GBQ’s COVID-19 response team provides answers to questions submitted during the webinar COVID-19: SBA PPP Loans – Update on the PPP Flexibility Act of 2020 presented on June 8, 2020.
Covered Period
1. With the time period being extended up to 24 weeks or 12/31/2020, can we extend it a few more weeks to use all of the money we borrowed, but end it before 12/31/2020?
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- The Act says the covered period can be extended to the earlier of 24 weeks or December 31, 2020.
2. Do we have the option to choose a covered period of time between eight weeks and 24 weeks? For example, if we have exhausted the funds on week 12, can we apply for forgiveness then or do we have to wait until after the 24-week period ends?
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- The Act says the covered period can be extended to the earlier of 24 weeks or December 31, 2020.
3. Is the 24-week option available for everyone, even if almost at end of eight weeks?
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- Yes, the eight-week period is automatically extended for existing loans.
4. What is the advantage to keeping it the eight weeks and not extending to 24 weeks?
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- Please refer to the following link.
5. I’m halfway through my eight weeks. Do I have to choose to go to 24 weeks and is it either eight or 24 or can I apply for forgiveness say in ten weeks or 17 weeks?
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- The Act says the covered period can be extended to the earlier of 24 weeks or December 31, 2020.
6. Does the 24 weeks change from eight weeks mean that I can use payroll/benefit calculated spent during the 24 weeks?
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- Yes, your forgiveness is based on what is spent over the 24-week period.
7. Are new applicants going to get 24 weeks of funding?
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- There is nothing in the PPP Flexibility Act that changes the calculation of the loan amount.
8. When do you have to decide if you want to use the eight-week period?
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- We think you can decide when you file for forgiveness. So, you could plan on using the 24 weeks and then go back to eight weeks, if that ended up being more advantageous. There hasn’t been any indication that you will have to “declare” your intentions at any point before filing for forgiveness.
EIDL
9. I understand that EIDL proceeds cannot be used for the same type of expenses (e.g. payroll, rent) that are used with PPP loan. What is the time period that you need to spend the EIDL proceeds?
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- The terms would be based on the loan document provided by the SBA.
Forgiveness
10. For the eight-week original date, is forgiveness requested before or after the eight-week date?
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- You apply for forgiveness after the eight weeks. We would encourage you to contact your lender to find out when they will start accepting applications for the eight-week period.
11. Will there be a new loan forgiveness application to include the 24-week period?
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- A revised loan forgiveness application was issued on June 16, 2020. However, no additional guidance has been issued since the PPP Flexibility Act. Click here.
12. Can we still use the 75/25 or do we have to do the 60/40?
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- Sixty percent allows for a lower threshold for payroll costs required to be spent in order for the loan to be eligible for 100% forgiveness. There is no penalty for spending more than 60% of the loan proceeds on the payroll.
13. Can you spend 100% on payroll during the 24 weeks?
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- Yes, you can spend the entire loan amount on the payroll. If you can get to 100% of your loan using “just” payroll, it probably makes the forgiveness application easier because you will not have to provide documents supporting all of the other payments.
14. Under what circumstances would it be better to use the eight-week period rather than 24 weeks? Is it only for those who can easily spend all the funds on forgivable expenses in eight weeks?
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- Please refer to the following link.
15. Can you expand on the “minimum loan maturity of five years, but a maximum of ten years”? What differentiates the actual term? The lender?
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- The PPP Flexibility Act allows the borrower to negotiate the terms with the lender.
16. If you end with your eight-week period could you still take advantage of other provisions (i.e. extend loan repayment period)?
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- The PPP Flexibility Act allows the borrower to renegotiate the loan with the lender.
17. If we decide to limit our loan to the original eight-week period, but won’t end up using all the loan, can we pay back what we don’t use right away at the end of the eight weeks and get 100% forgiven if we use at least 75% of the amount of the loan that we actually use on payroll and the other 25% on allowed utilities, etc.? We are in a situation where we may use $300,000 of a $400,000 loan for example and can meet $225,000 on payroll and $75,000 on other covered expenses like utilities. Will we get 100% of what we use on payroll and covered expenses forgiven and we can return the extra money with interest?
