UPDATE: THIS POST IS ALMOST A YEAR OLD AND NO LONGER IS USEFUL INFORMATION.
(Way too many folks are landing on this page and I want to dissuade them from using this as a reference — there have been so many changes to the PPP since this was published. Make sure you restrict any internet searches to posts made in the past month!)
I’m getting this question a lot:
I have someone telling me that they can use all 100% of their PPP for payroll instead of the 75/25 rule of payroll/rent+utilities. Is that correct?
Yes, it is — and yes, you absolutely want to include all of your payroll costs in the forgiveness application calculations!
Some folks are in the situation whereby they have more payroll costs than 75% of the loan will cover. In fact, in some cases, the entire PPP loan — 100% — will be used on payroll costs. And that’s a good thing when it comes to requesting forgiveness, for reasons I’ll explain.
In my firm, for example, I’m paying staff tax-season rates right now, and I have a new employee as of January 2020… but my loan total was calculated based on the average of all of 2019 — so it’s much lower than my actual current payroll costs. I’ll be using 100% of my PPP funds for payroll (and then some). By including all my payroll costs in the forgiveness application and projection calculations, I don’t have to worry about going to the effort of submitting rent/mortgage interest and utilities costs (which are very low for me anyway, as my staff is entirely work-from-home).
But it’s not just a matter of having low overhead and not wanting to spend administrative effort to gather mortgage interest and utilities cost substantiation… it’s more importantly because for forgiveness, we’re all aiming to hit three important tests: the FTE reduction, wage/salary reduction, and 75% of forgiveness hurdles. These are all based on payroll measurements, so it’s best when plugging in your forecasting calculations to first include all the payroll you can… and then just make up the difference with non-payroll costs. The total forgiveness cannot exceed the loan total, so there is no harm in taking this approach.
It is, after all, a Paycheck Protection Program.
Reminder: owners themselves (be they sole proprietors, partners, or shareholder-employees) cannot have more than 8/52 of their 2019 compensation forgiven for PPP purposes, which does mean that for a business owner with no employees, they will not be able to use 100% of the funds for payroll. But for everyone else, yes!
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I’ve been doing regular 40-minute free zoom sessions for my clients for a couple months now, mostly centering on questions concerning PPP & EIDL applications and forgiveness.
1) I have taken six webinars on the new PPP forgiveness rules in the past week — and gotten six different interpretations. They vary widely, on topics such as the EIDL advance subtraction, incurred and-vs-or paid, what an acceptable utility is… as well as some flat-out mistakes (such as including owner compensation in FTE/wage reduction calculations — this is simply not okay). There was even one where the person doing the presenting and the person answering questions in chat were conflicting with each other. So keep in mind that just because someone (including me) sounds confident — this does not mean they are right. They’re just AN expert… there is currently no such thing as THE expert. Just do your best with the information you have — the smartest approach to take is to do whatever you can to make it easy for your banker to just glance at your substantiation and decide it’s sufficient to support your calculations, whatever interpretation you choose.
2) This tool is a DRAFT. For one, there are some small errors in it that I’ve reported to the AICPA; but more importantly — we know this guidance is going to change. In fact, there is pending relief legislation in Congress (to extend the forgiveness period or remove the 75% rule) that may render most of what we’re doing now useless (including the fact that we don’t yet know when we’ll be submitting anything for forgiveness).
However: some folks are more than half-way through their forgiveness period and we have to plan based on the law as it stands now… and hitting the FTE reduction, salary/wage reduction, and 75% of payroll tests is hard. So as a tool for forecasting, as well as establishing your goals and gauging your progress, I encourage you to fill this spreadsheet out to the best of your ability, so you aren’t surprised by a large loan balance at the end of this.
3) Remember, you will only fill out the sections on the application that are highlighted in BLUE. The spreadsheet bases all calculations on that data. Grey fields are calculated, and green are ones that pull from data you entered elsewhere. The instructions aren’t entirely complete, and there are a couple small errors, but it’s still the best tool I’ve found out there (including my own). The spreadsheet formula cells are locked, but you can resize any areas you need to in order to view the full content. Lastly, it seems maybe folks with Macs or using cloud spreadsheet software may have challenges getting their systems to recognize it’s not read-only.
