer them as further guidance is issued. We expect other issues to arise as well and will continue to update this list of questions and resolutions as time progresses.

To keep clean records, we recommend that the loan proceeds be kept in a separate bank account and forgiveness-eligible expenses paid out of such account. That may not be feasible for payroll since there will be both forgivable and non-forgivable payroll costs in each payroll run. For payroll costs, we recommend that you calculate the amount of expected forgivable costs in each payroll run and transfer that amount to the bank account used for payroll.

If you find this helpful, please follow us on Facebook or LinkedIn.

Click here for the Forbes article mentioned above.

Click here for the many questions that need to be answered in the article above.

As always, please let us know if we can be of any further assistance.


PPP Loan Update – April 27, 2020

By Alan R. Sasserath, CPA, MS

Last week, the Treasury issued further guidance relating to the eligibility to qualify for the Paycheck Protection Program (“PPP”) loan. In fashion true to form, the guidance issued was sufficiently vague to have many wondering whether or not they are eligible for the PPP loan and can sign off on the certification, “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Why do we care about this? Without eligibility for the PPP and a good faith sign off on the statement, at best, you cannot have PPP loan forgiveness and at worst you cannot have loan forgiveness and will have additional penalties for making a false statement.

Below is the specific guidance:

Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

First and foremost, the question is aimed at businesses owned by large companies. Let’s face it, this is fallout from the PPP loans issued to Shake Shack, Ruth Chris Steakhouse, and others. However, the sentence in italics above has many second guessing themselves as to whether they are eligible for the loan or not.

One troubling phrase in the italics sentence above is “ability to access other sources of liquidity.” What does that mean? Does that mean that if you have built reserves or have access to a credit line, that you should be ineligible for the PPP loan? Taking this a step further, what if your competitor spent recklessly while you were conservative? Should they be eligible for the PPP while you are not? What if you were able to pivot your business to be able to maintain your business at some level, does that work against you in determining your eligibility for the PPP loan?

Ultimately, what are you certifying? Are you certifying that: (a) you are currently able to show economic harm? (b) you are ready to close your doors without this loan? (c) you are ready to lay-off employees without this loan? Or, are you certifying that the current economic uncertainty could adversely impact your business more than the usual business risks and the loan is necessary to support the ongoing operations of your company?

There are more questions than answers. You should understand that these questions exist. In essence, loan forgiveness is not a god given right. There are many potential business risks that are more prevalent/concerning now than just two months ago. If you are going to obtain the PPP loan, you should be able to present your case as to what the current business risks are that create the economic uncertainty/conditions specific to you and your need for the PPP loan. Even if you can do that, a risk of repayment still exists depending on the final rules. Additionally, if you did not sign off on the statement mentioned in the first paragraph above in good faith, penalties could result.

Once again, the PPP eligibility question from the Treasury stated above is posed to businesses owned by large companies. However, the question of PPP eligibility seems to be evolving into a hot topic and is worthy of attention and monitoring.

Please note that the above analysis is our opinion and like most of the significant questions related to the PPP currently, there is little guidance. If you have concerns as to whether you are eligible for the loan you should speak with an attorney.

This is the first of what we expect to be many PPP loan forgiveness posts.

As always, thank you for your time and please let us know if we can be of further assistance.

PPP Loan Update – April 21, 2020

By Alan R. Sasserath, CPA, MS

It’s been a while since our last update. Since then, many of you were either approved for the Paycheck Protection Program (“PPP”) loan or you were not. More fell into the latter category. For those that received it, congratulations. For you now, the work begins as to how to handle the forgiveness. That will be the subject of what we are sure will be several future emails. We will send our first impressions of the PPP loan forgiveness rules and process early next week.

Whether you were approved for the PPP loan or not seemed to depend as much on the bank that you applied with as anything else. At this point, everyone either loves their bank or hates them, depending on whether they received the PPP loan or not. Given the amount of money available and the number of applications, I don’t know whether that is a fair analysis or not, but in a lot of cases, it is reality. PPP round two funding will be an opportunity for the banks to earn credibility back. However, for some banks it may be lost for good. We discuss what you should be thinking about for PPP round two funding below.