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- Based on the clarification made on June 8, 2020 by the SBA and Treasury, the minimum amount of forgiveness can be determined by taking the amount spent on payroll costs and dividing by 60%. The formula for forgiveness is no longer considered a “cliff” of requiring at least 60% of the loan amount being spent on payroll costs.
18. The 60/40 versus original 75/25, will that apply if you elect the eight-week program or only for the new 24-week program?
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- There does not appear to be any choice on the 60/40. It applies to either the eight or 24-week period.
19. If you are able to recover 90% of staff, is the 10% reduction applied to qualifying funds spent or is it a 10% reduction to total loan amount can be forgiven?
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- The reduction would be based on the funds spent. Any unspent portion of the proceeds would need to be paid back or it would need to be turned into a loan.
20. What’s your read based on the application so far?
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- A revised loan forgiveness application was issued on June 16, 2020. However, no additional guidance has been issued since the PPP Flexibility Act has been issued. Click here.
21. If you elect the 24-week forgiveness period, then does the cliff apply, or can you still choose the 75/25 ratio and get partial forgiveness?
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- We believe the 60/40 ratio applies to either the eight or 24-week periods.
22. With the eight-week election, does that also come with the 60/40 cliff or does the 75/25 still apply?
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- We believe the 60/40 ratio applies to either the eight or 24-week periods.
23. What if the PPP loan is 90% spent on payroll costs? Any limitations?
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- There is no maximum limit on payroll cost spend, just a minimum of 60% of the amount you request for forgiveness.
24. We brought employees back on payroll for the eight weeks of our loan, but can’t hold them on the payroll through the end of December. What happens if we have a 15% FTE cut if I furlough them again after our loan period ends 6/19?
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- There are currently no penalties regarding what you do after your Covered Period. This assumes you are not subject to the FTE reduction penalty during the eight-week period.
25. If we lay off a couple of people because of the slow workload come back, will that hurt loan forgiveness?
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- The PPP Flexibility Act has provided additional relief for the FTE calculation. Forgiveness can be achieved without regard to reduction in FTEs, if there is an inability to return to the same level of business as of February 15, 2020, due to compliance with federal requirement or guidance related to COVID-19. However, the Act did not define how business activity will be measured.
26. Will the FTE calculation be done at the end of the 24 weeks or on December 31st?
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- The new loan forgiveness application dated June 16, 2020 notes the FTE calculation is based on the earlier of December 31, 2020 or the date of the loan forgiveness application.
27. If I have had to reduce my dining capacity by 40%, does that mean my FTE calculation will also be reduced by 40%?
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- The PPP Flexibility Act has provided additional relief for the FTE calculation. Forgiveness can be achieved without regard to reduction in FTEs, if there is an inability to return to the same level of business as of February 15, 2020, due to compliance with federal requirement or guidance related to COVID-19. However, the Act did not define how business activity will be measured.
28. Does the eight-week period enable you to do the FTE calculation during that eight-week period or 24 weeks?
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- We believe that if you are using the eight-week period, the FTE count would be based on the eight weeks.
29. For your loan forgiveness calculation amount, are your FTEs on the last day of your covered period the number of FTEs that are placed into the numerator of the FTE reduction calculation?
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- No, the numerator is the average of the FTEEs from each payroll during the covered period.
30. Is there a limit as to how long an employee needs to be on the payroll to count as an FTE? Can I hire an employee for the last week of the covered period and count them?
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- An employee counts for each pay period that they are an employee. The FTEE average during the covered period is based on the FTEE count for each payroll, so adding an employee in the last payroll period will help, but not on a one-for-one basis.
31. For the FTE measurement, can an employee who voluntarily termed or was termed with cause be excluded from each measurement period?
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- Employees who fall into the categories you mentioned are “added back” when calculating the average FTEE during the covered period. So they are not really “excluded”, but you are also not “penalized” for those employees that were reduced for the indicated reasons during the covered period. If the employee was replaced, you cannot double dip on this position.
