Webinar Date: Friday, June 12, 2020

This is a dated presentation and may not reflect current guidelines.

Thank you for joining vcfo and Austin Technology Council for the third in a four-part virtual roundtable webinar series on managing your PPP loan and understanding debt forgiveness. In this installment, the vcfo finance team walked you through the latest guidance related to your loan including the SBA PPP Forgiveness Application. Jennifer Lennarz and Regina Walters, Consulting CFOs from vcfo, and Darrell Tesmer, vcfo’s Chief Compliance Officer & EVP, provided information on how to use the proceeds from your loan, as well as forecasting, loan forgiveness, documentation, and additional considerations.

Click here to view or download a copy of the presentation.

Webinar Follow Up Questions

Below are our responses to the questions asked during the webinar:

What if the rent was renegotiated during covered period to a new lease with more space/higher rent? Our company needs more space to accommodate social distancing.

Covered rent obligations for business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 per SBA guidelines. There is no guidance regarding lease renegotiation. It is recommended to work with your lender to see if they will provide additional clarification.

Are businesses able to apply for more funds now that the loan period has extended? The original application was based on 8 weeks, not 24.

Currently borrows cannot request an increase in their PPP loan amount. Legislation has been introduced in congress that would allow borrowers with less than 100 employees and a decrease in revenue of 50% or more, as result of COVID-19, request additional funds.

Any updates on the $100,000 cap? I cannot see where the 8-week period has been stretched to 24.

On June 16 and 17, 2020 the SBA issued a modified loan application. an EZ loan application and revisions to the third and sixth interim final rules. This new guidance caps individual employee wages at $15,385 for an 8-week covered and $46,124 for a 24-weeks covered period. Both of these amount represent an annualized $100,000 salary prorated for the respective covered periods.

Is gross pay to employees hired on a temp to hire basis through a temp agency considered eligible payroll costs for PPP forgiveness?

Contractors (1099’s) or temporary employee’s paid through an agency are not eligible costs for loan forgiveness. The SBA clarified this in the Interim Final Rule. If you pay your temp to hire employees through an agency, these amounts would be not be forgiven and would be included in your PPP loan amount.

Can any good CPA provide PPP audit services?

Please contact our office. We work with several CPA firms in the Central Texas area that can be of assistance. Costs and levels of engagement will vary depending on details of the loan and Borrower’s situation. Note that we are NOT aware that an audit of the PPP loan and loan forgiveness is a requirement under the rules of the program.

I worked for a C corp but we also own stock. It's not an LLC, no chapters. Any advice about this situation- such as bonuses?

Please contact our office so that we can discuss with you further the nature of your business activities. The PPP and its loan forgiveness program may vary depending on how that nature of the entity (a C or S corporation as compared to a LLC that may be treated for tax purposes as a partnership.)

I know we can't prepay rent payments, but what if we back pay rent that we were unable to cover until after we received the loan. Will those be covered?

These costs would be eligible for loan forgiveness since if they were paid during the covered period. Nonpayroll costs eligible for loan forgiveness must be PAID during the covered period or INCURRED during the covered period and paid on or before the next regular billing date, even is the billing date is after the covered period.

Can building rents and/or health insurance be prepaid and included for forgiveness?

These costs would not be eligible for loan forgiveness since they were incurred after the covered period. Payroll costs eligible for loan forgiveness must be paid during the covered period and/or incurred during the covered period and paid on or before the next regular billing date, even is the billing date is after the covered period. Nonpayroll costs eligible for loan forgiveness must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even is the billing date is after the covered period.

You mentioned that payroll can be paid and/or incurred. Could some employees have more than eight weeks of payroll included?

Yes, payroll costs eligible for loan forgiveness must be paid during the covered period and/or incurred during the covered period and paid on or before the next regular billing date, even is the billing date is after the covered period.

My salary reduced 50% due to a bad year in November 2019, which is before 2/15/2020. can my boss put them back to the 2019 level?

We have not seen any guidance indicting increases to salaries are expressly disallowed. The borrower has certified the necessity of the loan for the business to continue. Borrower needs to consider if loan is audited and have justification for expenditure. Why was the increase given? Work performance? Loan forgiveness related?

What type of interest is qualified? For PPP? Such as commercial loan? Capital loan? Investors loan?

Genrally, the PROCEEDS from the PPP loan may be used to pay interest on mortgages and other debt obligations that in each case were incurred prior to Feb. 15, 2020. Note that interest payments are EXCLUDED from the definitions of loan forgiveness. This often has the effect of ‘refinancing’ the interest payments made during the covered loan period. We are not aware of further guidance from the SBA on further definitions of qualified interest. Note as well that as part of the CARES Act that existing borrowers under SBA loan programs may be eligible to have their existing principal and interest obligations paid directly by the SBA for a period of six months. These additional payments are not part of the PPP but would represent an additional benefit to existing SBA loan borrowers where applicable.

I have heard that health benefits forgiveness do not include the owners coverage. Is this true?

Per the Interim Final Rule on Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule posted on 06.22.20, health insurance benefits for owners may not be covered. There are caps on the amount of loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation. C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf. S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation. How your company files taxes with the IRS will determine your loan forgiveness edibility.

Would company mobile phones bills fall under utilities?

Covered utility payments are business payments for a service for the distribution of electricity, gas, water, telephone, transportation, or internet access. We believe company mobile phones is considered a telephone expense.

If after the 8 weeks some funds remain available, they need to be returned to the lender or will these funds be taken as a loan payable under PPP rules?