Best of luck, and I’ll try to post other examples for other entity types as time allows.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The Small Business Administration gets some kind of perverse joy out of releasing guidance on Friday nights. Last week, it was the new PPP loan application, and this week, it’s the guidance to accompany it.
The Journal of Accountancy did a nice job summarizing each of the new documents on Monday — I definitely recommend reading their brief write-up under the heading “Provisions of note in 2 new interim rules”.
Accrued interest will be forgiven with the rest of forgiveness (no guidance on interest calculation for partial forgiveness) (page 7)
Still no confirmation one way or the other re: EIDL advance subtraction (page 8) — is this only for EIDL advances that meet the characteristics outlined in the CARES Act, or all EIDL grants?
Paid OR incurred (not paid AND incurred) — which means unpaid costs from prior periods are in fact eligible (page 9)
Supplements to salary/wages are included: e.g., bonuses, hazard pay, and additional wages paid to replace tips (except to owners in excess of 2019 income) (page 11)
Payroll to furloughed employees is included (page 11)
Owners are limited to 8/52 x 2019 compensation (shareholder-employees can also include health insurance and retirement employer contributions, but not Schedule C sole proprietors or partnership partners)
Otherwise not limited to 8/52 of costs (except owner payrolls) (page 12-13 utility example)
Prepayments are allowed (only mortgage interest specifically excluded) (page 13)
Salary/wage reduction (page 19) appears to take hours-worked into consideration for salaried employees — but heads-up: that is not reflected in the AICPA workbook
Similarly, loan forgiveness will not be reduced for exemptions (page 22), but only an FTE solution is offered; I suspect this means that for the wage reduction spreadsheet, only employees working during the 8-week forgiveness period should be included. (I’ll be asking AICPA to clarify this in the instructions.)
And although not new, I felt they drove home the point that we should make sure to maintain written records of any employees who voluntarily resigned. This will be part of the documentation when substantiating the forgiveness application.
There will be an opportunity to respond to SBA questions regarding loan forgiveness substantiation before a decision is made (page 9)
There will be an appeal process if eligibility is denied by SBA (page 10)
The lender will have to review but not audit (independently verify) all documentation and calculations supplied by the borrower, before submitting to SBA
The lender may rely on third-party payroll processor records (not required to review source data unless these records are not available) (page 11)
Lenders may rely on borrower representations, but must confirm calculations and substantiation (page 12)
No date yet by which forgiveness application is due – but bank then has 60 days to submit to SBA and SBA has 90 days to respond (page 12) …so it could easily be well over 5 months before you find out whether you got forgiveness.
In summary, I’d say some of these were already clear from the forgiveness application but they finally put it in writing; and some actually confirmed something I could only guess at before; but a few examples actually drove home some important new — or previously vague — points; others were just confirmation that we still don’t know some things, such as the all-important EIDL question.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
UPDATE: AICPA has partnered with a Fintech lender to create an online version of their forgiveness tool — www.PPPForgivenessTool.com — available free of charge. More on the project here. The spreadsheet below still works, and I personally prefer it, but the online tool is easier to use if you don’t already have background into how the PPP rules work.
My husband and I have collectively spent nearly 18 hours preparing, updating, editing and testing our PPP Forgiveness spreadsheet, as well as comparing it with colleagues’ versions… only to be stymied at every last moment — each time we were ready to “go live” with it, some new guidance, analysis or interpretation was released that had us going back to the drawing board. At this point I’m joking with my clients that it’s a mythical creation.
And it might have to stay that way — the AICPA has done such an incredible job with their version that I’m not sure we can do any better.
It’s not pretty, and it’s a bit clunky, and there’s no budget tool or FTE calculator included — but the logic is sound and it does a lot of the calculations for you. And they’ve made it public! Just scroll down to where it says “PPP loan forgiveness calculator“.