32. Is the safe harbor on December 31 based on “capacity” due to state restrictions, or can it be based on reduction in revenue based on the impacts of COVID-19?
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- Business activity has not been defined, but it would seem to include both “capacity” and reduction in revenues as they are interrelated. We are waiting for further guidance on this.
33. Are the FTE calculations the average of each pay period over the measurement period?
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- Yes, that is correct.
34. Regarding the cure date, what if we are a seasonal business? For example, February is one of our slowest months while December is one of our busiest. So even at significantly reduced capacity, December could still be better than February.
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- Per the CARES Act and original loan forgiveness application, borrowers could elect, either (i) February 15, 2019 to June 30, 2019; (ii) January 1, 2020 to February 29, 2020; or (iii) in the case of seasonal employers, either of the preceding periods or a consecutive 12-week period between May 1, 2019 and September 15, 2019. As far as the impact to seasonal employers with the PPP Flexibility Act now in place, this is an open question that GBQ has as well. We are waiting on additional guidance.
35. Are there any exempt transactions from the FTE test, such as selling a division with employees instead of laying them off? Therefore, they keep their jobs.
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- We do not believe there is an exemption, as the employees will not be paid by the borrower who received the PPP loan, so it would make sense that the forgiveness amount would be reduced. There are other FTE exemptions allowed, but not for selling a division.
36. Is the headcount cure date determined regardless of the end of the eight or 24-week period – meaning June 30 (or possibly Dec 31)? Confirming you do not use the end of the covered period to determine headcount. Basically, a company cannot lay employees off right after their covered period and avoid a headcount reduction.
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- The new loan forgiveness application dated June 16, 2020 notes the FTE calculation is based on the earlier of December 31, 2020 or the date of the loan forgiveness application.
37. How should employees who are on FMLA be treated?
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- Maternity leave would likely fall under the request for reduced hours, and therefore would qualify for the FTEE reduction exemption. There is no guidance on the FMLA and certain payments of leave are not eligible for payroll (those paid under the Families First Act), but there is not guidance on how the FTE calculation would be impacted.
38. What is the FTEE measure being applied to? Total loan or total spend during the 24 weeks?
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- The FTEE ratio is applied to the total payroll spend over the 24 weeks.
General
39. Borrower wants to pay off loan within the first 30 days or less. Does the lender collect accrued interest? I know 1502 reporting for paid loans is not set up yet.
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- Unforgiven interest will be paid to the lender.
40. If someone realizes they miscalculated (understated) payroll expense when requesting PPP funds, is it possible to request an amendment to the loan for an increase in the amount understated?
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- We recommend asking your lender.
41. Please mention again where the income tax dilemma issues newsletter could be found that came up.
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- Please refer to the following link.
42. Can we request additional money for our loan to cover 24 weeks?
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- There is nothing in the PPP Flexibility Act that allows for additional loans. The formula based on 2.5 months of payroll was not changed.
Non-Payroll Costs
43. Is there any clarification on what makes up the transportation costs that may be used as part of non-payroll?
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- The Act did not provide any additional guidance related to transportation costs. We believe it means fuel costs and mileage reimbursement.
44. Can you be forgiven on interest paid on a term loan from the bank? For example, that is collateralized by capex.
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- Per the CARES Act, the definition of “covered mortgage obligation” means any indebtedness incurred in the ordinary course of business that is the liability of the borrower; is a mortgage on real or personal property, and was incurred before February 15, 2020.
45. I wasn’t sure if it was all interest on debt (for example a LOC), or would it have to be a collateralized loan?
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- Per the CARES Act, the definition of “covered mortgage obligation” means any indebtedness incurred in the ordinary course of business that is the liability of the borrower; is a mortgage on real or personal property, and was incurred before February 15, 2020.
46. Are CAM and property taxes included as “rent for forgiveness”?
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- We believe the guidance only includes rent and does not include CAM or property taxes. We are hoping for clarification, as many NNN leases include all of these components.
