Webinar Date: Friday, April 24, 2020

Your bank has notified you that your PPP was approved… so what happens now?

vcfo invites you to join three of our financial experts for a webinar series on managing your PPP loan and maximizing debt forgiveness. vcfo’s Jennifer Lennarz and Regina Walters, Consulting CFOs; and Darrell Tesmer, Chief Compliance Officer & EVP; will provide detailed information on how to use the proceeds from your PPP loan and what you CAN and CANNOT use it for in order to qualify for forgiveness. Each week, we’ll provide additional clarity on the guidance and will answer your questions to keep your businesses on the right track.


This page will be updated each with as more information becomes available.

Webinar Follow Up Questions

Below are some frequently asked questions the vcfo team has received regarding PPP loans:

We are self-insured, would employer paid claims for employees be considered for the “group health benefit” for recovery?

In the absence of further guidance and clarification from the SBA, we are assuming that employer paid claims for employees offset by any employee withholdings may be included in the “group health benefit” eligible use of PPP funds.

Will any amount not forgiven, that is then rolled into a loan, will that amount be considered taxable income?

No, only amounts which are cancelled or forgiven are included in gross income in the year of the cancellation.

I've heard advice that we should open a new account to deposit PPP funds into so it's easier to track expenditures. What are your thoughts on this? Necessary?

Yes, this is a good idea to open a new account. Some banks are requiring that their customers receiving PPP loans setup new accounts to receive approved funds. Banks will ultimately be required to work with each PPP borrower to confirm and determine the portion of each PPP loan eligible for forgiveness. Placing PPP funds in separate bank accounts will facilitate the review of your disbursements to provide an audit trail related to eligible spending and amounts that will ultimately be forgiven and amounts that will be need to be repaid by PPP borrower as a loan.

For the separate account, should I use a separate bank?

We would like to answer this question at two levels.

First, we are not aware that PPP loan proceeds received by a Borrower are required by the CARES Act or the related rules, regulations and existing guidance require the Borrower to maintain the funds with the PPP Lender. In addition, there are no collateral or personal guarantees required by the Borrower to participate in the PPP. Consequently, barring any other specific arrangements with the Lender, we are not aware that the Lender will have domain over the proceeds of the PPP loan.

Second, when considering using a second bank, you may want to review your internal controls to determine insurance limits for funds held, such as FDIC and SPIC protections.

If we open a bank account specifically for the PPP funds, should we tie this account to our payroll provider and run payroll from it during the allowable 8-week period?

There are payroll items that are not allowed to be used with the PPP funds. It is best to create a payroll reconciliation for each payroll.  The reconciliation should include allowable payroll expenses and non-allowed funds.  After each pay period transfer the allowable funds from the PPP bank account to your operating bank account.

I have employees in Mexico, should I separate the payroll out of difference bank accounts?

It is not necessary to separate employees in Mexico out of a different bank account since there are other payroll items that maybe in your payroll that are not allowed to be used with the PPP funds. It is best to create a payroll reconciliation for each payroll to document the eligible uses of PPP funds. The reconciliation should include allowable payroll expenses and non-allowed funds. The non-allowed funds would include employees in Mexico if those employees do not otherwise meet the requirements of PPP use of funds. (For example, do the employees have their primary residence in Mexico or the United States?) After each pay period transfer the allowable funds from the PPP bank account to your operating bank account where you are processing your payroll.

Unfortunately, my PPP was funded before the SBA changed their minds about 1099 contractors. Now what?

These funds can still be used for allowable costs under the loan forgiveness. No more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. If you have excess funds that can not be forgiven, that amount will become a loan and can be paid back at any time with no pre-payment penalty (or otherwise will be repaid over 24-month period, including a 6-month deferral of interest and principal payments for the loan).

Our bank actually did include pay for 1099 contractors in the loan amount calculations (I know some banks are and some aren't and I've found a lot of info that says 1099 contractors should NOT have be included)... Regardless, they were... Can we pay these contractors with PPP funds?

Contractors would not be part of your loan forgiveness if you pay them. The SBA clarified this in the Interim Final Rule. If you pay your contractors, these amounts would be not be forgiven and would be included in your PPP loan amount.

We did pay deferrals, is this covered in the loan forgiveness when we pay it back to employee?

In the absence of further guidance from the SBA, we are assuming that actual disbursements made as eligible payroll costs to employees during the 8-week period (cash basis) will be eligible for consideration in the loan forgiveness calculation. We recommend again discussing this and other items with your Lender prior to end of the 8-week loan forgiveness.

For employees with salaries over $100,000, is the excluded amount only the salary portion or does it include any related benefits paid for employees (medical/dental)?

The exclusion of compensation in excess of $100,000 annually applies to only cash compensation. It does not apply to non-cash benefits.

I am curious on our “utilities” expenses, is it amounts paid during the 8-week period, or do they have to be fore “services” rendered during the 8-week period?

An assumption has been made that non-payroll items represent funds actually disbursed (cash basis) as compared to obligations incurred (accrual basis). We are still waiting on further guidance for this from the SBA. It’s recommended to work with your lender to see if they will provide additional clarification.

If you prepaid health benefits prior to your PPP funds arriving, can you allocate the benefits for the same period within your 60-day timeframe?

An assumption has been made that non-payroll items represent funds actually disbursed (cash basis) as compared to obligations incurred (accrual basis). We are still waiting on further guidance for this from the SBA. It’s recommended to work with your lender to see if they will provide additional clarification.

If you didn’t click the box for rent on your original application calculation, can I use it for forgiveness anyway?

Yes, you can include you rent expense in the loan forgiveness calculation. However, no more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.

If we only bring back 50% of our employees, how is the total payroll amount calculated to make sure we did not deduct more than 25%? Is it an average per employee?

The loan forgiveness reduction related to salary reductions of greater than 25% is only applied to a) those employees you pay during the 8-week period who had less than $100,000 of compensation in 2019 and then only those employees who have had a prorated, annualized reduction of greater than 25% compared to their compensation in the most recent full quarter (for example, Q1 2020). Salary reductions in excess of 25% reduce the loan forgiveness. The salary reduction test is applied on an employee by employee basis. Note that a Borrower may further address loan forgiveness reductions if they restore compensation for employees affected by June 30, 2020.

If we open a bank account specifically for the PPP funds, should we tie this account to our payroll provider and run payroll from it during the allowable 8-week period?

There are payroll items that are not allowed to be used with the PPP funds. It is best to create a payroll reconciliation for each payroll. The reconciliation should include allowable payroll expenses and non-allowed funds.  After each pay period transfer the allowable funds from the PPP bank account to your operating bank account.

Additional Resources

 

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

 

Updated as of May 1, 2020

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