CPA Practice Advisor notes, “As the AICPA has emphasized throughout this process, questions surrounding guidance make critical decisions unnecessarily challenging and complex for PPP loan recipients and those who are considering applying for the program.” They created a loan forgiveness calculator last week that reflected both the latest SBA guidance and additional AICPA recommendations, and presented it to Treasury. Unfortunately that was not the version that became the final application (released this past Friday night).
“The AICPA loan forgiveness calculator provided more support and details than the SBA loan forgiveness application, and we will continue to encourage Treasury and SBA to leverage our recommendations,” said their VP of Firm Services.
So they reconciled their previous version with the forgiveness application, released it to the public — and you should use it.
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Because some politicians involved with the drafting of the forgiveness rules had been saying on twitter that a longer time-frame and more flexibility on how the funds can be spent were key to making the PPP more effective, we had been hoping for an application reflecting these characteristics — but it did not turn out that way. The entire thing at this point feels like “too little, too late”.
What Were Hoping For But Did Not Get (The Bad News)
An extension to the 56-day (8-week) forgiveness period (at least for restaurants, bars, cafes and other fully- or partially-closed businesses)
Simplified rules for FTE and salary/wage reduction calculations
EIDL advance funds used for non-PPP purposes exempt from forgiveness subtraction (per analysis by many colleagues, this is still the case; but on the application it is not apparent, and many banks will not understand the subtle distinctions)
What We Did Get (The Good News)
Unpaid rent and utilities from a period prior to forgiveness can be paid during the forgiveness period
Rent and utility payments made shortly after the forgiveness period can also be included, if for services during the 8-week timeframe
Forgiveness period — as it relates to payroll costs (including employer portion of health insurance and retirement) — can be delayed to coincide with the first pay period after disbursement
If an employee was fired, quit, or voluntarily had their hours reduced due to non-pandemic reasons, their FTE and salary/wages will not count against the employer
Safe harbor for salary/wage reduction (however, additional complicated calculations are required)
Safe harbor for FTE reduction (however, additional complicated calculations are required)
Clarification on various calculations (e.g., FTEs, forgiveness phase-out, and forgiveness reductions)
There is a lot more to unpack, of course, but those are some highlights. I recommend the following excellent articles for step-by-step explanations and analysis (no, I do not have any affiliation with Forbes — I just think they are writing some of the best material on the topic these days). Also, many thanks to colleague Andrea Carr CPA for preparing a Fillable Version of the SBA PDF Forgiveness Application.
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No, I have not analyzed it yet, and my birthday is this weekend, so please understand that I may not have feedback on it until Monday. (Unless it keeps me up all night obsessing over it.) Thanks for your patience!
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
ABA Banking Journal reported last night that the SBA has updated its Payroll Protection Program FAQ confirming that PPP “borrowers who attempt to rehire employees that were laid off will not have their loan forgiveness amounts reduced if those employees decline the offer to return to work”.
The exact wording of FAQ #40 is here:
This is huge news for some of my clients who run restaurants, cafes, retail, and other types of businesses where working remotely is not an option, and where working conditions are cramped and staff are unable to maintain 6-foot social distancing. Understandably, some employees are hesitant to return to a job that puts their health and the health of their families and communities at risk, especially if those staff members or their loved ones are immuno-compromised.
There has been a lot of political talk about this situation, criticizing furloughed employees for this choice, but let’s all try to remember that the only folks making more money on unemployment are generally earning less than $45,000 annually — and these are the people we’re asking to put their lives in danger for our economic benefit. It’s not exactly a fair criticism, in my opinion.
That said, it certainly negatively affects the small business owners I serve, and I have been challenged by these dual needs pulling my heart in opposite directions, as I can empathize with both perspectives. The business needs to spend 75% of the PPP funds on payroll, and maintain 75% of the prior full-time-equivalent hours for their staff. So if staff are unwilling to return, then the entire PPP forgiveness is put at-risk.
This new FAQ lifts that burden for employers, which I applaud. It does make it clear that the unemployment benefits for those employees may be in jeopardy as a result, but at least the owner does not have to shoulder the burden of being the bad guy who reports them (at least, not according to this FAQ — state unemployment laws may have other requirements).