46. We have meal drivers who use their own cars to deliver then charge us for mileage. Please check with your experts if that can be counted as utilities – category – fuel. How about staff working in the field – homemakers, personal care, social workers who travel to client homes?
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- We believe mileage can be included as transportation expense.
Payroll Costs
48. Can you include worker’s compensation premium payments as payroll costs?
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- We believe workers compensation premium payments can be included as part of payroll costs.
49. How are retirement contributions viewed (specifically for an ESOP)? If a contribution for 2019 is paid in whole during the covered period, would all of this contribution qualify for forgiveness or would the payment need to be annualized?
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- While there is not any specific guidance, we believe that if it would be reported as retirement on your financial statements, normally it would be forgiven. Further, if your bank approved your loan based on inclusion of the retirement contributions it is good evidence they will include it on the forgiveness side.
50. To count the 24-week period, would we consider the beginning of the first payroll period date after funding, like before?
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- The 24-week period would include the first payroll paid during the 24-week covered period. The first day of the covered period is the date of your loan disbursement or if you’ve chosen the alternate payroll covered period, the first day of the payroll period beginning after the loan disbursement date.
51. Is ER retirement limited to 8/52 like owner comp, or how much can you match if you have not yet sent funds for 2020?
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- If the cost has been incurred, then the expense can be included in the forgiveness calculation. However, you cannot prepay expenses. We are still waiting on further guidance as it relates to the limitation – some lenders are indicating only 8/52 can be included. Also, you may want to consider making a payment earlier to avoid having to wait to file for forgiveness as the amount needs to be paid before filing for forgiveness.
52. Can payroll costs include Ohio BWC payments, even though we did receive a dividend from Ohio BWC recently?
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- We believe Ohio BWC premiums can be included in the payroll calculation.
53. I am planning to pay the total BWC premium for 2020-2021 next week. Can I report the total to forgiveness since I paid it in June within the eight-week period?
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- If the cost has been incurred, then the expense can be included in the forgiveness calculation. However, you cannot prepay expenses.
54. Retirement benefit – Can I take the total 2019 ER contributions paid out in April, prior to our loan approval, and calculate 8/52 of the 2019 contributions to accrue? The payments are always made the following year after testing is performed.
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- Because 2019 contribution was paid prior to the loan approval, 2019 expense/payment is not eligible; however, if you are using 2019 to estimate the 2020 contribution, then you can include the related 2020 contribution so long as it has been paid. You may want to consider making a payment earlier to avoid having to wait to file for forgiveness, as the amount needs to be paid before filing for forgiveness.
Payroll Taxes
55. If you opt to defer employer portion of SS taxes, is that an allowable deductible expense in 2020, or is that moved to the year that it is paid out?
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- The expense can only be deducted during the year it is paid, so if it’s deferred to post 2020, it would not be deductible. Please refer to the following link.
Self-Employed
56. For single-owner businesses and self-employed individuals, do they just make checks out to themselves or how do they show payroll? For example, those who received 1099 forms.
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- We believe writing consistent checks on a weekly or bi-weekly basis would suffice to show pay to self-employed owners.
57. When will self-employed guidance be issued on loan forgiveness calculations?
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- Please refer to the following link.
Wage Reduction
58. Our tipped employees make $4.35/hour. If their tips are not back to the February 15th, will that be considered a wage reduction?
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- Please refer to the following link.
59. Is the “wage reduction penalty” only relevant to the calculation of the Average FTE calculation?
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- The wage reduction penalty is separate from the FTEE calculation. The FTEE ratio reduces forgiveness based on the reduction in the number of employees. The wage reduction penalty is incurred if the annual or hourly rate of pay is reduced by more than 25% during the covered period. Any employee whose hours are reduced, but remain at the same rate of pay, will impact the FTE calculation, but not also incur the wage reduction penalty.
60. We have decided to pay employees the tipped minimum wage with wage make-up where needed. With this approach, we are clearing the compensation measure and all employees are >75% of prior comp. When we complete the forgiveness application, do we report ONLY the wages paid (including any tip make-up) or the wages paid plus tips claimed by employees?
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- Please refer to the following link.