One of the most frustrating parts of the PPP is that many banks have been operating under a shroud of secrecy. It was/is a mystery as to when they would start to accept applications, how the process would work (both internally and with the SBA), what the process was to get to the finish line (PPP loan funding) and where you stand/stood in the queue. It seemed like many of the banks kept, and continue to keep most of their team and customers in the dark as to the PPP loan process. As we discussed in one of our first emails after the pandemic started, communication is key in times of stress.

As we are hopefully on the precipice of round two of PPP funding, we thought we would give an update as to our impression of the first round of funding and what you should be thinking about for this round. Please keep in mind that these are our observations with no formal investigation into the process at any bank.

It seems like the banks that fared well in round one of PPP funding were the banks that were not afraid to roll up their sleeves and go through the required manual processes it took to get PPP loan applications loaded onto the SBA platform early on. I keep seeing the words “community banks” and “smaller banks” as those that fared well, but our impression was that it was the ones that rolled their sleeves up and powered through some of the manual processes early on in the PPP loan process, regardless of size. We saw this more at smaller banks, however some larger banks did this well too.

It is also our understanding that the banks got a late start hiring companies to develop software that would load loan applications into the SBA platform electronically and many of these systems weren’t up and running until late in PPP round one. In other words, by the time the software was ready to go, many of the smaller banks and some of the larger banks had already taken the available round one funds because they used the manual process mentioned above.

As for PPP round two funding, we would expect the application process to be much less manual and much more electronic as we expect all banks that went down the software path to be ready from the start of round two of the PPP program. Those banks that relied on the manual processes may be at a disadvantage if they are looking to process many loans during round two of the PPP. Understanding where you are in the queue will be very important in this vein.

One of the questions that we get is whether you can put in more than one PPP loan application or not. Our understanding of the process is the following:
1. You are permitted to apply at more than one bank for the PPP loan.
2. Once one of your PPP loan applications is input into the SBA platform, then any subsequent attempt to submit an application to the SBA platform will get bounced.
3. If by chance, the system fails and you are approved for more than one PPP loan, then you cannot accept more than one loan.

What should you do now? Try to find out where your application stands in the process. If you don’t get a satisfactory answer, consider putting in an application at another bank or a nontraditional lender. The reason that we bring up the nontraditional lender is that according to the Wall Street Journal, the new bill is expected to allocate $60 billion of the round two PPP funding to such lenders. Some banks that have had success are willing to take on new PPP loan applications under the condition that they will get your banking relationship in the future. We may be able to make a recommendation if you need another banking option.

As always, thank you for your time and please let us know if we can be of any assistance.

Stay safe and healthy.

Paycheck Protection Program Loans (PPPL) – Key Questions

By Alan R. Sasserath, CPA, MS

We hope everyone is well during these frustrating and sometimes tense times as we work through the requirements regarding the Paycheck Protection Program Loans (“PPPL”). Yesterday, the Treasury Department issued an FAQ answering a lot of the questions regarding PPPL’s.

Here are a few of the key questions:

Question 7: The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?

Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:

– employer contributions to defined-benefit or defined-contribution retirement plans;

– payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and

– payment of state and local taxes assessed on compensation of employees.

Question 15: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the eligible borrower’s payroll costs?

Answer: No. Any amounts that an eligible borrower has paid to an independent contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.

Question 16: How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?

Answer: Under the Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.2

Here is a link to the full FAQ.

If you are keeping track, our worksheet 2.0 previously sent is the one most aligned with this computation, however, to make matters easier for yourself, you can use the attached Bank of America Worksheet sent to one of our clients late yesterday and put a zero on the line marked with an “*”.

Click here for that BoA worksheet.

Hopefully, this is the final guidance necessary for the banks to start funding the loans.

As always, please let us know if we can be of any assistance.

Stay safe and healthy.