Two recommendations for business-owners who receive PPP funds and are challenged by this situation, where former employees do not want to return to a risky work environment because they are making enough on unemployment:
Offer returning staff a hazard-pay bonus to make it worth the risk. Obviously this isn’t an option for those who are immuno-compromised, since no amount of money is worth their life; but for everyone else, consider increasing their pay temporarily with weekly retention bonuses. This will increase company loyalty, help meet the 75% payroll rule for PPP forgiveness, and assist in rebuilding the business. You can easily set up a “Hazard Bonus” payroll item in your payroll software.
Point out to staff that returning to work will leave them additional unused weeks of unemployment pay for future use, if the business ends up having to close again after the PPP funds are exhausted.
Finally, some good news. Awaiting further guidance on PPP forgiveness and will be posting more as I learn more.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
UPDATE 6/10/20: Sec. Carranza indicated today that new EIDL applicants will begin to be accepted next week — they are still working through the queue of previous applicants, but as they get a handle on that, the system will be available again (currently it is only available to farmers). I have a client who applied on April 8th who received their loan this past week, so I can confirm that they really are still in-motion… when you see money suddenly show up in your bank account with “SBA TREAS” in the description, that’s probably it.
As of 11:15 am Central Time, April 27th, this is the news (above) from the SBA website on Economic Injury Disaster Loan (EIDL) funding. To me, it sounds like they’re saying that unlike the PPP, the EIDL did maintain a queue of existing applications. More to come soon — check back on their website regularly.
Gusto recently released a solid, comprehensive write-up on the EIDL with step-by-step instructions on how to apply. Check it out.
I’m also getting a lot of questions about random amounts that are showing up in the accounts of folks who applied for both EIDL and PPP — so here are a few tips:
Remember, the EIDL funding comes straight from the SBA, not a bank, and so the bank feed description will usually read something like “SBA Treas.” Whereas PPP comes from the bank through whom you applied.
Also, EIDL funds tend to be even numbers, whereas PPP funding is more often for odd amounts (and you’ll usually know what this is before the amount arrives).
You will always have to sign for a PPP loan before it is disbursed. Whereas you may receive the EIDL advance with no paperwork beyond the initial application, and no notice ahead-of-time that it will be funded.
Presumably there should be less confusion between these amounts and the IRS Stimulus Checks, as those are for personal accounts, versus EIDL and PPP, which are for business accounts.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The popular and problematic Paycheck Protection Program is up and running again starting 10:30 am tomorrow, Monday, April 26th.
But given the number of client emails and texts I’ve received today on the topic, I realized that there is still a lot of confusion about what a small business’s next steps should be. So here are a few urgent reminders:
Apply Today — Do Not Wait Until Tomorrow
The SBA is opening their e-Tran system Monday, April 26th at 10:30 am — that’s when banks and other lenders are able to begin submitting their completed application packages from customers. In other words, don’t wait until tomorrow to apply. Make sure your bank has your information ready-to-submit the moment e-Tran goes live. If you haven’t already applied (or cannot find out the status of your existing application), get your completed information to your (possibly new) chosen lender today. This means pull together all your documentation now and submit it in one package. Do your banker and yourself a favor and avoid delays that will require them to follow up with you for missing information.
Confirm Status of Existing Applications
Because the PPP has gone through so much flux and so many iterations and guidance/ FAQ releases, a lot of early applications seem to have gotten “stuck” — the banks were not prepared for how to communicate with so many customers at-once, so in cases where there was missing documentation, some applications were held up in limbo. Most banks have been working through those piles frantically since the program ran out of money, in order to be ready for the second tranche — but if you have not yet heard from your lender about the status of your application, it’s time to check in with them now. Many banks, including Chase, have (finally) included a link to application status information on the customer landing page (you must sign in first).
If you have access to a real human being, such as a branch manager or loan officer, try reaching out to them if the usual channels aren’t working. I had one client show up in-person one morning when the bank opened — they initially told him they couldn’t assist with PPP issues; then he explained his unique situation, and it turned out they were able to fix the problem. But please remember — I beg you — that these are real people. They are overworked, are sometimes given poor training, do not have enough hours in the day to analyze the constantly-changing guidance thrown at them, and are often being forced to come into an office without sufficient PPE or social-distancing opportunities. They are exhausted, anxious, and yelling at them will not help. It’s not their fault that Congress wrote a sloppy law that allowed multi-million-dollar companies to access money that was theoretically meant for you. Be nice.