If you have excess funds, that amount will become a loan and can be paid back at any time with no pre-payment penalty. For loans made before June 5, 2020, the maturity is two years; however, borrowers and lenders may mutually agree to extend the maturity of such loans to five years. For loans made on or after June 5, the maturity is five years.

How does the over $100,000 salary work? Say someone makes $120,000 a year, $20,000 doesn't count in the loan, so does payroll pull from two different accounts?

On June 16 and 17, 2020 the SBA issued a modified loan application. an EZ loan application and revisions to the third and sixth interim final rules. This new guidance caps individual employee wages at $15,385 for an 8-week covered and $46,124 for a 24-weeks covered period. Both of these amount represent an annualized $100,000 salary prorated for the respective covered periods. Funds do not need to be pulled from different accounts,

If the limit on cash payments for employees is $15,385 for the 8 weeks, can severance payments be in addition to the max cash payments?

Payroll costs consist of compensation to employees which includes allowance for separation or dismissal. This constitute a supplement to salary or wages and are thus a similar form of compensation and should be included in the total amount of cash compensation eligible forgiveness which may not exceed an annual salary of $100,000, as prorated for the Covered Period.

Our bank said payroll taxes are not allowed for inclusion in loan calculation. I hear you saying that FICA is allowable for forgiveness. Right?

Per the Interim Final Rule on Paycheck Protection Program posted on April 2, 2020 states: Federal employment taxes imposed or withheld, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, is expressly excluded from payroll costs.

Are 'payroll fees' included in forgiveness?

No, these costs are not covered under the loan forgiveness.

For forgiveness, we know a $50,000 earner must be within $37,500. What about higher? The $50,000 earner over $62,500? (commission-based earner). Same 25% apply?

Yes, Interim Final Rule on Loan Forgiveness published 05/22/20 states commissions are included in “payroll costs”. They constitute a supplement to salary or wages and are thus a similar form of compensation. The borrower must complete the Salary/Hour Wage Reduction worksheet only for employees whose salaries or hourly wages were reduced by more than 25% during the elected Covered Period.

Does bonus and commissions (variable pay) count towards a reduction in pay of more than 25%?

Yes, Interim Final Rule on Loan Forgiveness published 05/22/20 states bonus and commissions are included in “payroll costs”. They constitute a supplement to salary or wages and are thus a similar form of compensation.

If an employee was annualized at over 100,000, will they be eliminated from the forgiveness calculations, or capped at 100,000?

This employee will not be eliminated from loan forgiveness, for each individual employee, On June 16 and 17, 2020 the SBA issued a modified loan application. an EZ loan application and revisions to the third and sixth interim final rules. This new guidance caps individual employee wages at $15,385 for an 8-week covered and $46,124 for a 24-weeks covered period. Both of these amount represent an annualized $100,000 salary prorated for the respective covered periods.

What are the loan forgiveness guidelines?

Per the Interim Final Rule on Revisions to First Interim Final Rule posted on June 11, 2020 states: To receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to nonpayroll costs.

What are the forgiven payback provisions?

Per the Interim Final Rule on Revisions to First Interim Final Rule posted on June 11, 2020 states: To receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to nonpayroll costs.

We have not reduced salaries during this period but some take-home pay has been reduced due to reduced commissions. Is this considered a compensation reduction that could effect the loan forgiveness amount?

Yes, Interim Final Rule on Loan Forgiveness published 05/22/20 states commissions are included in “payroll costs”. They constitute a supplement to salary or wages and are thus a similar form of compensation. The borrower must complete the Salary/Hour Wage Reduction worksheet only for employees whose salaries or hourly wages were reduced by more than 25% during the elected Covered Period.

What is the final due date for turning in the loan forgiveness paperwork after the 8 week period has expired?

Per the PPP Flexibility Act of 2020 and the Revised Interim Final Rule issued by the US Treasury, borrowers have 10 months to complete and submit the forgiveness application to the lender, also, per the Revisions to Loan Forgiveness Interim Final Rule issued on June 22, 2020, a borrower may submit an application for forgiveness any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. Note that if the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25 percent, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period. Also, please note Per the Revised Interim Final Rule the covered period is now 24-weeks;however, borrowers with loan approved prior to June 5, 2020 can elect to keep the 8-week covered period. Based on this language 24-weeks is the default covered period and borrowers have to make an election to keep their 8-week period.

Can you give raise to you current workers during the 8 weeks?

We have not seen any guidance indicting raises are expressly disallowed. The borrower has certified the necessity of the loan for the business to continue. Borrower needs to consider if loan is audited and have justification for expenditure. Why was the raise given? Work performance? Loan forgiveness related?

Is Workman's Compensation as part of 'Employee Costs'?

There is no specific clarity on this. At this point, it appears unlikely that it will be forgivable.

I have heard talk about the PPP period being extended to 12 weeks. What is the current date by which I need to retain my existing workforce to qualify for PPP forgiveness?

Per the instructions to the modified loan forgiveness application issued by the SBA on June 16, 2020 FTE’s have to be restored not later than December 31, 2020 to the level in the pay period that included February 15, 2020. Note that in order to be eligible for the safe harbor the reductions had to occur between February 15, 2020 and April 26, 2020.

Additional Resources

For additional resources regarding the COVID-19 crisis, please visit our resources page.

 

Updated as of July 2, 2020

Information presented is subject to further change as additional guidance may be released by the SBA, the US Treasury Department, the Internal Revenue Service or other governmental authorities. Information presented does not include all scenarios or situations that may apply. Information included in this presentation does not represent legal advice. vcfo recommends further discussion with legal counsel regarding legal questions related to the information presented. Please contact us should you have further questions.

 

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