Apply With Multiple Lenders If Your Application Has Stalled
There has been a lot of confusion here — the rules still aren’t quite clear. According to many unofficial sources (most of them lenders), you may apply with multiple companies. What the law indicates is that you may not accept more than one loan.
So there’s a lot of complexity here. Obviously, applying with multiple lenders clogs up the system for other applicants. And while multiple applications aren’t against the rules, some banks are claiming that they could result in applications being voided or delayed.
But if not all lenders — and not all staff processing these loans — are created equal, then why should you be penalized because your bank (or more likely, your small business department within your bank) doesn’t have its act together? My advice (unofficial “don’t sue me” advice), at least to my own clients, is that if your bank isn’t communicating with you — if you don’t know the status of your existing application and have no idea if it’s even being moved forward — then by all means reach out to one or more other lenders.
From Brit Morse in a recent article in Inc.: But that doesn’t mean you should only apply at a single lender. The chaos of the program’s roll out along with the fact that different banks have deployed different resources and processes to address the influx of these loans, might necessitate applying at multiple lenders.
Also, for clients using the Gusto payroll platform, they have been offering since almost the beginning to connect its customers with lenders. Go here and then sign in — you’ll be given the option to submit your info.
Cross River Bank – I have had folks reporting good success with them. Divvy – Fintech company that has access to multiple lenders. First Bank Fulton Bank Fundera – I have had folks reporting good success with them. Fintech company that has access to multiple lenders. Funding Circle – Fintech company that has access to multiple lenders. Kabbage – Fintech company that has access to multiple lenders. Solera National Bank Womply – Fintech company that has access to multiple lenders. Zions Bank
If You Need The Money, Apply — Even If You’re Late To The Game
This second round is expected to go quickly, but don’t let that discourage you from applying. Rob Scott, a regional administrator for the SBA, told CNBC that “If someone didn’t qualify or didn’t apply, they should absolutely apply for the second round.” (Of course, this is insensitive blockhead who also said, “Overwhelmingly, the funds have been used for what it has been intended to do,” Scott said. “There are outliers. There are outliers in every program.”)
The SBA did not maintain a queue after money for the first tranche ran out — any application that was in-process was dumped. So when lenders go to the e-Tran system on Monday, they’ll be evenly-matched.
We have no way of knowing how long this disaster will last, and whether there will be a third wave of funding at some point. From Business Journal Daily: “Whether there is a third round of funding – Bank of America has suggested it would take $900 billion in relief to get all small businesses the money they need – will likely be determined closer toward the end of the second round.”
This will give you an opportunity to build a relationship with a lender that may prove helpful in the future in ways you can’t predict.
Forgiveness? Not So Fast.
I keep working on a spreadsheet to help my clients determine how best to spend their PPP funds for maximum forgiveness — and it keeps changing with each morsel of guidance we receive from the Treasury and SBA. For now, just know that for businesses that already received their funds, the SBA is working on developing the guidance for how business owners will prove they retained staff to have their loan forgiven. I’m sure I’ll be posting plenty on that here on my blog in the upcoming weeks.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
From the American Bankers Association at 8:52 am on April 25th:
With the Small Business Administration reopening its E-Tran system for Paycheck Protection Program applications on Monday morning, SBA last night issued guidance to help borrowers and lenders calculate and document the maximum PPP loan amount a business may be eligible for. The guidance covers several situations about which lenders have sought clarity.
The guidance addresses calculations and documentation requirements for applicants that are:
Self-employed with no employees.
Self-employed with employees.
Self-employed farmers who report income on Schedule F.
Partnerships.
Subchapter S and C corporations.
Nonprofit organizations.
Eligible nonprofit religious organizations, veterans’ organizations and tribal businesses.
Limited liability company owners.
“Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules,” SBA added in the guidance. “The U.S. government will not challenge lender PPP actions that conform to this guidance and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the time.”
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
